Whenever I make a purchase decision, I try to understand where that purchase falls in my Quality-Price Matrix. I do this because it ensures I am spending money responsibly to maximize my enjoyment and get the most bang for my buck. This matrix is how I define “value” when it comes to buying things – and I am firmly in the camp of maximizing the value I receive for my money.
The matrix is simple, it’s a two by two plot with Price spanning the horizontal axis and Quality spanning the vertical. Before I dive into a deeper explanation, let me point out that there are two keys to using it effectively:
1: You can simplify the plot area by dividing it into four quadrants.
2: You must acknowledge that everyone’s matrix is slightly different.
The reason it is important to cut the chart into four quadrants is it allows for simplification in decision making. By having only four general buckets, you can easily determine where the purchase of an item falls given your personal context. It is possible to plot various purchase options on the matrix and distinguish differences down to the dollar – but generally speaking, this matrix is a tool for decision making and not designed to be a plot area that requires calculus and trigonometry to solve for the variables.
It is critical to acknowledge that everyone’s matrix will be different because everyone’s personal situation and financial life is unique. Because of that, everyone’s perception of value will also be unique. While you can compare and contrast where you would plot purchases vs where your friends or family would – the results may be different. That doesn’t make one person right and the other wrong, but simply underscores the point that value is perceived subjectively.
Now into the matrix! As I mentioned above, dividing the matrix into four quadrants allows for general groupings based on relative price and relative value.
Quadrant 1 is High Quality, Low Price.
This is where I try to make the majority of my purchases because, as someone who places a great deal of importance on overall value, this is where value is optimized. Any time you find alternative options that fall into this quadrant, you would likely be better suited to change your purchase habits away from other quadrants and into this one.
For me, one of the best examples I can think of is private label items at grocery or big box stores. Generally speaking, the quality of private label items is as high or, in some cases, higher than their national brand equivalents – at a significant discount. My wife and I have found that many of our grocery staples can be replaced with private label food items without sacrificing quality. Because these items are on par in terms of quality, and priced lower, they help us maximize the overall value of our grocery cart.
Quadrant 2 is High Quality, High Price.
Generally, these items are more skewed towards luxury goods or brand names. That doesn’t mean that this quadrant should be avoided – often times high quality matters a great deal – but rather you should do a scan of the market place and determine if a similar item exists in Quadrant 1.
For me, I’m willing to make purchases in Quadrant 2 if the quality is important enough to pay more for. I often buy name brand tools at Home Depot because I’ve had my fair share of experiences with items breaking after only a few uses. For that reason, I actually find I get a good amount of value when buying from this bucket.
Additionally, when it comes to shopping for a car, I’m comfortable edging into this quadrant as well. Because safety is paramount for me and my family, I’m willing to pay more to get the additional quality. That doesn’t mean I’m buying top-end, luxury cars, but it does mean that I’m willing to write a slightly bigger check to ensure my family is protected by additional safety features.
On the topic of cars, one way to move a purchase from Quadrant 2 to Quadrant 1 may be to look for used cars a year or two old but still equipped with the safety features you are looking for. If you can find a used car that still meets your general requirements, you may be able to save thousands of dollars vs buying a new one recently delivered to a local dealership.
Quadrant 3 is Low Quality, Low Price.
Many people mistakenly believe this quadrant should be avoided because of the low quality, but I’ve found a few instances where this quadrant is actually a great place to make purchases. If the item you are looking for is somewhat disposable or falls in the one-or-two-uses camp, this area of the chart may be a good option. A few examples of things I buy in this quadrant come to mind:
When I am completing a project around the house that requires paint, I generally pull out a paint brush that I purchased from the local dollar store. I can buy 3 brushes for $1 which works out to $0.33 each. Because I’ve never found a paint brush to wash out perfectly, if that painting I’m doing doesn’t require a high-quality brush, I don’t see a need to pay $3 for a single brush at a hardware store.
Similarly, I’ve been continually disappointed with private label plastic zip bags and private label tin foil. However, because these are almost always single-use, there is no need to pay the difference for the brand name in my view. But when quality does matter (for example, when we’re freezing food), I use the brand name bags because the higher price is justified by the higher quality.
I am not advocating that you view all your purchases as disposable. I strongly encourage you to find ways to buy quality items that you will use over and over – but there are some cases where the item will end up being single-use only. If that is the case, and you don’t need the highest-quality item, Quadrant 3 can be a great way to maximize your overall value equation.
Quadrant 4 is Low Quality, High Price.
Unless your options are extremely limited and there is no feasible alternative, this quadrant should be avoided. I find purchases made in this area of the matrix almost always come accompanied by buyer’s remorse.
