Paying for Perception

It’s been a long time since I blogged last time. Life has been extremely busy and tough for me, but fortunately I recovered. For some reason, this phrase keeps surfacing in my mind, so much so that I think it warrants a post about it–”intangible values”.

To start with, here is a question for though: how much are you willing to pay for a white leather bag? Does it matter that it was produced by LV or Hermes? Does it matter that it actually carries the logo of these brands? And what if you can pay half the price you are willing to pay and get a replica that no one can tell from a real one?

I bet (virtually of course) that after you think of a number after the first question mark, you were thinking about revising it at one of the subsequent question marks. And that is about perception, and this is something that constantly amazes me. Once you add an LV logo or Hermes logo to a plain leather bag, all of a sudden many people are willing to pay ten times more to get it. People are paying a lot of money for practically the same bag and yet happy about it.

Some of my radically rational friends would say this is “cheating”, “lying to the customers” and people should start realising this reality. In this case of a bag, maybe. But in many other cases, the kind of intangible value created by perception is, to my opinion, a good thing.

Once we complained about the long flight home, and at the end I asked, so what does it take to make the flight better? Almost all of my friends would say a shorter trip time or more legroom on the plane would be nice. These things are absolutely important in making the journey home better. But it would cost a lot to have planes that fly faster or bigger, even though I have no background in engineering.  So I said to my friends, what if the airline simply hires famous movie stars or supermodels to walk along the plane? I would imagine it costs far less than researching a faster plane and a lot of passengers would stop complaining the trip takes too long!

This is one of the reasons I believe that advertising companies are essential. From the economists’ point of view, advertisements provide more information to the consumer and to some extent correct the asymmetry of information. But most importantly, it creates intangible value, it creates perception. So what it does essentially is to create value in the economy without using much labour or machinery.

Material, as in real, values are important, as it would be quite difficult to generate the perception of being full or warm. However, as we adopt more and more internet in our life, lots of things are now virtual.  Millions of exchanges and transactions are never materialised but billions of revenues generated. So while many would till call this perception/intangible value an “illusion”,  it has great value and we need to accept the fact that we are willing, if not happy, to pay for it.