The old debate about whether pricier goods are more qualitative or if it’s merely a marketing trick is still present to this day, and for good reasons. Mainly, the debate cannot be settled because to simply put it otherwise: it’s both. Some companies truly have a need to sell more expensive goods, because they are more expensive to produce, and some companies just profit out of this by artificially inflating their prices even though the price of production is much lower.

Such examples of debates (note I said debate, and not fact) today could be of course Apple, which, some critics out there say, even though it delivers high quality products, their production costs are merely 20-30% of their final shelf price.

However, what we’re going to discuss here today is an even more controversial product, one which is even tougher to measure from a qualitative point of view. That is: alcohol.

Case study for this: Chivas Regal.

Chivas Regal had a decent quality whiskey with decent prices for the time, but it had however a hard time selling the whiskey. What can you do in such a situation? Improve the product, cut the prices or spend a huge amount of capital with advertising and marketing.

Chivas Regal chose the latter. Why? Simply because the liquor market enjoys a special part of advertising, that part which is called perception. Or, to state it in other words, in lack of definite ways of measuring the quality of the product, the marketing process is based merely on perception. Make people believe we’re the best, and we’ll be the best.

So what did Chivas Regal executives do? Nothing.

They didn’t improve the product, they didn’t cut the prices, they didn’t invest in marketing and advertising. They instead massively INCREASED the prices. Much over the average price, we’re talking here about 200-300% price increase. And guess what? People started buying it. They furtherly slapped a “Premium” label on it and packaged it in a much more appealing way. And there you go, luxury product.

This is explained simply because in lack of other things to measure (quality?) the average buyer is left with only one factor of appreciation, and that is perception. Which, in turn, is formed based on price. Because you cannot form your perception based on how good the color is, you look at the price and assume higher price means better quality and rarity.

The last two points would be the fact that people continue to buy the product even after they buy it, because really, they can’t tell if it’s better or not, in the case of whiskey, and secondly, most people fall for this trick because they are certain they wouldn’t fall for it in the first place. Or simply, they are victims of “third-person effect” which is a theory stating that the majority of people believe only others are affected by advertising, but not them, which is self-contradictory. (If everybody believes everybody else is affected but not them, we clearly have a problem.)

We’ll discuss the third-person effect in more detail in a later post. For now just keep an eye open for ‘luxury’ products and ask yourself this: are they really different from generic brands? Do an experiment. Next time you go to the market, buy two similar products (let’s say from the personal hygiene category), one really expensive, and I mean really, really expensive, and the second-cheapest one. Compare them and see which you like better. You would be surprised.

As for the third-person effect, it’s likely that you’re a victim of it too. That is, it’s likely that you also believe you’re not really that affected by marketing or advertising, and other people are more affected by it than you are. Do an experiment here aswell: name three products that you have in your bathroom (or fridge) that you haven’t seen a commercial or promotion for, ever.

Or ask yourself this: when was the last time you took advantage of an ‘offer’ or a ‘promotion’ or a ‘deal’ ? Yes, that’s marketing too.