Why the Lowest Price is for Losers

by David Ning · 13 comments

low priceAs someone who writes and talks about frugal living all day, I must admit that I’m a sucker when it comes to spending. I not only overreact whenever I need to make a purchase, I probably ask way too many questions about the price of any item too. Why pay $50 when I can get it for $40? Why does it cost $40? How about $30? Can I get it for free?

Almost always, I feel that I’m getting a better deal by asking and scrutinizing the buying decision. But is it really the truth? Is paying less always gaining more?

We were all taught to find the lowest price possible. In fact, one of the first things I learned in business was to get three quotes for the same service whenever you need something done. The idea was to compare the quotations and figure out whether the higher cost would be necessary, but more often than not, the price becomes the deciding factor. Price almost always wins, but I think it’s totally wrong because only looking at price shows ignorance. Here’s a story that illustrates what I mean.

The Story of the Swollen Beef

Ever wonder why some restaurant just serve better tasting beef? My wife met with one owner in the beef production business and what she learned was shocking. In order to make more money, this owner would let meat sit in a bucket of water to add weight. Then, the “swollen beef” would be frozen and voila, heavier meat that can be sold for more money. Or more likely, the owner can lower the price to attract more business and still profit.

Yikes.

I don’t know enough to say whether that’s against the law or not, but it certainly changes the texture and the nature of the product. This kind of behavior will not pass the standards of high end grocery stores, but other cost sensitive merchants may decide to look the other way.

Loving Waiter

Many people know that a little trick to getting better restaurant service is to go frequently and paying more tips than what is deemed standard. Start doing that and waiters, managers and maybe even the owners will start coming over to greet you, making your dining experience more enjoyable. All of a sudden, paying more for the same product changes the product for the better.

What I’m Trying to Say

Next time you are in the position to pay for a product or a service, think of the following few factors before you look at the price.

  • Level of Service – How are you treated and how is the overall process? When things go wrong, be thankful that you picked the right company to deal with.
  • Expertise and Specialization – Is the company you are buying from a specialist when it comes to your product? Walmart may have a lower price, but you can bet that the workers at Home Depot can help you figure out why your toilet seat doesn’t sit flush (were you to ever need that advice).
  • Relationship – Having a good relationship with someone can help tremendously if you need questions answered in a hurry. If paying a little more helps you create a good relationship, consider this seriously.
  • Risk – Is there a money back guarantee or a life time warranty? It may seem like you are paying more up front, but having a real life “undo” option is worth the price of gold.

This list is just the beginning because there are so much more. Price is just the lazy way to decide, and they always lose out.

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{ read the comments below or add one }

  • Mario says:

    I tip my barber a few bucks extra everytime.
    Why? Because sometimes the opportunity costs of sitting there at the barber shop waiting for my turn cost me more than when I am just able to walk in, my barber tell his “customers” that I had an appointment and that I’m next.

    Yes, I’m spending more, but I don’t even have to wait 30 minutes til it’s my turn, rather than a possible wait of up to 2 hours.

    It’s worth it.

  • Different approach. They say that you get what you pay for. I have heard about the adding of water to meat with cold cuts to get the weight up– pretty sleazy.

  • Meaghan says:

    This is very true…it is so important to look at the value of what you are getting and not just the price.

  • Wilson Pon says:

    Ning, sometimes, we should be thrifty in the daily spending, but it’s depending on the situation. If we’re think the goods that we’re buying is worth the money, then we should pay it accordingly. Remember, the businesspeople also need to earn their living as we did.

  • Excellent post. I think the perfect balance is a combination of great pricing and expertise. I can do without great customer service if I get extreme satisfaction from the product with a great price to go along with it.

  • Penny says:

    It really depends on what I’m purchasing. The most costly item is not always the best either. You can have two t-shirts printed by exactly the same company. However, one of them is marketed by a more popular brand name. The price is inflated to reflect that.

    Used, but quality works for me. I bought most of my furniture on craigslist. All of it is very nice leather, and wood furniture. I got it cheap, because the people wanted to redecorate and buy something else. : )

  • Meg from FruWiki says:

    I definitely agree. Being frugal doesn’t mean being cheap, it’s about getting the best value for your money — and that often comes at a higher initial price.

    Buying from small local businesses sometimes costs more, though probably not as often as many people think. However, I’ve found that it is usually well worth any extra costs and then some because in many cases you can talk directly with the owner. And even when you can’t, I’ve found that the staff is usually more knowledgeable and much more available than at big box stores.

    That has a lot of benefits. Not only can you get help finding something, you can learn a lot about the products and find which item is best for you — and how to get the most value out of it. Small stores may be more selective about what they sell. If something doesn’t work out, you know exactly who to complain to. If they make stuff, you can ask for custom orders. Often the shopping experience feels nicer because it has a personal touch. And if you are looking to save money, you can usually haggle and/or barter a lot easier than at big box stores. And of course, there are more benefits for the local economy.

  • Journey says:

    Paying less is not always more. I have a few instances where I was kind of low on money and went for a cheaper hair stylist. This was terrible to cheap with. This girl ended up cutting off way more hair and it just didn’t look right. I know hair grows back but when you are interviewing for jobs in a tight market, you do not want an asymmetrical hairdo.

  • Thicken My Wallet says:

    You end up getting what you paid for in life.

    Everything comes down to value. Are you getting good value for what you are paying for. You can pay next to nothing but if derive no value from it, why buy it in the first place?

  • Sandy says:

    My husband ran a business and he always paid more tips at certain restaurants. I never understood why until I went with him to a dinner with his biggest client and the restaurant managed to come up with a cheese plate for us (the client wanted it) and the restaurant doesn’t even sell cheese.

    I was very impressed and I was convinced that the extra tips we paid over the years helped in that regard.

  • Charlie@PayLessForFood.com says:

    I agree with you totally. As consumers we are frequently blinded by our search for the lowest price. Sometimes it pays to pay more for a better quality product that will last longer, saving you more money in the long run.

    As a college and graduate student I would always try to purchase the cheapest dress shoes that looked half way decent. Unfortunately the shoes would wear out in a year or two. That’s when I decided to start paying more for quality. More expensive shoes but that lasted for years on end.

    Also many companies have caught on to our affinity for the cheapest price so they’ll advertise a low price but add on all sorts of fees and charges that you find out about right before you make your purchase.

    Cheap health club membership, then you find out about the steep initiation fee and intake fee. Cheap advertised internet broadband service until they tell you about the equipment fee, installation fee, etc.

    So when searching for the lowest price you now have to make sure you understand and compare the total price of your purchase.

    • MoneyNing says:

      The add on fees are really a killer. Another tactic that are commonly used is the “loss leader” concept where they advertise a very low priced item to get you into the store because most people end up buying other “stuff” once they are in there browsing. I see that from online stores to retailers to car dealerships so it must be working.

      • Charlie@PayLessForFood.com says:

        I agree with you totally on the “loss leaders”. This is especially true with supermarkets.

        Studies indicate that between 40% to 50% of all of our supermarket purchases are impulse purchases. They sucker us in with the loss leaders and then make their money as we fill our carts with impulse buys.

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