Aesthetic appeal and economic value

Glenn Reynolds' new TCS column entitled "Look and Feel" is about the increasing focus on design rather than functionality in today's society. Products are becoming shiny, personalized vehicles of self-expressions and individuality, valued more for their look and feel rather than their what they do. Glenn mentions Virginia Postrel's new book The Substance of Style which from what I have gathered reading her blog and various excerpts, has a similar theme.

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I worked at a Champs Sports store while in high school back in the early 90's, which besides being a dream job for a teenager, gave me an awareness about the importance of aesthetic appeal long before the Subjective Theory of Value explained it in praxeological terms. In addition to shoes, sporting goods, and clothing, one of the items we sold was backpacks. During the back-to-school sales, a seemingly strange phenomenon occurred. We carried two brands of backpacks - Jansport and Eastpack. They were displayed on the same wall in the same manner. The Eastpack models were made in basic colors and a more functional style, whereas the Jansport models were made in bolder colors and 'edgier' styles. Corresponding models between the two brands, however, had essentially the same size, form, reliability, and warranty. Yet, for some reason the Jansport backpacks were priced about $10 higher and still outsold the Eastpack backpacks by a wide margin.

Why? Were the students who desired these Jansport backpacks simply being 'irrational'?

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Not only were the Jansport backpacks viewed as more stylish, but they also had become a status symbol among high school teenagers. Nobody wanted to show up at school with an Eastpack. An Eastpack was thought of as something you took camping, whereas carrying a Jansport on your shoulder was, as silly as it sounds, high fashion.

The higher prices for the Jansport backpacks were not due to any sort of greater intrinsic value that they contained. Rather, teens wanted to buy something altogether more abstract - a style, a brand, an image, and even social status - all in the form of a backpack.

If there is to be a coherent foundation for the study of economics, then it must take into account the fact that high schoolers might value a particular backpack as a means to achieve 'coolness', that people are willing to pay $200 for a pair of sneakers that Michael Jordan endorses, that FUBU attire is desired by some because it confers a degree a 'street cred', and that white colors might not sell after Labor Day. Only the Subjective Theory of Value gives a satisfactory explanation without resorting to labels of irrationality or 'abnormal' behavior. Individuals take action to pursue self-defined ends which could vary drastically from one person to the next, and any object is valued in terms of how it might be used to achieved these subjective ends. There is no intrinsic value for any object. Seemingly idiosyncratic qualities such as aesthetic appeal and cultural context are no less important than more practical attributes of purpose and function in determining value. As fickle are the tastes, desires, inclinations, longings, preferences, urges, and fetishes of the human experience, so is the nature of economic value.

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1. I think one of the best

1. I think one of the best examples of this is Harley Davidson motorcycles. Harleys (besides the V-Rod, Sportsters, or Buells, which still leaves about twenty-five models of "real" Harleys) have weak, air-cooled paint-shaker engines, poor cornering clearance, spotty reliability, poor brakes and frames, and often suspect engineering quality.

And they're very expensive, often commanding 50% higher MSRPs (and dealer markups on top of that) than comparable or *functionally better* Japanese cruisers. And I like to make fun of people who buy Harleys.

But people are willing to pay asking price because of the intangibles. The perceived quality, the lifestyle, the tradition, the look, even the sound.

2. I worked at a convenience store for a couple of years. We sold gallons of milk for $3.99 at a time when the grocery store down the street had them for $.99 or $1.49. People still bought our milk, at the much higher cost, which can be explained by the shorter walk and the shorter wait in line.

But what doesn't make sense to me is what I see at Albertson's right now. For months they've had two sets of prices for milk. A couple brands are $1.99 and a few brands are $3.79! I can't find a difference. Same packaging, same pasteurizing, probably essentially the same cows.

They never seem to run low on any of the brands. What would cause someone to purchase the $3.79 milk? I have to think it's just a case of not bothering to read the price. Either that, or some milk-buyer is under the impression the higher-priced milk is somehow "better" by virtue of its higher price. Do you get what you pay for?

3. There was a concept in marketing class during our studies of pricing strategies where, basically, producers of high-end/price elastic goods have to be careful not to price their good too low. Consumers *want* the higher prices, as some way of putting their mind at ease that what they're buying is of sufficient quality.

The upshot was that some firms look at the possible range of prices vs. expected sales not as a linear relationship, but as a bell curve.

4. In your example, if you had been in charge (pretend the corporate office couldn't stop you), would you have lowered the price for the Eastpack and/or raised the price for the Jansport? Do you feel the given prices, even with Jansport being $10 higher, were out of equilibrium with demand?

Kevin, 1. I think one of the

Kevin,

1. I think one of the best examples of this is Harley Davidson motorcycles. Harleys (besides the V-Rod, Sportsters, or Buells, which still leaves about twenty-five models of "real" Harleys) have weak, air-cooled paint-shaker engines, poor cornering clearance, spotty reliability, poor brakes and frames, and often suspect engineering quality.

