The Yugo car was cheap, but it was poorly made. Consumers did not purchase it. This is an example of failure to attain parity on the basis of differentiation.

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The failure to attain parity on the basis of differentiation can be illustrated with an example from the automobile industry which is the ill-fated Yugo. Yugo was offering a lousy value proposition. The cars literally fell apart before your eyes. And the lesson was simple. Price is just one component of value. No matter how good the price, the most cost-sensitive consumer won't buy a bad product.

The Yugo Car Was Cheap, but It Was Poorly Made