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.
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