Saturday, July 23, 2011

Paying For Quality

Recently, I got an email in my inbox from a eye doctor offering Lasik vision correction "starting as low as $299 per eye."  While I have no interest in getting Lasik surgery at any price, this email got me wondering about what the price says about the doctor.  I know people who have paid several thousand dollars per eye, so a price as ridiculously low made me think of two possible scenarios:

Scenario One:

I walk into some back alley on the wrong side of town and enter a dark, dingy office (possibly a flourescent light buzzing and strobing).  The doctor walks in wearing a tattered lab coat and a demonic smile.  As he is about to perform the procedure, his hand starts to shake.  I ask him if he's okay.  He pulls out a flask from his coat pocket, unscrews the top, takes a swig, and says that he just needed a little nip to calm his nerves.

Scenario Two:

I sit down with the "sales consultant" and ask about the $299 special.  The sales consultant looks at me and says that, yes, they offer that deal.  That is their bronze package.  However, if I want, I can get the silver package which includes anethesia for "only" $999.  On the other hand, if I want a pre-op examination, post-op followups, eye drops for the inevitable redness and soreness, and a two-year waranty which covers subsequent procedures if they are necessary, I can either pay for those a la carte, or I can order their gold package for only $2999.

Now it could be that this doctor could be the greatest thing since sliced bread.  However, by advertising a cut rate price so prominently, I am left with the impression that he is either low-quality or there is a serious catch.  Neither impression is very good for business.

Economics 101 teaches the demand for a product increases as the price decreases.  This makes perfect sense.  A rational person is always going to want to pay as little as possible for a particular item.  When somebody offers the same product for less than the next guy, that person is going to generate more sales.  However, as my experience with the $299 Lasik offer shows, the real world isn't so simple as it is in a textbook.  A ridiculously low price can be just as detrimental to sales as a ridiculously high price.

How can that be?  Wouldn't you want to pay less?  After all, we all like to get a good deal, right?  Maybe not.  Many people associate price with quality.  We assume that a $100 shirt is more expensive than a seemingly identical $10 shirt because the $100 is a better quality product.  Thus, we might justify the extra expense because we believe that the $100 shirt is going to fit better, not shrink, last longer, etc.

In a large number of cases, this is a facade.  There are some products which cost more but may be just as good as the cheaper item.  However, it is hard to determine which are actually better quality, and which aren't.  Therefore, in some cases, we just assume that the higher price means higher quality.

This $299 Lasik procedure may be just as good as the $2999 procedure from another doctor.  However, who is going to risk their vision to find out.  In the case of the shirt example, I might try the $10 shirt to see if it is really as good as the $100 one.  If it is, then great.  I've found a new deal.  If it isn't, I toss the shirt out.  No harm no foul.

In the case of the Lasik, I doubt that a lot of people are going to take the risk.  I think more people value their vision enough that they probably would feel more comfortable with the $2999 procedure.  Yes, it is more expensive, but the perception that you are going to get a quality surgery for that price is probably going to sway a lot of people to spend the money. 

My advice to the Lasik doctor advertising the $299 surgery is this:  raise your price.  You'll probably get more business.

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