Medical Science Verifies: Price Impacts Perceived Value

A student in my class last week in San Francisco sent me a great article from the Stanford Knowledge Base about how a products’ price impacts the value that a customer sees in the product.

We’ve long known that products that carry a higher price are generally perceived by the market to be higher quality.  Researchers from the Stanford Graduate School of Business and CalTech have taken this hypothesis to the next level.  They ran an experiment where they asked participants to consume wine at different price points from $5 to $45, while undergoing a fMRI (Functional Magnetic Resonance Imaging).  fMRI is used to detect blood flow in the brain and see how much the “pleasure centers” of the brain are engaged by different activities or products.

The hypothesis: that the higher priced wine would engage those pleasure centers of the brain more than the lower priced wine.  Which is exactly what happened…except unknown to the participants they were tasting the same wine each time, and being told that it was at different price points.  Wow!

Baba Shiv, one of the researchers, recommends that we pay less attention to the price and weigh the opinions of experts more heavily when evaluating wines.  If we just look at the price, we may unduly enjoy a wine that actually isn’t as good as the price it commands.  Even more fascinating – our expectations tied to price extend to medicine.  Researchers have shown that when we perceive a medicine to be more expensive, it can have a positive impact on how well it works.

Remember, when it comes to the value that someone sees for your product in the market, their perception is truly their reality.

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1 Comment

  • Reply Bruce McCarthy October 17, 2011 at 3:40 pm

    Hi Paul,

    We could pay more attention to what experts think before we’ve tried a wine, but I would prefer to forget both about price and the opinions of others and go with what my own palette tells me. I’m reminded of my reaction years ago to the Pepsi challenge. They claimed that more people preferred Pepsi in a blind taste test. “So?” I said, “Why do I care how it tastes to other people?”

    Of more interest to marketing, though, is what this tells us about how we should price our own products. It suggests that all things being equal, we should charge more than the competition to increase the perception of value. Of course, there are many factors to consider in pricing, but we should keep this one in mind.

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