Price Performance Ratio Explained
Price-Performance Ratio is the ratio between the performance of an item and its price. For two similar items having the same price, the high-quality one will have a higher Price-Performance Ratio. Conversely, for two items having the same quality, the one having the lower price will have a higher Price-Performance Ratio. Generally, when people are buying items, they tend to choose the one with higher Price-Performance Ratio. However, that ratio might be influenced by some external factors, which may also change people's options for a purchase.
Let's consider this example. There are two grocery stores in the countryside, and they are selling similar items. The items in store A are cheaper, say $2, but the quality is not good. The items in store B have much better quality than the items in store A, but they will cost more, say $4 for each item. When a customer is buying some items for them, they may do the following calculation. The price ratio between the high-quality item and the low-quality item is 2. This means that if I spend $4, I can buy two items from store A, but only one item from store B. Although the item from store B has better quality, many people will consider the Price-Performance Ratio is higher in store A because they can buy more items.
If those two stores are moved to the prime area in a shopping mall where the running cost, such as rent and employee salaries, is much more expensive than the rural area, what would be the result this time? Let's assume that, for each item, due to the higher running cost of the store, there will be an extra $2 added to each item to cover the cost. So, for items in shore A, the price is increased to $4, and similarly, the price in shore B is increased to $6 per item. Now, when you compare the Price-Performance Ratio for those two stores, you may have a different result than the cases in rural areas. Compared with the case in the rural area, the price ratio between the two stores decreased to 1.5. This means that the low-quality item in store A will cost $4, and the high-quality one in store B only cost $6. In this case, more customers will prefer the items from store B because they just need to pay $2 more to get a high-quality one. If the extra running cost is higher, this will become more apparent.
In summary, the Price-Performance Ratio of a product is a relative value, which will be determined by the comparison with other products. Consumers' preference based on Price-Performance Ratio will change in different environments. If you are selling products which have good quality and higher prices, to increase the Price-Performance Ratio and avoid vicious competition from those cheap low-quality items, the best location you should choose are some prime locations in some expensive areas. People will be willing to pay a little bit more to get a high-quality item because those items will have the best Price-Performance Ratio in that area. The key point is to ensure that the product you are selling has good quality so that the customers will feel that they get what they pay for.
Attribution:
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