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Price, quality mismatch

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Although there is still raging debate on whether or not the quality of a product influences consumer’s buying patterns, some marketers still advocate that service providers must always make it their business to give their customers products that are good value for their money.

There has been a public outcry over decisions to raise tariffs for water and electricity at a time when utility bodies providing those services are struggling to meet the demands of their customers.

Recently, an investigation conducted by The Daily Times revealed that water boards secretly raised water tariffs by 15 percent without giving prior notice to their customers. Another investigation also brought to the fore a pending decision to raise electricity tariffs by 24.67 percent following the approval of a power purchase agreement between Electricity Supply Corporation of Malawi and Aggreko.

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Some segments of society are now arguing that there is a big mismatch between the quality of essential services provision in the country and the pricing structure because companies operating in those sectors are exploiting their monopoly status to pass on their inefficiencies to consumers.

Patrick Mughogho, a marketing lecturer at The Malawi Polytechnic, said marketing models clearly stipulate that a product’s price should be a reflection of the quality of the product and that if the opposite happens, then one party in the transaction is being short-changed.

“An organisation can argue about increase in costs of producing the product, but customers don’t see costs, they see product quality and in fact, organisations can use costs as a scapegoat because people can easily understand that.

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“And what costs are we looking at; there are costs that cannot be avoided and there are costs that are as a result of inefficiencies within the organisation and these can be avoided or they can be managed,” he said.

Further, Mughogho said if service providers effect price increases at a time their services are going down, means that the providers are taking consumers for granted, a trait common with monopoly service providers whose price for a product is largely inelastic.

“Morally, it is not right because you are suggesting to the customer that even if our product is not value for your money, and we, as an organisation producing the product know that it is not value for your money, but, nevertheless, buy it. And that’s a chapter from a monopoly type of organisation handbook,” he said.

In a separate interview, Masiye Mazaza, an Associate of the Chartered Institute of Marketers (ACIM) and Board Member of CIM Malawi chapter, said consumers are always willing to pay a higher price for a product they perceive to be of higher quality than other alternatives on the market but said the rule is failing to apply in the case of water and electricity because the market for those products is not competitive and that alternatives available are also very expensive for the common man to afford.

“Quality calls for price but most parastatals do not follow that rule because there is no competition and they are at liberty to charge whatever they want,” he said.

Mazaza said in a perfect market structure, service providers engage in value addition to ensure that their customers get value for their money but said the opposite also happens in an imperfect set-up where providers can pass on their costs to consumers to cover up their inefficiencies.

Another commentator who spoke to us on condition of anonymity because he is not an authority said consumer protection bodies need to intervene as, in the case of water and electricity, consumers have no opportunity to boycott because companies in those sectors are in monopoly.

“It is everyone’s expectation that their money will fetch the maximum value, and in normal circumstances, if it doesn’t, they switch to another supplier. Unfortunately, where there is no alternative supplier, the public have to endure unnecessary suffering.

“The only hope for the public is the intervention of consumer associations, and perhaps, Parliament, as was the case with the Directorate of Road Traffic and Safety Services,” he said.

But when contacted, local consumer watchdog, the Competition and Fair Trading Commission, said it has no mandate to regulate prices unless it is a case of excessive and predatory pricing [the pricing of goods or services at such a low level that other firms cannot compete and are forced to leave the market], which are considered as unconscionable conduct [conduct which is so harsh that it goes against good conscience] under the Competition and Fair Trading Act.

Government has since reversed the hike on portable water and labeled the proposal to raise electricity tariffs by 24.67 percent as illegal

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