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Price vs Quality – How Much Does Marketing Influence You?

Wine and Real Estate – Is There A Difference?

A recent study that was reported in the Times Colonist this morning suggests that people are highly influenced on their perceptions of quality by the price, which suggests that by simply pricing a particular product higher could influence its target market into perceiving it as higher quality than it actually is.Wine

The study involved red wine – cabernet sauvignon – priced from $5 per bottle to $90 per bottle. Partcipants were given samples of the wine and asked to report on how pleasurable the experience was, while at the same time being measured for brain activity in the pleasure centre of the brain, the medial orbitofrontal cortex. The study indicated that the mere expectation of quality – being told the price of the wine to be sampled – caused the participants to report the experience as more pleasurable and created brain activity in the pleasure centre.

This got me thinking about how this could apply to real estate. Studies show that properly prepared homes sell faster and for more money. Some services will even furnish your empty investment property – called “staging” – to prepare it to wow buyers and sell for top dollar quickly. Any good REALTOR® should be able to show you how to prepare your home to sell.

But the principles in the study apply the other way around. Can you simply price your home higher than your neighbours and have buyers perceive it as higher quality? Market economics would suggest that you could not – but have you seen this, driving around a neighbourhood with a price list in hand? Will discerning buyers be attracted to your house, simply because it’s priced higher than the others around it? Will they assume it’s built better, has better features, is in a slightly more desirable location than its comparables?

In any market, there is a home that is priced higher than the homes around it. And often it sells just as quickly as the lower-priced homes. I think it is safe to assume that the market forces of supply and demand will prevent anyone from overpricing their homes just to attract high-end buyers. The higher-priced home must have had something about it that made it more valuable than the others.

The more intangible aspects of wine (the subtle differences which only a true connoisseur would notice) make it more susceptible to this kind of price-influenced perception than housing. Homes and real estate have more tangible features such as fixtures and finishing, decks, landscaping, views, etc. that even the first-time home buyer can discern.

What do you think? Comment below!

Tim Ayres

P.S.: For a humourous look at  this concept, check out this video from Penn & Teller’s BULLSHIT! show (warning: profanity). Fast forward to 3:10 or so for the wine bit, but the whole video is the same concept with food. They do a similar show about bottled water.

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