Price and quality are often viewed as two competing objectives. And that can very well be true. However achieving the optimum balance between the two can be the key to success. Focusing on differentiation in these two areas can have very different affects. Customers attracted through price differentiation will continue to price shop while customers gained through quality differentiation tend to shop around less.
Price differentiation can seem somewhat simple but the impact can be anything but. Offering lower prices than the competition can attract customers but can also increase the cost of customer acquisition as customer retention may be adversely affected. People who price shop tend to continue to price shop. Also, competing on price requires more attention to competitor offerings. Employing a price differentiation strategy results in slimmer margins because sales dollars are lowered and costs are increased. However if the resulting volume generates sufficient profitability then the strategy can be successful.
Quality differentiation can be an effective strategy but somewhat difficult to promote. The perception of what constitutes quality can be subjective and may vary from individual to individual. When competing on quality a specific definition is a must. Higher quality increases costs and therefore pricing will be higher. Customers will want to know what they’re paying premium prices for. Knowing the target market and focusing on what they consider important is the key to quality differentiation,