Quality– it’s something we look for as consumers. Designer brands, expensive clothing, sports cars. Most of us would say that these are all pretty high quality goods.
Not necessarily.
We look at an item, and think: “if this is expensive, it must be good,” or “well, this item doesn’t really cost all that much, it probably isn’t that great of quality.” However, price plays a funny role in the way we perceive an item.
Corbett Barr, entrepreneur and co-founder of Fizzle, explains this phenomenon. In his article titled “Cheap vs. Expensive Wine: Can You Taste the Difference?”, he examines a study published by Robin Goldstein and a group from the American Association of Wine Economists. The study explains how an item’s price affects the way we perceive it as consumers:
“Over 500 people tasted wine flights composed from 523 different wines ranging in price from $1.65 to $150. They then answered the question ‘Overall, how do you find the wine?’
Image source: coravin.com
‘The bottom line is that in blind tastings of regular people, there is no correlation between the wines they like and the price of the wine. In fact, the paper found a slightly negative correlation, suggesting that regular people actually prefer cheaper wines.”
So what does this mean? Essentially, wine and other brand name items are considered “positional goods.” Positional goods have value– however their value lies in their desirability. Think of it this way– are Louis Vuitton bags really worth three-thousand dollars of material? Absolutely not. Their bags are positional goods. They make their handbags for next-to-nothing and sell them for a fortune. Designer brands make staggering profits because they raise the prices of their goods, lettings consumers know that their products represent status and wealth. However, status and wealth have little to do with quality. It’s a marketing gimmick, is all it is– so for those of you who swear by expensive wines and handbags, remember that price doesn’t always equal quality.
Future research question: How do companies use incentives/psychology to attract buyers?
So what does this mean? Essentially, wine and other brand name items are considered “positional goods.” Positional goods have value– however their value lies in their desirability. Think of it this way– are Louis Vuitton bags really worth three-thousand dollars of material? Absolutely not. Their bags are positional goods. They make their handbags for next-to-nothing and sell them for a fortune. Designer brands make staggering profits because they raise the prices of their goods, lettings consumers know that their products represent status and wealth. However, status and wealth have little to do with quality. It’s a marketing gimmick, is all it is– so for those of you who swear by expensive wines and handbags, remember that price doesn’t always equal quality.
Future research question: How do companies use incentives/psychology to attract buyers?
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