Pricing and psychology of consumption

Well, well, here speaks the MBA (an ever present vigilant and suspicious being, paranoid of the workings of the society) inside me and raring to raise his head now and then with a rambling and a unique point of view on almost any topic under the sun. Well, don’t blame me. We MBA’s suffer from this serious problem of discussing a plethora of topics and love arguments. Blame this on the argumentative Indian genes (or Amartya Sen for highlighting this primordial instinct of ours!) or the Harvard Business School’s invention of the case study method of imparting “Management education”.
See, there I go again…..
Neways, coming back to the point, I read this sometimes back in the Business Standard. It was about the study conducted by a western university on the psychology of consumption and its direct relation with the price. The subjects were given a similar sample of wine and told that some of the glasses had very expensive wine than other glasses. This control experiment resulted in the confirmation of the view that pricing affects our outlook towards a particular product. The subjects who drank the “expensive” wine were sure of the “superior” taste and finesse’ of that wine.
Come to think of Indian situation. As we have yet to mature in the hospitality and service industry at large, as compared to the standards set by the West, this experiment holds valid today more than ever. Whenever I have visited some of the more “up market” restaurants of Delhi and other cities, I have been appalled at the lack of customer orientation and product quality being served there. But the hordes of families visiting these restaurants only affirm the experiment results being mentioned above. Either it is the boosting in the self image one gets by spending more money, or the perception that better quality necessarily comes at a better price, or a combo of two. It is also confirmed by the second grade garments and shoes on display at many of the swanky malls of Delhi and NCR (of rest of India, I am yet to explore) carrying a hefty price tag on them. Take a closer look at these private labels by some of the most reputed names in the Indian retails scenario longing for your attention at the glass shelves, and we can surely perceive the difference in quality. But when bought, we tend to think it of as a better quality one! And not all of us consumers are so discerning ones; neither have much time on our hands to become an undercover economist every time we go to a retail/departmental store. So this keeps on repeating.
To conclude, it can be very safely said that consumption is driven not so much by the actual cost of a paid-for product as by its perceived cost. This perception is influenced greatly by the manner in which the product is priced.