September 1, 2011 1 Comment
Imagine you’ve been getting these terrible migraines. Desperate for the pain to stop, you visit the doctor. He tells you that he has the perfect treatment, a pill that has been proven to eliminate migraines in 95% of patients. You fill the prescription and your migraines disappear. What if you found out the pill your doctor prescribed was simply a sugar pill that has no effect on migraines? Your migraines vanished, but how?
The reason is this—you expected to get better after taking the medication, so you did. This phenomenon is called the placebo effect and it is responsible for helping thousands of sick and ailing people every year. The placebo effect is what happens when a person’s condition improves after he or she takes a medication that has no proven therapeutic effect for that particular condition. The person’s perception and belief that the medication will help is what improves their condition, not the medication itself.
In this post, I am going to dig into this concept of the placebo effect, but with a focus on the role that price plays.
Price & Placebo Effect in Marketing
Price is the de facto placebo effect in marketing. It plays a very important role in influencing how people perceive a product and, in the end, shaping their expectations. This is why designer jeans fit so perfectly, why Nike’s make us run faster and jump higher, and why $5 Starbucks just tastes better.
It turns out that price affects not only perceived quality, but actual quality as well.
Research published in the Journal of Consumer Research explored whether marketing actions (such as pricing), can actually alter the effectiveness of the product.
In a series of experiments, researchers had participants drink SoBe Adrenaline Rush, a drink that claims to improve mental ability. To determine the effect of the drink on people’s performance, the researchers had the subjects perform a series of puzzles (unscramble words).
Participants were exposed to two variables. First was information about the effectiveness of the drink. The high expectancy group was told that drinks such as SoBe Adrenaline Rush create large improvements in thinking. The low expectancy group was told that the drinks provide only slight improvements in mental performance.
Participants were also given information about the cost of the drink. Half of the participants were told the regular price of the drink ($1.89), while the other half was told that the drink was purchased at a discount ($0.89).
The results (below) are surprising; those who got the discounted drink performed worse than those who received the full-price drink.
The takeaway from this study is the role that price can play in the experience customers have with your product. Price shapes expectations. When people pay more for a product, they find greater enjoyment because they believe and perceive that it will give them more satisfaction—the placebo effect. With this in mind, maybe you should consider raising your prices, it just might make for happier and more satisfied customers.
If you enjoyed this article, you may be interested in some others from the Understanding Customer Thinking series: