The Pricebo Effect: Considering the Power of the Price Point in Shaping Consumer Beliefs

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Most folks would agree that it’s natural/logical 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?
Not so fast.
In 2008, a study was conducted by the California Institute of Technology and Stanford University to determine how consumers evaluate expensive wines versus cheaper wines.
The study required student volunteers to taste wine samples, which were identified by different price points of $10, $35, $45 and $90 per bottle. The wines were divided into pairs ($10 vs $90 and $35 vs $45 per bottle), and the subjects were asked to compare and grade each. As the subjects tried the wines, their brains were scanned using an MRI machine, which measured activity in their frontal cortexes, or pleasure centers.
When the subjects were told the prices of the wines before tasting, they reliably graded pricier wines more favorably than cheaper ones. Interestingly, the MRI readings also revealed more brain activity in the subjects’ pleasure centers as they sampled the more expensive selections.
But here’s the twist: The samples were actually the same wine.
The subjects were brought back eight weeks later to taste the wines again — this time without price cues. And sure enough, with no price information on which to base their beliefs, the subjects showed no definitive preference for any of the wines.
The wine study clearly illustrates the power that price points have on influencing consumer beliefs. (Similar arguments have been made about product packaging and other superficial factors.) Nevertheless, 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 it’s not that simple.
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.

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Rob Womack

If there’s anyone who can honestly say, “Been there, done that,” it’s Rob. After traveling the world for seven years in his 20’s, Rob went to LA and started working in film production. Then it was off to New York, where he learned how to program, which eventually brought him back home to Louisville to build websites. At Current360, Rob heads up our in-house production studio, creating all things digital for our clients — videos, commercials, radio spots, and a lot more. 

When he’s at home, Rob likes to create things like homemade kombucha and music.