Economic and consumer psychology reveals how to charge high prices

Why we buy luxurySenior staff at RBS are pretty upset today. As part of the bank’s deal to fund its massive £390m fine for fixing interest rates the bonus pool is being plundered meaning that over 1,000 senior executives at the embattled bank will not be getting a fat cat bonus this year. That news comes on the same day as economic and consumer psychology research reveals that money DOES make you happier.

Perhaps we should gloss over the fact that this study goes against the findings of dozens of previous studies on the subject which have not found this effect. But the research is worthy of consideration because it is actually about a trend that is happening in Western cultures which is not seen elsewhere in the world. That trend is increased individualisation. We are all living in much more personal worlds – millions of people actually work alone in spite of being in office buildings. Their only regular contact is with a keyboard and a screen – not another person.

In the Western world individualisation is treasured. Indeed, legislation is constantly being introduced to give us more personal freedoms, such as the gay marriage debate this week in Parliament. And when things appear to attack our individualistic approach to life, such as the potential to monitor our online activity, there is outcry.

It is all about me, me, me…!

Previous research on the relationship between money and happiness took place in times when individualisation was less prominent. It seems that our relationship with money could well be changing; it is what money does for us as individuals that we now are attached to. If we don’t have much money, that is taken much more personally nowadays than it was in the past and thereby we can witness an increasing connection between money and our own happiness.

That relationship is also revealed in another study published this week which shows that people buy luxury goods because they make them feel good about themselves. We don’t buy luxury items because of their quality, nor because of their greater reliability or their economic value. We buy luxury items because they make us feel good about ourselves.

So if you want your products and prices to attract luxury level prices you might not need to worry too much about quality or reliability. If you focus the attention of your buyers on what your item does for them as individuals you are much more likely to be able to sell it.

Once again, these studies on economic and consumer psychology point out that what sales people have been told – focus on the pain – is wrong, plain wrong. You are much more likely to gain higher sales and higher prices if you focus on the personal pleasure your products and services provide to individuals.

Image courtesy of M-pics / FreeDigitalPhotos.net

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