What is the Chivas Regal Effect?
The Chivas Regal Effect is all about the perception of price and quality. Before I explain further, let’s flashback to the history of the emergence of this Chivas Regal Effect. The name Chivas Regal is a brand name for a Scotch whiskey produced in 1786 by the Chivas brothers, using their home Strathisla in Keith, Moray in Speyside, Scotland as a distillery. Long story short, this whiskey brand is now a premium brand, whereas in the past the Chivas Regal brand was not very popular and even rarely known. There is a unique story behind the success and popularity of this Chivas Regal whiskey, which later gave birth to what is called the Chivas Regal Effect.
It started when the Chivas brothers were struggling to promote their whiskey to the upper class, as well as to boost low sales. In general, the marketing strategy adopted by producers to seize and gain market share, apart from lowering prices, is to improve product quality. But Chivas Brother actually did something different, the quality was not improved and the price was doubled. This is like a premium pricing strategy. Well, this price increase actually got a response from consumers, who in their minds “this whiskey is expensive, the quality must be good” and boom… sales exploded, Chivas Regal got a place as premium whiskey, even though the quality has not changed, it’s still the same as first produced.
The story above is the early history of the emergence of the Chivas Regal Effect, namely how the effects caused by consumer thinking that high prices reflect the quality of the product. The assumption is, the more expensive the product, the higher the quality, even without any objective reason to justify that thought. In 2012 a study was conducted by the “Journal of Consumer Research”. They asked several people who were sampled to choose in terms of quality, choosing advertisements between expensive and cheap whiskeys, and the majority chose advertisements with expensive whiskeys. However, if asked to choose in terms of value for money, the majority of cheap whiskeys are chosen. This means that the Chivas Regal effect does not always work for all consumers.
Is implementing a pricing method like Chivas Regal effective?
For consumers who ‘glorify’ prices, this Chivas Regal effect works effectively. In fact, there are still many consumers who believe that the price can represent quality, even without checking the quality of the product. Apart from the prestige price, the Chivas effect is also certainly effective when consumers do not have good product knowledge, meaning that these consumers lack information related to the product to be purchased, and do not want to do research beforehand on the quality of the product.
Contrary to the above, of course the Chivas Regal Effect will not be effective when consumers are very concerned about what is called ‘price’, plus those who have brand awareness and product knowledge. When it turns out that the selling price offered exceeds the budget set by consumers, they will tend to look for other substitutes, which are cheaper but with the same quality or at least not too far away.
The Chivas Regal effect is a tendency for product sales to increase significantly after the price is significantly increased. It started with a liquor company from Scotland called Chivas Brothers with its Chivas Regal brand which produces scotch whiskey which at the beginning of its establishment recorded sales below expectations. One day the owner of Chivas Brothers decided to increase the price of the Chivas Regal in the hope of attracting the attention of consumers. It turned out that this strategy was successful because when the price was doubled, it also resulted in a twofold increase in sales compared to before.
Why did Chivas Regal sales increase after the price was raised?
There are several reasons that make the sales of the Chivas Regal brand increase significantly after the price is increased, namely: (i) attracting consumers’ attention, (ii) the tendency to associate price with quality and (iii) the taste is really good. Let’s discuss the first point about, if you ever go to a restaurant you will usually be given a piece of paper or a book that contains a complete menu list with prices. Some people will try to choose the menu with the cheapest price, but not a few people choose the most expensive menu. Now back to the discussion about chivas regal, once the price is raised, those who are used to buying whiskey type liquor will realize there is a new brand that seems worth trying. So that sales of chivas regal also increased in various bars to places selling alcohol. The second point is the tendency of some people to associate higher prices with better quality. When people who are whiskey fans know that there is a new product with a fairly expensive price, some will estimate that the quality is also good and decide to try it. This phenomenon occurred throughout Scotland and resulted in a significant increase in sales. The third point is that there is a possibility that many consumers actually like the taste offered by Chivas Regal whiskey, so that after trying it for the first time, they finally decide to buy again in the future and sales continue to increase.
The chivas regal effect does not apply to all products, especially to products with several characteristics, namely (i) aimed at the lower class of society, (ii) many consumers who understand this type of product. We can see the first point in everyday life, a condition that is quite real shown by the Xiaomi brand, which from the beginning has focused on marketing quality smartphone products for low-end consumers. If one day product X with specification A is launched at a price that is more expensive than competitors, it is likely that product X sales will drop and there will be no such thing as the chivas regal effect. The second point also occurs in the smartphone industry sector, since the last few years there have been thousands of influencers who create smartphone review content using social media such as YouTube, Twitter to Facebook to educate the public about the quality and specifications of a smartphone. Finally, people understand which products have prices according to the value and which products are more expensive than the value offered.
