One of my favorite sports’ movie scenes is from “Major League”
Newly hired manager Lou Brown is chatting with the Indians’ general manager.
One of the team’s players –Roger Dorn – pulls up in a fancy ride, hops out and unloads his golf clubs.
Brown says to the GM: “I thought you didn’t have any high-priced talent.”
The GM shoots back: “Forget about Dorn, he’s just high priced.”
Lou Brown almost fell for a common trap …
Sometimes people do perceive that higher priced products are better – even when they’re not.
They’re subconsciously using price as a “quality cue”.
Here’s some research that supports the dynamic …
Standard economic theory holds that consumers independently evaluate the quality of a product and its price in order to make trade-offs between quality and price.
According to this theory, people will be willing to pay more for product A than B if they perceive that A is better than B.
But consider the following experiment, in which
Researchers gave 125 people a beverage that claims to increase mental acuity, and then asked them to solve a series of word-jumble puzzles.
They informed people that the regular price of the beverage was $1.89.
However, they sold the drink at a discounted price of $0.89 to half the participants, selected randomly.
The researchers found that people in the discounted-price group not only reported lower expectations of the drink than those in the full-price group, but also performed significantly worse on the puzzle task, correctly solving 20% fewer puzzles.
Excerpted from Free Market Madness by Peter Ubel