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The Downside of Price-cutting

Amid the pandemic, many companies are cutting prices for goods and services. While everything seems logical, the quarantine (lockup) taught us to optimize all processes and it seems like we should get more for less money. But is it really?
be-in-the-loop - The Downside of Price-cutting

Amid the pandemic, many companies are cutting prices for goods and services. Customers find this step positive. Everyone wants a quality solution with a discount.

be-in-the-loop - The Downside of Price-cutting

While everything seems logical, the quarantine (lockup) taught us to optimize all processes and it seems like we should get more for less money. But is it really?

Who does not pay whom and for what

In the middle of the last century, the American economist George Akerlof formulated the market principle, which was called the “theory of lemons” or “market for lemons.” Its essence can be shown with a simple example. You buy a used car without knowing all the intricacies of its condition. In this case, it is more profitable for the seller to “sell” you a defective used cars (“lemons”).

In turn, it becomes more and more expensive for a seller who sells a good used cars (“peaches”) to prove the quality of his car. As a result, a low-quality product replaces a quality one in the absence of cost reduction. After a while, you are happy to buy junk for a lot of money, and the seller is much happier that this junk product is being sold. But the main thing is that a quality product does not rise in price, but simply disappears, being dissolved in the general flow.

be-in-the-loop - The Downside of Price-cutting

The conclusion is quite simple: during this period of time, this situation looks attractive to the client. After all, now there is a rapid decline in the cost of guaranteed good-quality goods, and you can manage to grab this profitable bird by the tail. But this is the way to a significant decrease in the quality level with a return to past prices. Here it is still obvious that quality will suffer a lot.

The worst decisions drive out the best

not only the quality of things will suffer, but also the quality of ideas. After all, besides the economic one, this is a purely psychological law.

  • Cheap solutions will drive out expensive ones.
  • And, more importantly: artificially overvalued solutions will replace artificially underestimated ones.
  • Naturally, there will be a decrease in quality, and the cost will return to its previous levels.

What conclusions should be drawn?

The services may seem cheaper, but they already include optimization of options. We need to hurry. Perhaps, the inertia mode is still in effect, and you can “grab” it cheaper. But it is not exact. As a result, a quality service will significantly rise in price.

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