THE QUALITY OF A PRODUCT OR SERVICE IS VERY OFTEN DETERMINED BY THE PRICE
We have all heard the saying – ‘you only get what you pay for”.
To a very large extent this is true. That said, high priced products can be crap and low quality products can be seen as quality, simply because of a higher price.
Consider this experiment.
A large group of wine buffs with experienced pallets were 5 glasses of wine to taste. Each glass came with only one item of information – the price. The offering was as follows:
- Wine A – valued at $5.00 – tagged as $5.00
- Wine A – valued at $5.00 – tagged as $45.00
- Wine B – valued at $45.00 – tagged at $5.00
- Wine B – valued at $45.00 – Tagged as $45.00
- Wine C – alternating
In other words, while respondents were told there were 5 different wines, there were actually only 3 different wines and in only 2 cases did the price marked reflect the actual price.
The findings were very insightful indeed. The overwhelming majority of the samples tested cited the wines marked as $45n as being the best – and were able to justify their decision. In other words, respondents – failed to discriminate good wine from bad and judged quality not with the pallet but by the price tag.
This study has been replicated many times and in many forms – each time demonstrating that price impacts on the perception of quality.
I would argue that this demonstrates that – price is PART of the product. It is not a standalone issue.
Consider a second study in which Prozac was tested against a placebo. Where the placebo was sold at a higher price than the real thing, the placebo was reported as being more effective in reducing symptoms.
Price is not just an indicator of value but it is also a factor on creating value.
In addition, I would argue that at this time of year people go shopping with an amount of money to spend and an idea as to how much they should spend on people for whom they are buying a gift. They also have an idea of the quality they want to buy and will judge that quality in part by the price.
Parents want to spend roughly the same amount on each child and want to buy quality for their lover. So….. to what extent do businesses take these factors into account when setting prices?