Cost-minimization is one of the cornerstones of success in business. For economists, the entire decision-making process of a firm can be reduced to this one simple task. While it may be simple in theory, putting this into practice as a business manager or owner can be difficult.
Many businesses will simply buy the cheapest equipment for their office assuming that they can be cheaply replaced when they predictably break. However, if they break down often, this does not make good economic sense. When it comes to equipment like printers and printer ink, for example, it makes more sense to invest in high-quality products, rather than buying cheap ones and disposing of them quickly. The constant turnover of equipment will end up costing your business much more in the long-run.
Let’s look at other ways the “buy cheap, buy twice” mentality relates to growing businesses.
Think of the Long-Run
Breaking out of the mentality that cheaper is always better requires that you take a long-run perspective of your business. If you are playing the long game, then it is far more cost-effective to purchase high-quality equipment and products for your business rather than wasting both time and money replacing these things on a regular basis.
Think of the things that your business uses on an everyday basis and make sure that you spend as much as you can within reason on these equipment, processes, and tools. This will seem like a big upfront investment but, if you average the payment out over time, it will be far less than continually buying new and deceptively cheaper products.
Watch Out for the Price-Quality Heuristic
Naturally, a simplistic approach to countering the “buy cheap, buy twice” mentality would suggest that you simply buy more expensive equipment with the expectation that this is of higher quality. However, this is what the price-quality heuristic warns us about. Many people intuitively believe that a higher price is associated with higher quality, but this is simply not always the case.
When making investments into high-quality equipment, it might not always be the most expensive equipment that ends up being the best for your business. Make sure to do some research and read reviews of particular tools and equipment that you are planning to purchase. The experience of others and consumer reports are incredibly useful for determining the actual value that a product will bring to your business.
When Considering Your Own Products
Keeping this insight in mind, it is useful to know that excessively low prices may signal to consumers that your products are of low quality. Make sure to explore the elasticity of demand using economic reports and market analysis of your target customer base for your products to determine an optimal pricing level that will maximize your revenues.
When it comes to finding an optimal quality level for producing products of your own, it is important to be informed by your guiding philosophy as outlined in your mission statement. If you are a business that is purely interested in money, you can take advantage of the likelihood that consumers are willing to buy cheap products and regularly replace them. This will require them to spend more money on your products in the long-run and will increase your profits.
However, this is not ideal for many reasons. Consumers are increasingly interested in sustainability and longer shelf life for the products they buy. Many jurisdictions are even implementing “right to repair” legislation that will require companies to make it easier for consumers to repair their existing products rather than purchase brand-new ones. These changes need to inform the decision-making process behind your production lines.
Change the Way You Think
It’s not always easy to take a new perspective on things, even in light of evidence to the contrary. However, the “buy cheap, buy twice” mentality is important to break out of both on the demand side and the supply side. Nevertheless, your business and your customers will benefit from making the change.