Product Ratings
Consumer Reports (CR) is famous for its product performance ratings of various consumer products. They rate individual product attributes on a 5-category scale that ranges from poor to excellent. Overall product ratings are rated from zero to 100. The sixty inkjet printers displayed in the graphic above received overall ranking ranging from 43 to 73, with an average of 61. Prices ranged from $40 to $350 with an average price of $148.
Relative Product Performance Metric
While actual product performance ratings are of value, creating a Relative Product Performance metric allows for a more strategic interpretation of product performance. In the graphic above, the Relative Performance was computed for each of the sixty inkjet printers, by dividing the printer overall CR rating by the overall average. For example, the HP PhotoSmart Premium had a relative performance of 120, indicating a 20 percent higher performance than the average printer.
Relative Product Performance = Performance / Average Performance x 100 = 73 / 61 x 100
= 120
Shown in the left graph above is a plot of the relative product performance and price for the sixty all-in-one inkjet printers evaluated by CR.
Fair Value Line
The “Fair Price Line” is a least-squares estimate of the relationship between price and relative performance. All Fair Price Lines run through the average of price and relative importance and can be used to estimate the Fair Price of any Relative Product Performance position. The fair price of the HP Photosmart Premium printer is $205 and the HP price is $140. The difference of $55 is customer value – the incremental financial value of a transaction based on its price and relative product performance.
Customer Value and Price
Of course, for many printers, there is negative customer value. That is, the printer price is higher than the fair price for a given level of relative product performance. The HP printer is a great value, but so are many other printers below the fair price line. There are several printers with average relative product performance that have prices well below the fair price line. These are also great values for customers than do not need, or want, products with above-average performance. Customers looking for a “Value Price” can find printers with lower average product performance but prices below their fair price.
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