The price placebo effect

Fractal“You get what you pay for” – it’s a common refrain. Price as shorthand for quality: when something costs more, expectations are higher.

Business has played on this notion for decades. The empowered consumer may know that budget and upmarket retailers share suppliers but this bias is hard to shake. People assume that the more expensive product will be superior when two otherwise identical products are compared. You pay more, you expect more.

The Power of Expectationon Radio 4 summarised research by Stanford neuro-economist Baba Shiv. His research demonstrates the notion of “you get what you pay for” affects more than just the expectation of performance or purchase intent. His ingenious experiments prove price can also influence the actual effectiveness of a product. Subconsciously, our expectations affect our experience: how something tastes or makes us feel. A price-placebo effect operates: belief can alter the experience of a product in the same way that belief can alter the efficacy of a medicine.

Some examples:

  • The price placebo effect makes wine taste better. fMRI brain scanning showed people extract more pleasure from the same wine when they are told it is expensive.
  • The price placebo effect makes an energy drink more effective. Two groups of people drank an energy drink which claimed to improve mental acuity, and then were asked to perform a series of problem-solving tasks. Those who bought the drink at a discount performed worse at the problem-solving tasks than those who bought the same drink at its normal price.

In these examples price sensitises the brain’s pleasure centres. Professor Elizabeth Hellmuth Margulis summarises it thus:

“There’s something there in a sensory domain that’s being offered to you, and your relationship to it is determined by the combination of those intrinsic attributes and the set of expectations that you are bringing to the experience.”

Shiv’s work “examines the interplay of the brain’s ‘liking’ and ‘wanting’ systems and its implications for marketing and decision making.”

The brain’s ‘liking’ system here refers to our sense impressions of how something tastes or feels. The brain’s ‘wanting’ system refers to our expectations. The evidence shows our expectations moderate our sense impressions. A confidence trick you pull on yourself. A self-fulfilling prophecy.

Supporting evidence comes from Phil Barden’s Decoded – the science behind why we buy published last year. He describes a memorable experiment involving cake. Brown food colouring was added to a vanilla cake, to make it look like a chocolate cake. Respondents expected it to taste of chocolate because it was brown: many reported that the cake was indeed chocolate flavoured after eating it, despite it being vanilla flavoured. Expectations change subjective experiences.

The implication – that reality is perceived not actual – is fascinating. The very notion of objectivity, of trusting your own reactions, is called into question.

For Shiv the evidence is a “wake-up call for consumers, who need to look at rationalising their expectations, and focus on inner rather than outer cues, like price and packaging.”

Our expectations delude us: it’s just a matter of degree.

Further reading: Seth Godin’s eBook on implications of the placebo effect for marketers can be found here

Guardian article “Food presented artistically really does taste better”

About Simon Shaw

I'm a Director at an insight consultancy. I'm interested in marketing, market research & consumer psychology. The views expressed are not necessarily those of my employer.
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