How to Charge More for an Inferior Product

Wednesday, September 9, 2015

Every person with an MBA dreams of finding a way to charge a premium for an inferior product. Today I'll show you one way to do it.

But first, a story. For much of my consulting firm's existence, I hosted the corporate website on Digital Ocean. The firm has a stellar reputation for providing quality web hosting at rock bottom prices. I never had any unexpected problems at all. There were no outages, no billing mishaps, or miscommunications of any kind. The company provided everything that it had promised without error or complaint.

I recently cancelled my relationship with the firm and chose a different provider. My new host provides significantly less bandwidth to my visitors, less RAM to my pages and less control over the technical aspects of my site. It's also ever-so-slightly more expensive.

So why'd I switch to an inferior substitute? I had two reasons:

• Cost should never be measured in dollars alone. Though my original host was cheaper from an accounting perspective, it required a good deal of my time and attention. I was responsible for applying security patches, configuring software packages and checking my logs to detect hacking attempts. None of these acts provided value in and of themselves, and they diverted my attention from more profitable uses of my time. My new host neither requires, nor allows, me to perform these system administration activities. I now have more time for other matters.
• What I gave up held zero value to me. I wrote the code for my website from scratch (I do have a master's degree in software engineering). Tailored to be very light and efficient, the site doesn't need much ram or bandwidth. Even accounting for significant visitor growth, I would never need the capacity provided by the original server. As such, the "inferiority" was irrelevant to me, the customer.

I gave up raw power that I didn't need in exchange for simplicity. It's a trade that works well in many markets - take a look at my article on buying a chromebook for another example.

The good news is that simple is both easy and difficult. It's easy for small businesses and entrepreneurs to release simple products because (quite frankly) they lack the resources to produce complex ones. Meanwhile, it's terribly hard for large businesses to produce anything simple. Departments continually vie for internal power and must justify the salaries of their members. That means feature bloat and complexity become inherent in anything that they produce.

It's usually a mistake to fight a larger rival head on. A better option is to chip away at its business in a way that it can't fight back. Simplicity is one such method. Would you like some help with your business strategy? Then you'll certainly want to contact me for a business consultation!