pricing and the brain

The Economist, which should be required reading for all citizens, has an interesting article on the price of goods and the biological effect that price has on the human brain. And by interesting I mean, for marketers at least, that this is a must-read.

According to research published in the Proceedings of the National Academy of Sciences by CalTech professor Antonio Rangel, if people are told that a wine is expensive while they are drinking it, they really do think it tastes better than the cheap one rather than just saying so.

There is a real, biological, positive reaction to higher priced goods.

Rangel came to this conclusion by scanning the brains of volunteers while giving them sips of wine. He used some technical wizardry to detect changes in the blood flow in parts of the brain that correspond to increased mental activity, particularly in the area of the brain that experiments have shown is responsible for registering pleasant experiences.

Volunteers were given sips of wine from what they were told were five different wines, each priced between $5 and $90 a bottle. Each volunteer was told the price of the wine as they sipped…except that the prices were not real. Only three wines were used with two of the three served up twice at different prices.

wineglass.jpg

The experiment showed more activity in the “pleasure” part of the brain when the price increased. In fact, the same wine, when told that it was $10 a bottle, was rated as half as good as when volunteers were told that it was $90.

When they followed up with a blind test – no prices were given – volunteers found no different in taste between the same wines that were served twice.

A higher price made people physically enjoy the product more.

The implications for marketers are huge; people may not be spending lots of money on things because of pretence or status or because they have nouveau taste, but because they biologically feel that what they have bought is superior simply because it is more expensive. If you’re Target, maybe you don’t advertise that your prices are equivalent within a percentage point or so to Wal*Mart’s – it’s not a big ticket item, but the higher price perception may still affect people. If you are an American car company, perhaps big discounts is not the way to move cars; after all, Lexus is simply a re-badged Toyota and people love them. The list goes on.

And the implications go on as well…

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2 responses to “pricing and the brain

  1. I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you.

    Matt Hanson

  2. What would be a fantastic follow up study is to see how the higher-priced items compare to the feeling of getting a higher priced item (or higher valued item) at a lower price. The search for the “deal” is exhilarating for many, and I would suspect the brain scans would be quite impressive when a participant was able to “shop around” and get a $100 bottle of wine (or shoes or service) for a heavily discounted price either through a particular distributor or via special discount.

    Not everyone cuts coupons for $.50 off a six-pack of toilet paper, but give someone $20 off a big purchase they want/need and see the majority elate.

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