Is brand reputation the key reason customers opt for the costly product

My MBA economics professor explained this in a fun way. A 19th-century rail operator in the UK had three classes: first, second, and third. The first was luxurious, the second had seats, and the third class--it was standing only with no cover. Why would you build a rail car and leave the top uncovered? It wasn't that the operator was saving money by keeping it open-air; it was to push people into buying 2nd class tickets and to remind them what they were getting above 3rd class. The price-sensitive folks opted for 3rd class even though they were rained on. In essence, pricing is in the eye of the shopper. By creating segmentation, I capture customers who value something beyond the price I charge. This is a simplification, but the reasoning stands. Yes, premium services have extra features, but the primary purpose is to capture customers willing to pay more. The brand is more about protection from competitors, not absolute price. Yes, certain brands target the luxury segment, but others have equally strong recognition but don't command premiums. Think Pepsi and Coke; they have some of the most recognizable brands in the world but are hardly luxury items. The brand helps them keep out new market entrants.