Wednesday, November 2, 2011

Is Price Synonymous with Value?

In a recent article over at, a story is told about Ernest Gallo (whom you may remember from his and his brother Julio's wine commercials in the 80s).  In the story, Ernest conducted an experiment in which he would pour two glasses of wine for his customers.  He would say that one glass was worth five cents, and the other glass was worth ten cents.  He found that every single person he did this to claimed that he or she enjoyed the ten cent wine more than the five cent wine.

The kicker?  Both glasses contained wine poured from the same bottle.  His customers had been fooled by the price, and not by the actual quality of the wine itself.

This got me to thinking about other items whose apparent value had a comparable price point.  When I think about the first generation iPods, for example, they had high price tags because they didn't have much in the way of cometition.  However, even when other companies got on the portable digital music player bandwagon, iPod prices remained high even while Zune and other comparable devices sold for much cheaper.

You might argue that the consistently high price for iPods was a product of the infrastructure that Apple had built in the form of iTunes when compared with the sparser resources for purchasing music on the other devices, but at the end of the day, an iPod and a Zune are basically just the same thing: a very portable hard drive.  The only real difference is the branding.

I guess my basic question for us is (and I'll use Apple as my example), is it the intrinsic value of an iPod what drives up the price?  Or, is it the high prices of Apple products in general that make us think that they're more valuable?  Let me know what you think in the comments.

Picture by kevin dooley

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