According to research published last week in the Proceedings of the National Academy of Sciences by Antonio Rangel of the California Institute of Technology, appreciation for a product's intrinsic qualities is subject to a type of information we receive -- pricing.
As reported in The Economist, Dr Rangel and his colleagues found that if people are told a wine is expensive while they are drinking it, for example, they really do think it tastes nicer than a cheap one, rather than merely saying that they do.
The study suggests two possibilities for this reaction: (1) learning from the choices of others for survival reasons -- with pricing being a good proxy for that kind of collective wisdom; (2) consuming for the purpose of showing off -- status and better mating opportunities being associated with it.
A successful marketing campaign might allow consumers to enjoy the products it promotes more, on top of making people interested in them.
What you see in the photo here is a remarkably quiet shot in front of the Louis Vuitton store in Via dei Condotti, Rome. It took me about twenty minutes to get that shot. I had to wait for a clean view -- the street, and this window, was a sea of people. The same two reasons offered as possibilities in Dr Rangel study where at play here. The luxury brands displayed in the windows provided an opportunity to breathe in the rarefied air of consumption and partake in the refined displays everyone else enjoyed.
There is a thriving market of fake luxury items or knockoffs, especially in Europe. It lives side by side with the real deal and it has affected the luxury goods market. There have been bitter complaints by designers and fashion houses, yes. Yet, luxury-goods makers, far from cutting their prices in response to the knockoff boom, have instead been able to raise prices consistently. The satisfaction of owning a true Louis Vuitton bag cannot be replicated, and people are still willing to pay a higher price for the privilege. Craftsmanship aside, this is about a unique (or more rare) experience.
At the other end of the pricing spectrum is what Seth Godin and then Fred Wilson talked about for the digital age -- low pricing. For the economics of online distribution there is an entirely different set of considerations. Aggressive pricing (as in low) in digital goods can lead to outcomes that are desirable for both the producer -- scale -- and the consumer -- convenience.
There are many considerations to keep in mind when pricing a product or service -- the demand curve, cost, environmental factors, differentiation, profit and revenue targets. In addition to supporting the realities of the marketplace, pricing is information that supports the product positioning. When buying something close to the the high end of the possible price range, the enjoyment we derive from the product signals another kind of social information that says -- because I'm worth it.