Let's say you're in a really nice restaurant with a group of business colleagues and you're looking over the wine menu, trying to choose a bottle of red wine. Let's pretend--importantly--that you're spending your own money and not putting it on your company's expense account.
One bottle costs $199. (Ridiculous! I'd never pay that.)
Another is $99. (Still ridiculous.)
The next one is $69. (Hmmm, still kind of pricey.)
There are a few other bottles priced in the $50 range. (Ehhhhh.)
There's a bottle priced at $48. (Mmmmph.)
The least expensive bottle is $39. (Hmm. Can't really buy that one, can I?)
Which would you pick?
Interestingly, many diners select the second-least expensive bottle. Why? Because choosing the cheapest bottle on the menu is, well, cheap. Hey, you've got people to impress.
Then again, if you're the type of person who really values impressing people, you'll order the most expensive bottle. And make absolutely sure nobody forgets it.
But let's pretend you're on a bit of a budget, you're spending your own money, and you want to choose the best value without looking like a cheapskate.
Voila, you choose the $48 bottle.
But what if the restaurant already knows what you're likely to do? What if the restaurant actually does intelligent market research on its customers, and it already knows their two biggest selling wines will be the most expensive and second-least expensive items on their wine list?
What would you do if you were armed with that knowledge? Well, duh. You'd adjust your pricing accordingly, and make sure your profit margins were highest on those two wines. You would chose those wines--and set all your prices--with that in mind.
If you don't care about wine, don't worry, I just used it as an example. Be assured, this phenomenon happens across nearly every segment of the consumer products industry: food, cars, hotels, vacations, clothing, and so on.
Hardly anyone can make fine distinctions among products, despite the fact that we love to convince ourselves otherwise.* The truth is, we usually end up using price as a default guideline to help us make our decisions, no matter how judicious, savvy or discerning we think we are.
But those prices have been chosen for us. And they've been chosen for us by someone who already knows our selection tendencies. Which means we are playing right into their hands and letting them decide the terms and conditions of our consumption decisions.
Readers, what do you think? Do high prices signal quality to you?
* A side note: Here's something that will save you boatloads of money at very little loss of personal happiness: Simply accept the fundamental truth that, for many types of products you simply cannot tell much of a difference across wildly different price points. You can easily prove/disprove this to yourself by performing honest blind tastings of products across a wide range of prices.
How can I support Casual Kitchen?
If you enjoy reading Casual Kitchen, tell a friend and spread the word! You can also support me by purchasing items from Amazon.com via links on this site, or by linking to me or subscribing to my RSS feed. Finally, you can consider submitting this article, or any other article you particularly enjoyed here, to bookmarking sites like del.icio.us, digg or stumbleupon. Thank you for your support!