The Pricebo Effect

Most folks would agree that it’s natural to believe that more expensive products are superior to their lesser expensive counterparts. I’m certainly guilty of it. After all, if a product costs more, it must be because it’s made better, will last longer — or in the case of wine — because it tastes better, right?

In 2008 the California Institute of Technology and Stanford University wanted to get a better idea of the relationship that price has to consumer perception, so they conducted a study comparing expensive wines versus cheaper wines.

The study required lucky student volunteers to compare wine samples priced at $10, $35, $45 and $90 a bottle. The wines were served in pairs ($10 vs. $90 and $35 vs. $45), and the subjects were asked to compare and rank each. But here’s where things get all science-y — as the subjects tasted each wine, their brains were scanned with an MRI machine that was specifically measuring activity in their frontal cortexes, or pleasure centers.

What they found was pretty remarkable.

When the students were told the prices of the wines before tasting them, they reliably graded pricier wines better than cheaper ones. Sure enough, the MRI revealed more brain activity in the subjects’ pleasure centers when sampling the more expensive wines. But here’s the twist.

The samples were actually the same wine.

Eight weeks later, the students were brought back to taste the wines once more, this time without price cues. Predictably, with no price information on which to base their beliefs, the group showed no definitive preference for any of the samples.

In addition to just being a neat story, the wine study clearly illustrates that price points have tremendous power on influencing consumer perception. And though similar arguments have been made about product packaging and other superficial factors, the study reveals an interesting phenomenon that raises the question: Why don’t all brands just inflate their prices to enhance the perceived quality of their products?

Because effectively wielding the Pricebo Effect, as I’ve cornily coined it, is tricky: McDonald’s can’t get away with selling $15 hamburgers; Wal-Mart can’t get away with selling $10,000 earrings; and if Miller High Life cost $8 a bottle, I wouldn’t be downing a 12-pack each night. (Conversely, boutique brands like Mercedes-Benz can’t sell $15,000 sedans, and Rolex can’t hawk $50 watches.)

The bottom line? Higher price points have the power to increase consumers’ perceptions about product quality, but ONLY if it’s right for the product and right for the brand.

The MRI wine study provides some captivating insights into how consumers equate price with quality — even at the brain-chemistry level. And it proves that brands can strategically use higher price points to increase consumer favorability — but only if the price is right.

So what gives? Does this ring true for you? Have you ever been seduced by a high price point? Do tell.