Consumers don't always equate higher prices with quality

Oct 14, 2009 By George Lowery

(PhysOrg.com) -- A new Cornell study finds that while higher prices may generate a more positive view of products, a higher price tag doesn't mean consumers will necessarily buy them.

Consumers tend to think that the more things cost, the more they're worth. But a new Cornell study finds that while higher prices may generate a more positive view of products, a higher doesn't mean consumers will necessarily buy them.

Cornell behavioral economist Ori Heffetz and his colleague Moses Shayo of Hebrew University of Jerusalem conducted two food-related experiments to test the link between price and perceptions of -- a key precept of modern marketing to status-driven cultures the world over.

Their findings are published in the October issue of American Journal: Applied Economics (Vol. 1, Iss. 4).

In a laboratory experiment, the researchers asked college students to choose from candies with different prices before and after tasting them. In a field experiment at an upscale Tel Aviv restaurant -- without the knowledge of diners or servers -- the researchers manipulated prices on the prix fixe menu to assess the impact of the food's cost on choices diners made.

In both instances, higher prices didn't cause the expected higher demand suggested from findings in previous studies.

"The results came as a surprise," said Heffetz, an assistant professor economics at the Johnson School. "We expected to find large effects when we started the project, and that did not happen."

Price has some effect on demand, but "The effects were too small to matter," said Heffetz, who also found that participants in the experiment did not clearly favor higher-priced items.

"More expensive products might be perceived as more attractive -- which could increase demand -- but they are also more expensive, which our study showed decreased demand," said Heffetz, who has previously worked on conspicuous consumption, spending in the quest for social status and the effects of prices.

Heffetz cites marketers, anthropologists and philosophers in his work, which aims to anchor economics to real-world situations rather then rely on abstract theoretical models to explain how money moves. "A huge majority of behavioral economists work at the intersection of social science and economics," he said. "I consider myself a behavioral economist, but I'm a minority within those because I read more sociology than I do psychology."

At the Johnson School, Heffetz teaches graduate students about interest rates, inflation, growth, recessions and expansions, and international trade. "I bring insights from research to class," he said. "I try to have my students understand what [Federal Reserve System Chairman Ben] Bernanke and the Federal Reserve do, and look at the links between financial markets and the macroeconomy. Any of these things are strongly related to people's expectations, opinions, beliefs.

"A lot of it is really about what players in the economy think, how they process information, how they form expectations -- a lot of behavioral stuff," he said.

Provided by Cornell University (news : web)

Explore further: Study finds Illinois is most critical hub in food distribution network

add to favorites email to friend print save as pdf

Related Stories

Pricing practices cost consumers

Apr 12, 2007

You may be paying more for that can of soup or loaf of bread, depending on whether they have an individual price sticker or not. A new study from the DeGroote School of Business finds grocery items individually ...

Study explains how consumers react to prices ending in 99

Jun 06, 2005

Have you ever wondered why prices do not often end in simple round numbers? Decades of research have focused on the issue of pricing and a new study published in the June 2005 issue of the Journal of Consumer Research analyz ...

Study: Immigration can lower prices of consumer products

Aug 23, 2007

An important new study examines how immigration influences the prices of consumer goods. The study, forthcoming in the Journal of Political Economy, challenges the predictions of the perfectly competitive model – that a ...

Recommended for you

Ancient clay seals may shed light on biblical era

20 hours ago

Impressions from ancient clay seals found at a small site in Israel east of Gaza are signs of government in an area thought to be entirely rural during the 10th century B.C., says Mississippi State University archaeologist ...

Digging up the 'Spanish Vikings'

Dec 19, 2014

The fearsome reputation of the Vikings has made them the subject of countless exhibitions, books and films - however, surprisingly little is known about their more southerly exploits in Spain.

User comments : 1

Adjust slider to filter visible comments by rank

Display comments: newest first

theken101
not rated yet Oct 14, 2009
Most of the studies showing higher cost equals higher demand concern "durable" goods and services, rather than food items. People will pay a premium on things they will repeated use; perhaps not so on things they only eat.

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.