One can break down a price tag into several components:

The mundane component represents the fundamental value proposition: it is a bag with handles that you can tote all your crap around in.

The premium component represents the differentiators that make it, objectively speaking, a better buy: LV handbags do have better materials and better construction, and they last longer.

The peacock component represents purely social value: a proxy for reputation, a status signal, perhaps. Spraying the LV mark across the front of the bag makes it worth more, because people on the bus go "wow." If the LV sign were so small it couldn't be seen, the peacock value would drop to zero. That's why the Chanel logo is so big. That's why people pay extra for shirts that say DKNY and FCUK across their chests. That's why the Polo Ralph Lauren breast emblem looks like it has recently suffered an attack of gigantism.

The provenance component - there is no objective value in it and it doesn't show as a status signal necessarily, but hand-rolling on the thigh of a cuban maiden adds value to cigars. Likewise, mineral waters from himalayan hills, fairtrade and organic products sell at a premium because of the story they carry.

The service component - when so many products have become commodities nowadays, it's often the way they are sold that differentiates them. Sometimes that is trivial and transient (a cute, smiling retail assistant), sometimes it's ongoing service (a commitment to deliver digital TV schedules for a period to a TiVO type device, or to provide free upgrades)

The packaging component - that could be physical packaging (people LIKE buying things in an Apple store because it feels like a temple of design and they are aesthetically pleasing), or it could be bundling with other products and services.

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