PRICE QUALITY STRATEGY
A business model for guiding a pricing strategy
Philip Kotler, a professor of international marketing at the Kellogg School of Management at Northwestern University, presented his price quality theory in 1988 in a book entitled Marketing Management: Analysis, Planning, Implementation and Control. The book is now in its 15th edition and is the world’s most used textbook in business schools.
The relationship of price and quality is at the heart of the model described by Philip Kotler. He sees three levels of price – high, medium and low. He also recognises three levels of quality – high medium and low. The combination of these levels of price and quality result in nine pricing strategies. However, there are only six possible combinations that produce viable pricing strategies as three would not work – high price/low quality, medium price/low quality, and high price/medium quality. These inappropriate strategies are shaded pink in the figure below.
Kotler strategies encourage businesses to pitch a price equal to what the market believes is appropriate. Customers are not disappointed if the right balance of price and quality is achieved.
This may appear to be a freewheeling strategy that gives a company permission to grab what they can in order to make the highest possible profit. This is not what Kotler is saying. Any attempt to increase profitability by removing product features or downgrading quality while maintaining high prices will quickly be identified as “false economy”. The aim is to balance the price and the quality to fit boxes in the North and East of the matrix.