Seth Godin recently posted this four quadrant chart on his blog. It is for plotting different products based on price and based on want vs. need. In his post, he asks his audience to think about what they’re offering and which quadrant it fits within. It can only be in one.
I am fascinated by questions of pricing. At at some point on this blog, I wrote about a pricing class that I took at Rotman while I was doing my MBA about a decade ago. It stands out to me as one of my favorite university classes.
So let’s consider these four quadrants.
In the top left, you have inexpensive products that are wants and not needs. This quadrant is where you’d place those novelty sunglasses you picked up for your friend’s theme party. Fun for that moment, but if they break or you lose them, that’s probably okay.
In the top right are expensive wants. Seth uses the example of a Hermès purse. The need is a place to put your belongings, but that’s not how these sorts of items are priced. The real value, arguably, comes from their “signaling” and how they make the owner feel.
This is the luxury goods category. Demand will likely be cyclical and sporadic, and so you’ll need to make sure that you have fat margins.
In the bottom right are expensive needs — like a pacemaker. Seth’s point is that these products need to work exceptionally well, all of the time. In the case of a pacemaker, it is truly a matter of life or death. At the same time, there’s going to be less price sensitivity.
In the bottom left are the inexpensive wants. Low cost products that people really want and are infinitely useful. Seth’s example is Amazon Web Services.
This quadrant of products is attractive because demand will naturally be extremely high. Cheap and invaluable will do that. However, Seth’s caution is that you still need to sustainably deliver the goods. These aren’t novelty sunglasses.
I find it helpful to think of products as existing in only one quadrant. But most offerings aren’t going to exist all they way in one corner. It’s perhaps important to consider the “job to be done.” (To borrow from the late Clayton Christensen.)
Take, for example, housing. On a fundamental level, it’s a need. We all need shelter. But it can also be a want, or have aspects of want. I need a place to live. But I want a place in the mountains. This subtle difference means something very different when plotted precisely.
Image: Seth Godin