I read a Forbes article a while back, titled, “Restaurant Foods That Are Ripping You Off“. Basically, the article talks about how you think you might be getting a good deal at a restaurant by choosing a cheaper entree, but the menu price may not correlate to the true cost of the meal. For example, a plate of pasta and tomato sauce is MUCH cheaper to make than a prime steak, so the best value is to order the steak, even though it may cost a few dollars more.
This pricing scheme is due in large part to perceptions, and how perceptions contribute to value. It’s also part of the reason why I don’t generally choose Italian or Mexican restaurants when I’m in the mood for fine dining. I can make spaghetti and meatballs at home that are equally as satisfying as a restaurant dish, so I don’t want to pay such a high price for them to cook it. Similarly, I love cheese enchilada dinners, but I know that the cost for the whole plate (including rice and beans), is pennies on the dollar. I’m willing to pay up to $9.99, but $15 for a plate of cheap food? Heck no! Now, it’s a whole different ballgame when we start talking about steak and seafood, since I can’t make an equally satisfying dish with either of those ingredients. If I’m going to spend good money at a restaurant, I want the items that I value more, based on my inability to provide equal value myself.
Perceptions make a huge difference in your ability to price your items. For example, my perception is that good seafood is hard to get in Texas, so it should cost more. This perception is generally true, since we have to get our seafood shipped in from other coasts (trust me, you don’t want to eat seafood out of the Gulf!) However, my perception is that cheese, tortillas, rice, and beans, are widely available, and the labor cost to make the food is low (I mean really, throw the rice in a pot and walk away, you don’t have to baby-sit!). Therefore, I don’t perceive that going to a restaurant for this type of food has much value. If people think that your items are commodities, or that they are easy to produce themselves, their perception will be that you don’t provide as much value.
Sometimes, perceptions have nothing to do with reality, and this is where marketers sometimes get a bad rap. People think that marketers just manipulate their perceptions, in order to contribute to the consumerist and corporate greed. While some do this, I’m not one of them. I will say that shaping perceptions can be helpful to the consumer, as giving brands a certain reputation makes it easier to buy for your budget, quality, and functional needs. However, a healthy dose of skepticism about claims “too good to be true” is a good way to make sure that your perceived value is in line with the true value of an item.