And they're very expensive, often commanding 50% higher MSRPs (and dealer markups on top of that) than comparable or *functionally better* Japanese cruisers. And I like to make fun of people who buy Harleys.

But people are willing to pay asking price because of the intangibles. The perceived quality, the lifestyle, the tradition, the look, even the sound.

Good example. I think one thing I should emphasize that might have been misinterpreted from my post is that although I seem to have made some sort of differentiation between 'functional value' and 'aesthetic value' (and I'm not sure what Instapundit's or V. Postrel's thoughts are on this), there is still only one category of economic value - subjective. Whatever those functional and/or aesthetic qualities are, they are valued according to how they are judged to potentially help attain a higher state of satisfaction.

2. I worked at a convenience store for a couple of years. We sold gallons of milk for $3.99 at a time when the grocery store down the street had them for $.99 or $1.49. People still bought our milk, at the much higher cost, which can be explained by the shorter walk and the shorter wait in line.

Another good example. Same thing at the movies. People often pay 5-10 times the unit prices for sodas at the theatre than they do at the local supermarket. Again, if you look at things from how they help achieve individual ends, it fits. The end states that have to be ranked on an individual's rank list are:

A) Having possession of a gallon of milk, not having possession of $3.99, having spent 10 minutes obtaining the gallon of milk
B) Having possession of a gallon of milk, not having possession of $0.99, having spent 45 minutes obtaining the gallon of milk
C)
D)
E)... (For example, not having possesion of milk, keeping all money, spending next hour surfing net)

Some individuals prefer to rank A ahead of B. Others rank B ahead of A. Whatever choice the individual makes depends on his subjective desires of end states of being.

(The judgment of what end states individuals ought to prefer is left to the study of ethics and aesthetics.)

But what doesn't make sense to me is what I see at Albertson's right now. For months they've had two sets of prices for milk. A couple brands are $1.99 and a few brands are $3.79! I can't find a difference. Same packaging, same pasteurizing, probably essentially the same cows.

They never seem to run low on any of the brands. What would cause someone to purchase the $3.79 milk? I have to think it's just a case of not bothering to read the price. Either that, or some milk-buyer is under the impression the higher-priced milk is somehow "better" by virtue of its higher price. Do you get what you pay for?

For some people, the satisfaction of paying a higher price is enough to prefer that end over all others.

3. There was a concept in marketing class during our studies of pricing strategies where, basically, producers of high-end/price elastic goods have to be careful not to price their good too low. Consumers *want* the higher prices, as some way of putting their mind at ease that what they're buying is of sufficient quality.

Exactly. It is the end state of satisfaction that drives human action.

The upshot was that some firms look at the possible range of prices vs. expected sales not as a linear relationship, but as a bell curve.

It is emphatically a bell curve.

4. In your example, if you had been in charge (pretend the corporate office couldn't stop you), would you have lowered the price for the Eastpack and/or raised the price for the Jansport? Do you feel the given prices, even with Jansport being $10 higher, were out of equilibrium with demand?

I'm not sure about prices being out of equilibrium with demand. (I'm not exactly sure what that means.) As the manager, I would try to appraise the preferences of customers by setting the price of each brand of backpack such that the total revenues obtained would be maximum, i.e., the highest point on the bell curve of revenues vs. price as price increases from zero to infinity (although my choice for price is also affected by my own desire to outcompete my competitors potentially at a lower price that results in lower total revenues - another topic for another day). I cannot peer inside the heads of the customers to know their preferences, and their preferences change and reshuffle from one instant to the next in response to their ever-changing states of dissatisfaction, but I would do my best to estimate the prices at which my revenues would be greatest. I do not remember enough about the particulars of the situation to know if I, as a mere peon sales associate, thought the backpacks were priced appropriately towards that goal.

Good observations. Only

Good observations. Only point I would be inclined to add on the Jansport analogy is that teenagers had a much easier time convincing their parents to purchase the Jansports is, even though they were somewhat more expensive ($10 or so is not that much of a price increase on a backpack, especially for people choosing between and Eastpack and a Jansport), once someone had purchased a Jansport, they never needed to purchase another backpack, as the Jansport warranty was such that no matter what happened to it, they would replace it. I didn't find the same to be true for Eastpack.

Regardless, however, your point is still valid. I can still remember during the late 80s/early 90s when "pump" tennis shoes were the rage, begging my parents to shell out $125 for the Reebok pump. And being the short, pudgy, unathletic type, there was no purpose for the purchase other than to "be cool."

I think your argument that there is no intrinsic value to any object, however, only works to a certain extent. While it is very true to items such as clothing, accessories, and to some extent automobiles, furnishings, etc., it doesn't always apply for some of the more 'basic' functions. People rarely choose the brand of gasoline they are going to purchase based on what color the pumps are, nor do they often choose a different supermarket because it offers another brand of milk.

Still, fascinating observations.