Chivas Regal was once an obscure brand of Scotch whiskey. By raising its prices, it not only increased sales but also realized consumers associate price with quality. The Chivas Regal effect is based on the commonly accepted idea that we've all heard a million times - you get what you pay for. Back in the 1950s, Coca Cola was twice as expensive as Pepsi - despite very similar ingredients. Coca Cola was bigger, had more sales, yet when Pepsi increased it's prices, sales increased - enter the Chivas Regal Effect. In 2010, consumers pay more for brand-name bottled water, believing it is of better quality even though water is colorless, tasteless and odorless, and research shows that aside from PH and Alkaline levels - most bottled water is the same.
Why and When the Chivas Regal Effect Works
The Chivas Regal strategy works on consumers who already believe that price equals quality or those who have no other value cue or little knowledge of a product. It is often successful in commodity products when consumers understand that quality differs but they are unable to identify the difference objectively. Wine is a good example of this. A consumer who wants to buy a bottle of wine, but who doesn't know much about wine itself, may choose a more expensive one from a range of options. He understands that some wines are of better quality than others and may use higher prices as a measure of that higher quality. Another example is around the area of higher education and more specifically the cost of tuition at private colleges and universities. Many parents assume that a higher-priced education is a better education, where tuition increases are directly related to market perception and tolerances.
When the Chivas Regal Effect Doesn't Work
The Chivas Regal effect does not work on all consumers or for all products. If consumers have a different perception of value, they may not associate price with quality, for example. Low cost and value for money may equally trigger consumers to buy. It is also harder to implement this strategy if other cues affect purchase decisions, such as brand awareness or knowledge of product features. The price that consumers are willing to pay also matters; if a product exceeds that limit, they may not make a purchase.
How to Be an Educated Consumer
Test products such as whiskeys by pouring two brands into glasses and trying them for taste. Visit a college campus and talk with alumni to see what they've done with their degrees. You may honestly prefer the more expensive item, but you should know that you like the product for more than its expensive price tag.
