Pricing Concept: The Informational Value of Price

The price conveys information about quality with validity for consumers that few other information elements possess.

The Informational Value of Price

“So help me dress for my fairytale, can’t wear something I bought on sale. Love is, like, forever. This is no time to economize.” ― Elle, Omigod you guys, Legally Blonde.

A product’s price embeds and conveys useful information about its quality. If all I tell you about one particular automobile is that its price is $85,000, images of a posh luxury car are likely to dance before your eyes when no other information about the vehicle is given. It is unlikely you will imagine a hatchback or a minivan costing $85,000.

On the other hand, if I say that my lunch today cost one dollar, you will confidently guess I had a taco or a hot dog from a food truck, not a gourmet multi-course meal in a French restaurant. Even when the food, whether it is a hot dog or a carefully composed plate of risotto with seasonal vegetables, is shown to you, its price will still influence how you evaluate it and what you expect from it. Price and quality go hand in hand. One conveys information about the other, whether it is explicitly stated or not. This is the informational value of the price.