Does price matter?
This seems obvious. We all want to pay less for the things we buy. And so, all things being equal, we ought to be dedicated bargain hunters.
But as consumers we are often in the dark about which products or services are better or worse than others.
Yes, we can read the reviews and ask friends for recommendations. We can compare labels and scrutinise technical specifications. But really – who has the time?
Sometimes we make decisions quickly and when preoccupied. We make choices with imperfect information.
And so price is often used as a proxy for quality.
The more expensive something is, we reason, the better it is likely to be.
When choosing a bottle of wine on a special occasion, or selecting a car seat for your child, or buying a new set of tyres for your car, it feels logical to avoid the cheapest – even if it appears to be almost identical to more expensive options.
After all, why chance it?
The relationship between price and perceived quality is well understood by many consumer brands.
This is why luxury brands keep an iron grip on how their products are marketed. Burberry even went so far as to destroy £28m of unsold stock to prevent it depreciating the value of their clothing and beauty products.
Even well heeled consumers lusting after a Birkin bag from Hermès or a new watch from Patek Philippe are made to wait thanks to cleverly engineered scarcity.
This may all seem slightly mad. But it turns out that perceptions of value really can influence our experience of the things we buy because price signals quality.
A recent experiment by the California Institute of Technology found that the areas of the brain responsible for registering pleasure light up more when people are drinking wine they are told is expensive – even when they are served a cheap bottle of plonk.
All this goes to show that a brand is much more than the sum of its parts. How much something is worth, as always, comes down to how much you are willing to pay.