What is the difference between a luxury product and a utilitarian one? Is it a difference in quality, technological advancement, durability, reliability, design, craftsmanship, raw material or the cost of manufacture? Or is it a question of brand-name prestige; and if so, it may boil down to the simple fact of consumer perception. Naturally, such perceptions are the intended target of advertising which leads one to form a strong and favorable impression about the superiority and desirability of whatever product that is being advertised.
One of the most powerful psychological effects is the one that makes us equate price with quality. This is to implant the idea that if it is logical to assume that a higher quality product would cost more, it would be safe to assume high quality if the price is high. Apparently, the higher the price - the higher the quality. The added snob appeal that is bestowed by the exclusivity that high prices engender only reinforces the intangible value of prestige.
This is called the Chivas Regal Effect. This took the name of a particular brand of scotch whisky called Chivas Regal. Marketing legend says that Chivas Regal once solved their problems of low sales and struggling market share by counter-intuitively doubling the price of their scotch whisky without changing the whisky. Instead of scaring away consumers, it had the opposite effect of boosting sales greatly because consumers saw such high prices as evidence of quality.
One good way of appreciating the power of the Chivas Regal Effect is to look at the world of luxury watches. Watches can cost only $10 to $20 or they may fetch millions of dollars at auctions. Even a run-of-the mill popular model like the Rolex Submariner costs several thousand dollars.
This is truly weird consumer psychology.
