The Hindu Business Line : Grandmother psychology

As is typical of elderly people, she would gift it to her grandchildren but not before letting them know that the chocolates were the most expensive available in the store! My friend, who is the eldest grandson, thinks that his grandmother is showy. But there seems to be some psychology behind her buying decision. What is it?

Suppose you want to buy a raincoat. Would you buy a branded product? Or would you buy an unbranded one that is 40 per cent cheaper? If you think like a typical consumer, you may prefer to buy a branded product. Why?

Price, a proxy for quality

Often, you may be unable to determine the product quality, unless you use it. So, you adopt price as a factor to determine quality.

That is, costlier the product, better the quality. So, you may conclude that the branded product will be better than an unbranded product.

Now, extend this logic to all branded products. What if you have to choose between two branded raincoats?

If you have not heard of either brand, you may be biased toward the costlier one.

My friend’s grandmother does the same thing — always. She uses price as a proxy for quality. Manufacturers understand buyers’ psychology.

Some manufacturers may choose to price products higher than their competitors to signal superior quality.

Often, the product quality among brand manufacturers may be the same! In fact, raw material for the product may be sourced from the same suppliers.

Ready-to-wear garment is a classic example. Prices may vary widely among brands, but the underlying material may be the same.

You are paying a higher price for the brand value, which you may argue is a proxy for quality. Whatever the argument, you will be now able to appreciate my friend’s grandmother’s economic decision.

(The author is a Chennai-based financial analyst.)

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