Why people often choose higher priced products
I’m a frugal person, which to me means I look for the best value, but sometimes I can be cheap, meaning I just buy the cheapest thing. There is a difference. At times, the cheap products that I’ve bought may breakdown or not work as I had hoped. And here is what most people say to me:
“You get what you pay for!”
“Buy it right or buy it twice”
Many people think that if they pay more for something then it will be better than something with a lower price tag. According to the Journal of Consumer Research, a high price indicates either bad value or good quality, whereas low price indicates either good value or poor quality. It goes on to say that consumers usually do not have all the available information on a product so they use informal and common sense explanations to make that determination, such as price.
I think generally speaking, the majority of people think that the price of an item does often imply quality. It costs more to make, so it is priced higher. In an article in the Wall Street Journal, Neil Blumenthal, an entrepreneur sets out some rules for pricing:
Price is ultimately what customers are willing to pay.
Price is the biggest indicator of quality.
Blumenthal and three other students at Wharton wanted to start a business selling eyeglasses online. They all felt that it was ridiculous to pay over $300 for glasses when it costs so much less to make. The reason for the inflated costs are because the industry is controlled by a few large companies that have kept prices artificially high. They wanted to sell them for $45! Their professor told them no customer would trust that your quality was even comparable, much less equal or better, and reminded them that price is the biggest indicator of quality. Another reason that the $45 price mark would not work is because they did not take into account marketing costs. Building a brand and maintaining it costs a lot. The business they started is called Warby Parker, and they sell prescription eyeglasses for $95.
A few years ago, in a study by researchers from CalTech and Stanford, they found that if a person is told that he or she is tasting two different wines—and that one costs $5 and the other $45 when they are, in fact, the same wine—the part of the brain that experiences pleasure will become more active when the drinker thinks he or she is enjoying the more expensive vintage. Thus, the person will believe the more expensive wine is better quality due to it being more expensive.
Marketing makes a big influence on whether consumers believe a product is too expensive or that it is a quality product. Look at Apple products, consumers will pay a premium for their products. They have long refused to lower their prices because lowering their prices would hurt their reputation (although they may now be forced to because of stiff competition from Samsung).
Now I am a frugal person, but I don’t necessarily advocate spending the least money all the time. I think we should seek the best value in terms of good quality and good price. But how do we do this? As with the Journal of Consumer Research study, it determined that one reason consumers use price to determine value and quality is because we lack information. While it will be impossible to obtain complete and unbiased information on each product we purchase, I think consumers need to do more research online before making a purchase, especially more expensive ones. Also, with products you pay a premium for, try out a less expensive version and see if it is something you might consider using. In the case of food, maybe try your own blind taste test. Does the name brand really taste better than the generic brand?
How do you make sure you get the best quality at the best value? Do you ever buy higher-priced items because you think they are higher quality makes them a good value?