The Psychology of Pricing: Why Do Some High-Priced Goods Sell Better?

The Psychology of Pricing: Why High Prices Can Drive High Demand The term “Overpriced” is frequently used to describe products with price tags that appear disproportionately high relative to their actual quality or production costs. However, despite the negative connotation, setting a premium price can sometimes lead to an increase in sales. Why does a higher price tag occasionally result in better performance in the market? The Strategy of Premium Pricing In marketing theory, “Premium Pricing” is a strategy where products or services are priced higher than competitors to cultivate an image of luxury, superiority, or exclusivity. In some instances, these prices reflect high research and development (R&D) costs or superior quality. For example, supercars command high prices due to their specialized high-performance engines, aerodynamic bodies, and advanced suspension systems designed for high speeds. These factors lead to significantly higher production costs compared to standard daily vehicles, justifying their premium market position. Psychological Drivers Behind the Success of Premium Pricing Several marketing and psychological concepts explain why this strategy works: The Marketing Placebo Effect: This phenomenon occurs when a premium brand image combined with a high price influences consumers to perceive a product as being of higher value, even if it is objectively similar to cheaper alternatives. Case Study: A 2015 study published in Scientific Reports tested 30 volunteers tasting wine while undergoing MRI scans. Participants were told the wines cost 3, 6, and 18 Euros, respectively. In reality, all samples were from the same 12-Euro bottle. The results showed that participants consistently rated the "expensive" wine as tasting better, demonstrating how price directly shapes sensory perception. The Veblen Effect: An economic concept where demand for certain luxury goods increases as their price rises. This contradicts the standard law of demand. For luxury handbags, high-end watches, or rare collectibles, a high price serves as a status symbol, signaling social prestige and exclusivity. Accelerants of High-Priced Sales Beyond initial positioning, other psychological factors can accelerate the sales of expensive goods: Fear of Missing Out (FOMO): The social anxiety that one is "out of trend" or missing a popular movement. When high-priced items become trendy, FOMO drives consumers to purchase them to maintain social belonging. The Scarcity Effect: Consumers tend to assign higher value to items that are difficult to obtain or limited in quantity. When expensive products go viral through influencers, temporary shortages can further heighten desire and demand. Conclusion While these psychological triggers can make high-priced goods sell well, the strategy is not without risk. If the product fails to deliver a quality that justifies the cost or fails to satisfy the consumer’s emotional expectations, it can lead to severe brand dilution and a loss of consumer trust. Credit: MarketThink