The price value continuum: anything but?

Two recent events in vastly contrasting industries serve to bring the spotlight on a long suspected tendency of consumers to equate price with value. One was the  the recent conviction of a high profile wine dealer  who cleverly (but not overly so) slapped on labels of expensive vineyards on vanilla wine while the other was the second successful bid for replacement of fighter jets by the lowly priced but evidently highly valued Gripen jet from Sweden that beat out more marquee names.

Consumers rarely have complete information on most products and even services and use various strategies to fill the gaps in their knowledge as they consider them for purchase. Deciding on whether a product that is priced low is one of low value or not or whether one priced high is worth that tag or not often appears to flow from a seemingly inexplicable decision making process.   The success or failure of many a brand hinges on that process which essentially follows the zero-one law of probability which states that either an "event" will almost surely happen or almost surely not happen.

The (fraudulent) wine-merchant took the easiest route to hoodwinking his clients by forging labels for rare and pricey wines and then attaching those labels onto bottles filled with blends of much cheaper vintages. He thereby preyed upon customers penchant for exclusivity that made an inadequate allowance for real quality; that his customers were not parvenus but those with long-standing wealth and presumably taste did not serve to unmask him.

The Swedish jet maker had to overcome decades long inhibitions that determined, seemingly without corroborative evidence, that the more expensive a fighter plane the better it is. Its competitors, France's Rafale in particular remain incredulous that they lost out to an inferior product with one executive derisively referring to the outcome as the pick of a Fiat Punto over a Ferrari in a race.

In the service industry, consumers seem to be a bit more savvy as the experience of Hyatt Place demonstrates. Starting with a staple of some 150 hotels with the cumbersome name of AmeriSuites and languishing brand recognition the company rebooted and ramped up the product as Hyatt Place which it internally places lower down its totem pole where the Park Hyatt brand rules.  Nevertheless, Hyatt Place has proven to be the real race horse in the stable with remarkable growth.  Today it makes up nearly 35% of the company's total number of hotels worldwide. And in some cities, particularly New York, rates on the lower placed brand  on some days appear indistinguishable from the ones higher up in the pecking order.  Clearly the new entrant is up there in the price value continuum.

Published by

Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.