Why Do Developing Economies Prefer to Pay Premium Prices for Better Design?

In the narrow streets of Dharavi, often called Asia's largest slum, residents live on an average of $2-3 per day. Yet walk through these same streets and you will find homes with $30 premium locks protecting their doorways, residents using smartphones costing a month's income, and families investing in higher-priced steel cookware rather than the cheaper aluminum alternatives.

Conventional economic wisdom suggests this should not happen. The mainstream view is clear, that as income decreases, price sensitivity should increase. Those with the least resources should be the most focused on paying the absolute minimum price for goods. Design features beyond bare functionality should be irrelevant luxuries.

Yet across developing economies worldwide, we consistently observe a paradox ie. contexts where the world's least privileged consumers willingly pay premium prices for certain well-designed products, often spending a disproportionate percentage of their income compared to wealthier consumers purchasing similar items.

This is not irrational behavior but rather evidence of a sophisticated economic calculus that traditional models miss.

Beyond First-Cost Economics

When economists model purchasing decisions in low-income markets, they typically focus on first cost which is the initial purchase price. This framework misses a crucial reality of life in developing economies; the true cost of ownership.

For a family living on $5 a day in urban Bangladesh, the $5 cheap lock that breaks after three months isn't actually less expensive than the $15 premium lock that lasts for years. When theft means losing everything, security becomes less of a luxury and more of an economic necessity with quantifiable returns.

Design decisions directly impact this equation. The premium lock's heavier materials, precision components, and corrosion resistance are not aesthetic choices but economic features in an environment where replacement costs represent significant financial hardship.

We see this pattern repeated across categories:

- Rural farmers investing in premium seeds with higher yields and better drought resistance

- Urban workers purchasing more expensive, durable clothing that withstands daily physical labor

- Families choosing higher-priced, energy-efficient stoves that reduce daily fuel expenditures

In each case, thoughtful design creates genuine economic value by addressing the complete context of use, not just minimizing production costs.

The Economics of Social Signaling

Perhaps more surprising is how design elements that appear purely aesthetic can serve crucial economic functions in developing markets.

In Nairobi's informal settlements, young professionals often pay premium prices for visibly branded clothing. Traditional economic models would flag this as irrational status-seeking. The reality is however, more complex because in communities where formal credentials are scarce, appearance serves as a crucial economic signal.

Job seekers know that visible markers of professionalism directly impact employment opportunities. The premium paid for better-designed, visibly branded clothing is not a luxury expense but an investment in economic access.

Similarly, in contexts where formal banking is limited, visible displays of certain goods serve as informal credit histories. The home with the well-maintained exterior, the carefully preserved electronics, the quality furnishings, all these signal financial reliability to potential lenders, employers, and business partners in environments where formal credit scores do not exist.

Design decisions that enhance these signaling functions, from material choices to aesthetic elements, create measurable economic value for consumers who appear to be paying ‘extra’ for seemingly non-functional features.

Designing for Genuine Scarcity

Perhaps the most counterintuitive aspect of premium pricing in developing economies involves how good design addresses genuine resource scarcity.

Consider the case of premium-priced solar lanterns in rural India. When manufacturers reduced costs by removing the battery indicator light, an apparently reasonable cost-saving measure, adoption rates plummeted. Market research revealed why; without electricity, battery management is critical. The ‘luxury’ indicator light allowed families to plan energy use and avoid unexpected darkness.

What looked like a non-essential feature to designers was actually a crucial economic tool for consumers managing extremely limited resources.

We see similar patterns in premium-priced water storage containers with precision measurement marks (helping families manage limited water supplies), higher-cost cooking equipment with heat-retention properties (reducing fuel consumption), and premium mobile phones with extended battery life (critical where charging opportunities are limited).

In each case, design features that might seem like luxuries in resource-rich contexts become essential economic tools in environments of genuine scarcity.

Case Study: The Premium Phone Paradox

Perhaps no example better illustrates these principles than mobile phone adoption in developing economies.

In 2010, telecommunications experts predicted that ultra-low-cost phones would dominate low-income markets. Yet by 2015, a remarkable shift had occurred where many consumers in these markets were saving for months to purchase mid-tier and even premium smartphones.

Research across India, Kenya, and Nigeria revealed why:

1. Durability Economics

In environments with dust, humidity, and unreliable electricity, the premium phone's better sealing, component quality, and battery performance offered dramatically lower total cost of ownership.

2. Multi-Use Value

Without access to separate computers, cameras, and traditional banking, the phone served multiple crucial economic functions. Better processing power, camera quality, and security features were not luxuries but necessities for micro-entrepreneurs.

3. Resource Management

Premium models with better power management allowed users to operate in environments with unreliable electricity, transforming battery life from a convenience to an economic necessity.

One Kenyan study found that micro-entrepreneurs using higher-quality smartphones earned 14% more on average than those with basic phones, providing a clear return on the premium investment.

A New Framework for Design Economics

These observations point toward a more nuanced framework for understanding design economics in developing contexts:

1. Total Cost of Ownership

Measure value across the complete lifecycle in specific context of use

2. Capability Amplification

Assess how design enables or constrains crucial economic activities

3. Resource Optimization

Evaluate how features help manage genuinely scarce resources

4. Signaling Value

Consider how design creates economic access and opportunity

When applied systematically, this framework reveals why seemingly premium prices actually represent rational economic decisions by even the least privileged consumers.

Implications for Design Practice

For designers and organizations working in emerging markets, these insights demand a fundamental rethinking of approaches:

1. Beyond ‘Cheap Enough’

The goal is not to design products that are merely affordable but to create solutions with the highest economic return per dollar invested by consumers.

2. Price-to-Value Clarity

Design must make economic benefits visible and understandable, not just minimize sticker price.

3. Context-Specific Premium

Identify which features create genuine economic value in specific environments, rather than assuming what matters in developed markets.

4. Dignity as Economics

Recognize that design elements supporting dignity and aspiration often translate directly to economic opportunity.

The most successful products in developing markets are not always the cheapest. Rather, they are the ones that create the most favorable economics for users over time.