Why do people spend more money on a branded product?

Thank you for your interesting question. From a psychological perspective, there are at least two factors that might explain why people are often willing to spend more money on branded products than on products (of comparable quality and performance) from unknown manufacturers. Firstly, branded products can be a status symbol. They reflect a person’s social standing and can therefore signal affluence and social status: ‘I can afford a product that not many other people own.’ This is particularly true when the product is in a higher price bracket.

Regardless of the price bracket, however, there is another interesting psychological aspect: if we are familiar with a brand, we may also use this information as a useful cue for our purchasing decision. We might assume that a previously unknown product is likely to satisfy us if we are already familiar with other products from that brand with which we have had positive experiences. In addition, well-known brand manufacturers are likely to be perceived as offering more reliable product support and warranties, as such manufacturers can often draw on a longer history and also have a reputation to uphold. Finally, it is quite possible that consumers infer a product’s quality from its price and the recognition of the manufacturer’s name.

As price and quality typically correlate in markets, the conclusion is obvious: ‘This is a more expensive product from a well-known brand, so it’s likely to be of high quality too.’ Recognition of brands and company names can therefore serve as a cue that remains robust over the long term. Many millions are spent annually on advertising, primarily to ensure that consumers recognise a brand (Goldstein & Gigerenzer, 2002). The content of the advert often plays a far less important role than the mere recognition of the company name. Psychological research also shows that even schoolchildren rely on recognition when forming judgements and making decisions (Horn et al., 2016).

References:

• Goldstein, D. G., & Gigerenzer, G. (2002). Models of ecological rationality: The recognition heuristic. Psychological Review, 109(1), 75–90. https://doi.org/10.1037/0033-295X.109.1.75
• Horn, S., Ruggeri, A., & Pachur, T. (2016). The development of adaptive decision-making: Recognition-based inference in children and adolescents. Developmental Psychology, 52(9), 1470–1485. https://doi.org/10.1037/dev0000181