Anyone else tired of the same old stuff? Why are most consumers drowning in a sea of stock photos and boring product? Why do people call the floral industry a dying business? I don’t have a PHD in economics, but I think I know why…
Apparently the answer can be traced back to my time in Econ 101. Good thing I remember it well! According to Professor Crouch, the differentiation of goods along key features and minor details is an important strategy for firms to defend their price from leveling down and increase their customer spectrum. Umm, how exactly does that work? Let’s take it from the top.
If all consumers would have the same preferences, they would largely choose on one or a few versions of the product. But we all know this does not happen because consumers have unique, varied and situational-dependent preferences. For the consumer, product differentiation can increase their satisfaction, as the product better fits their needs, conditions of use and special purposes.
Product differentiation within a category of goods widens the decisions that a consumer has to make based on what they can afford and what could fulfill their needs. As a general rule, better products have a higher price, both because of higher production costs and higher expected advantages for clients. Thus, the quality-price relationship is typically upwards sloped. This means that consumers without their own opinion or the capability of directly judging quality may rely on the price to infer quality. They will prefer to pay a higher price because they expect quality to be better, which leads to greater margins for the merchant.
To sum up your economic lesson of the day, product differentiation softens price competition and exposes you to a larger group of customers. But you didn’t need Professor Crouch to tell you that. All you had to do is walk into your local ice-cream shop or favorite fashion mall. If everyone else is doing it, what’s up with the floral industry?