E Commerce - Low-Priced Product

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It is all known that if there are two same brand products with the same quality, all the people will choose the cheaper one. Low-priced products seem to have a huge advantage in the market competition, especially in the E-commerce. However, the low-priced product can be divided into two sorts, one is from the third-party seller, the other from the dealer’s discount.  

1. Product from third-party.

if we assume that we are under a perfectly competitive market with the same brand, same dealer, a low-priced product may lose its value, which means “Quality” otherwise the price cannot reach such low. According to Garvin, Five major approaches can definite of quality: (1) the transcendent approach of philosophy; (2) the product-based approach of economics; (3) the user-based approach of economics, marketing, and operations management; and (4) the manufacturing-based and (5) value-based approaches of operations management.”  (Garvin, 1984) However, if the discount comes from the dealer, which means the product’s quality can be warranted, this kind of product would win the market.

First, we assume that the price proportional to the quality. Then, choosing the product depends on the value of the customer, for example based on the length of time a unit remains in service. According to Jackon & Narasimhan,  “ The NGM model demonstrates that when the firm’s objective is to maximize cumulative profits under continuous quality improvement to the optimal price trajectory will initially increase and the decrease over time.” (see Figure 1)(Jackson & Narasimhan, 2010)

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figure 1: Price Trajectories for the Original NGM Model

Thus, when the company wants to maximize the profits, the price need to be changed with the unit remains. The low-priced product cannot always win the market not only because it’s price but also because it’s quality.

Second, the frequency of use also affects the customers’ will. If the products are the commodity, the buyer will not be willing to choose the low-quality one. However, if the products are not used every day, such as the hammer, etc. The price maybe the first element that the customer needs to consider, not the quality. Consider this situation, low-priced product might have some advantages in the market.