Budget products part 2

I wrote a previous post about discount and budget products. Everyone across the socio-economic spectrum likes value for money. It is just what constitutes value for money, which is different for different people. It should be straight forward that the concept of value, is inherently subjective. In economics it is also called utility. Non-economics disciplines take issue with the concept of utility, and things being utilitarian. Another less confusing way to think about it is, cost-effectiveness, basically.

Anyway, I already discussed the different type of budget stores which exist: stores which sell existing products (from different brands) at discounted prices, stores which produce their own branded budget goods, or even both. In the same post, I talked about what prices are supposed to represent, specifically they are also supposed to incorporate quality (which includes e.g. input quality and design). Discount stores are great to obtain value for money, and for people from different socio-economic groups to access and enjoy the same products. However they can distort the quality aspect and confuse customers on how to rank their willingness-to-pay, on top of the added complication of personal preferences/ taste. I suppose a good example of how input quality and design results in variation in prices for accessible/budget products is IKEA.

IKEA is Swedish, so it has that idea which Scandinavian countries give off, which is providing the essentials at value for money; providing the classics within budget. In other words, covering the minimum standard for a comfortable lifestyle. Their brand therefore also comes off as, on average, dependable. IKEA, in my opinion, provides a good petri-dish for what happens to price when you tweak the input quality of a product and design, because one can estimate the fixed costs/ overheads are going to be somewhat constant across products. A lot of the designs are very streamlined and minimalist, and they are based off of those timeless classic standard designs (people might refer to them as basic, because they have become the reference point now). A lot of people aspire to buy things considered higher taste or quality. There is no shame in it, because it is very natural to want things considered better on average. The IKEA petri-dish will quickly inform you, that better comes with a higher price tag, be it design and/or input quality. However, in the desire to acquire these things, people perhaps forget to attribute value to quality, and instead might begin to feel entitled to quality, therefore they don't update their willingness-to-pay accordingly. This is understandibly a problematic situation for goods/service providers.

Now it might be less complicated to choose different variations of the same product in a store like IKEA. This exercise is obviously more complicated by informational challenges and market frictions when comparing across brands/stores. In such circumstances, customers end up having to do a lot of trial and error, resulting in perhaps not using their money as optimally as they would like. The screening problem is both from the goods/service provider to the customer, and vice versa. When information is so lacking by both parties, does it become a sequential game? Or a simultaneous move game? (I guess any infinitesimal time lag can be argued to render a game sequential). When customers don't have a lot of buffer (in terms of time and money) to experiment, it can be a frustrating task to have to make choices. Reviews are supposed to fill that information gap, however reviews can still be very noisy because there is a selection problem with the proportion of customers that decide to write a review. This is where the state might step in: to be the benevolent decision-maker to make life for those without buffer, better. However, this is where the debates lie, as the expectation and definition of quality and minimum lifestyle to achieve, can get subjective. One thing is for certain, however, that constantly having to worry and think about how to spend every dollar you have on a daily basis, is not a good place to be mentally. There are numerous studies showing that financial burdens can result in adverse mental health outcomes, which has the knock-on effect to physical health outcomes.