Customers often value a good more when its price goes up. One reason may be its signaling value. An expensive handcrafted mechanical watch may tell time no more accurately than a cheap quartz model; but, because few people can afford one, buying it signals that the owner is rich.
Interpretation
Higher prices can increase perceived value due to their exclusivity.
This quote by Raghuram Rajan highlights the psychological phenomenon where consumers tend to value products more when they are priced higher. It emphasizes that an object’s price can act as a signal of quality or status, illustrating how a luxury item, like an expensive watch, carries more perceived value not solely based on its functional benefits but also on the social status it conveys to others.
In practice
This quote can be used in a marketing presentation to illustrate how brand pricing strategies can influence consumer behavior.
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