When I spend money, I expect to be somewhat satisfied with the purchase – and when that doesn’t happen, I know I’ve fallen into Quadrant 4. The most unfortunate part about purchases that fall into this area of the matrix is that you generally won’t know that they land here until after you’ve completed the transaction and find yourself with an item that doesn’t deliver as expected. The best thing you can do in this case is learn from your mistake and try not to fall into a similar trap in the future.
Overall, this matrix is designed to be a guide to purchasing and a way to think about spending your money differently. While you may think you should try to make all purchases in Quadrant 1, it’s important to note that sometimes Quadrant 2 and Quadrant 3 are appropriate as illustrated in the examples I’ve given. The more mindful you are of how you are shopping for value, the better off your personal finance situation will be. Just remember, not everyone makes the same value assessments – it is up to you to figure out how to maximize your own value proposition.
What I love about the Quality-Price matrix is that it simplifies the decision-making process when it comes to value. A lot of times, it can be hard to categorize different purchases, but with this matrix, you can start to quickly identify where a purchase should fall and how it matches up with your plan. In reading Eric’s examples above, he clearly lays out different spending groups that he targets for each quadrant. If you can have a good understanding of this, it will start to influence your shopping behavior and make it easier to stick to the budget. This is the real value of the Matrix.
Similar to Eric, I’d like to share my perspective on each quadrant from a slightly different angle:
Quadrant 1 – High Quality, Low Price
This is the quadrant we all want to be in. If every purchase could be here, life would be amazing. Unfortunately, there are some things that probably should not fall in this space. Healthcare and childcare are two great examples. While there may be exceptions, I would caution individuals to keep certain spending categories out of this space. While you can certainly shop for the best deal when it comes to childcare, you will probably mostly be looking at high price options that are high quality. We all want every spending category to fall in the space, but we need to be realistic about what will go here.
Eric’s example around private label is perfect. These are fast moving goods that are generally cheap to produce and come with a large amount of associated marketing cost. Wherever you can find an item of similar or higher quality for a lower price, you are doing yourself a service.
Quadrant 2 – High Quality, High Price
This category is the one I tend to have the most difficultly with. As someone who appreciates a well-built machine or tool, I have often found that this category provides the most consistency in terms of customer satisfaction. The problem is I also love a good deal, so I’ve shortchanged myself in terms of quality thinking I would be ok.
I’ve bought a variety of different tools at Home Depot thinking they were going to get the job done only to be dissatisfied after using them a couple times. I thought I was doing myself a favor by saving a couple bucks, but it only cost me down the road.
The same can be said for computers and computer components. When I bought my first desktop computer out of college, I held back on the RAM and Processor, thinking a mid-range machine would serve me just fine. A couple years later, I already had to upgrade it. When I purchased my next computer, I went for high-end parts, and it’s lasted me almost five years running in tip top shape.
The morale of the story: you need to define the categories where it is important you have the best, and then spend accordingly.
Quadrant 3 – Low Quality, Low Price
If you’re reading this and have kids, you know that this space is a game changer. Birthday parties, Easter Egg Hunts, and Holiday Paintings are just a few things that come to mind. As Eric talks about above, single use items are the perfect fit for this category, especially when it involves kids activities where they will be using the item and then destroying it.
There is no need to buy high-end birthday party hats if they are just going to get thrown away in a few hours. The annual Easter Egg hunt thrown at our house is not going to be judged by how nice the eggs are (it’s the inside that counts). Low quality and low price is a blessing in disguise and should be used as such. Now there are still some considerations in this space. If buying a low quality item is going to put someone at risk, it should certainly be avoided, especially when kids are involved.
Quadrant 4 – Low Quality, High Price
Unless you’re charging something to someone’s credit card who you don’t like, this isn’t really in the consideration set for any of us. Except for those of you that live in San Francisco – I hear there are plenty of Low Quality and High Price houses on the market.
I’d like to end where I started: the most important part of the Quality-Price matrix is that it allows us to quickly and easily evaluate our purchases, making it easier to stick to a budget. The only way this is possible though is if we have evaluated which purchases we want to fall in which quadrant. By making simple definitions such as, “I generally want my groceries to be Low Quality and Low Price,” we can use this methodology in the store and track how well we are following it. The same applies for the bigger purchase decisions. Life is all about developing good habits, and this is a great place to start when it comes to spending.
2 thoughts on “The Quality-Price Matrix”
This is so unique! I think each quadrant has it’s own purpose. I’d like to live in quadrant 1 the most with high quality low price. I understand this isn’t always possible but I’d also go into high quality high price when I know the item i’m buying will last. It’s either that extreme or I just see the item as low quality low price because it’s not adding value to my life.