The Psychology of Pricing and Name Branding
  by:  |  Feb 13, 2008

Does a more expensive food or drink product taste better just because it’s more expensive? According to the study in this article in the New York Times, the fact that our minds subconsciously associate expense with quality can affect how we react to food. The study in question had its participants taste several “different” types of wine. All each of the particpants were told was the “price” of each wine. According to the article, the study found that:

“They said they liked the more expensive wines best. And brain scans taken as the volunteers sipped and rated the wines showed that the higher-priced wines generated more activity in the medial orbitofrontal cortex, an area of the brain that responds to certain pleasurable experiences.”

This set of facts alone is interesting enough. But there is a second set of facts that make the effect of pricing on the taste experience even more glaring. You’ll note that I put the words “different” and “price” in parenthesis above. The reason for that is the following further facts from the article:

But there was a catch: although subjects were told that they were tasting five different wines, in fact they sampled only three. The $90 wine was presented twice, once at its real price and once as a $10 wine; the $5 wine was also presented as a $45 wine. When the wines were offered at the higher price, participants preferred them — and their brains registered greater pleasure.

When they sampled the wines with lower prices, however, the subjects not only liked them less, their brains registered less pleasure from the experience. It seems that what these subjects really liked was the price tag, not the product.

Think about what that says for a moment. Test subjects tasted the exact same wine twice and in each case not only considered the wine with the higher “price” to taste better, but had a greater biological reaction to the “higher priced” wine.

Where does this reaction come from? It can be argued that it is culturally ingrained in us. We are indoctrinated at an early age that brand name items and more expensive items are better. The exact same product becomes infinitely better with a brand name or celebrity endorsement. Moreover, smart marketers work to create the image of being better, simply by better packaging and advertising. As Seth Godin notes:

“Very rarely do vodka marketers tell the truth and say, “here’s our new vodka, which we buy in bulk from the same distillery that produces vodka for $8 a bottle. Ours is going to cost $35 a bottle and come in a really, really nice bottle and our ads will persuade laddies that this will help them in the dating department… nudge, nudge, know what I mean, nudge, nudge…” “

This is what advertisers and marketers are paid to do. Their job is to sell products, which in many cases are no different than their lower priced competitors, as being better and more desirable simply because they are expensive and/or presented in a unique manner. The “really, really nice bottle” and high price tag give the illusion that the product is better than the lesser priced and less attractively presented product. But the reality is that in many cases, there is very little difference between products.

So does this mean businesses should all immediately raise their prices for the same services? That would probably not be wise. It is reasonable to presume that the effect covered in the study comes, at least in part, from the fact that (a) wine is a luxury item and (b) the individuals were presented the wines as having certain value before tasting. Suddenly raising prices without any change in services or without providing a basis for the price change would not automatically result in creating the preception that our product has improved because it is more expensive.

But what can be done is companies can begin to look at their advertising and see how it can be changed to create the image of being an elite product or service. They can start to put the pieces in place, creating the “really, really nice bottle” that Seth Godin describes. Once that has occurred, they can start to look to raise prices in a reasonable manner so that the prices reflect the elite nature that has been crafted for the product or service. Then customers will have to like the product more. After all, like the study says, they’ve been preconditioned to do so.