An interesting article in Psychology Today asks 'Is a $5,000.00 prostitute worth it? The answer - quite possibly. The article goes on to talk about price-placebo effect. In a nutshell the more we pay, the better we think it's going to be, and the more effectively we expect it to deliver. This could be why it's not unreasonable for Australian Medical Institute (AMI) to charge $4000.00+ for a nasal spray - they are hoping (I guess) that a placebo effect kicks in.
We are reassured by price especially for categories that are subjective and complex - art, wine, beer, fashion etc. Stella Artois built their entire global brand positioning around the price placebo - 'Reassuringly Expensive'. Greater understanding of the placebo effect, and better understanding of what drives quality in various categories may help people hold on to their money - and not just spend for that reassuring feeling.
Finally, I've always said it's always much easier to raise your prices than lower them. Raising the price of something communicates to consumers it's popular, improving, experiencing increased demand. Lowering the price is a one way street, and a quick way to kill it.
I am a sucker for price placebo's just about every day. You?
8 comments:
I can normally work out the price of something - straight up. I don't think I am a sucker for higher prices than they should be
A guy I worked with (who was also a Prison visitor) told me that you could get someone bumped off for anywhere between £1,000 and £20,000, the price dependent on how easily it was to trace the 'hit' back to you.
Much as I've been tempted, I've never sought to find out the truth.
On a slightly less tangental note, I understand that the 'prp' (price related placebo) effect is the reason why Viagra costs over £50 a tablet.
Pricing is an interesting topic – I agree with you, I am a sucker for the price placebo. I am also very open to be up-sold … I often go into the research phase of a purchase thinking “I’ll get a HD video camera for $X” but can be very easily convinced that spending more money on a better product will be worth it. So I end up paying $X + $500. Not exactly the same as a placebo though.
Interestingly, if the product is hard to differentiate, say standing in the supermarket looking at toothpaste, then, given three prices (low, medium, high) the consumer will, the majority of the time, pick the middle price.
But then this is where advertising, packaging etc comes into it.
Value comes into it as well. For B2C markets the value proposition can be complex – status, money etc. However, I work in Business to Government and while they talk about value for money it often comes down to a simple price comparison. It can be hard to communicate value for money when the decision is almost always made on price.
Very interesting post.
Rationalisation and Justification comes into this as well. In my view for the placebo to have effect the consumer much be able to rationalise the value.
Just yesterday I went to Athlete's foot with my girlfriend to grab a pair of runners for her before the End of Fin Year sales finished.
Once the expensive shoes started to come out and she decided they were better than the ones on sale, she immediately started saying things like "its my birthday soon, I can treat myself", "i haven't bought a pair of runners in like..3 years", and "I am going to go for so many runs now."
I drew attention to her comments and said "you realise what you are saying. You, in this split second, changed your opinion on everything you said in the car 5 mins ago about price and sales and what kind of shoe you want".
What made her change her mind was the Premium shoe which cost $80 more than the other brand. Neither brand was in her consideration set nor does she even know which is "perceived better".
Needless to say these expensive runners are better than any other runners she has every had. (and she hasn't even gone for a run yet).
@Marek, I heard this theory once called “self tranquilisation” where you tranquilise the bad news to make it more palatable.
Kinda sounds like that is what your girlfriend did. I wonder if she always, deep down, intended to get a more expensive pair and used the sale as an excuse and then self-tranquilised the purchase by saying she’ll go for more runs, it is my birthday etc
Secretly … I kinda do that … but it also makes it easier to justify an expensive purchase to your partner. I always go with “If I buy this one for $150 then I’ll have it for ages or I could get 4 x $70 ones in the same period!”
@Jemster that is wonderful. Ive always wondered hw hitmen charge. I thought it was more to do with how professional / clean the hitman was - but how you've described it makes much more sense. Nothing to do with price placebo mind you - but a great bit of knowledge.
@daniel and Marek agree entirely. People have to make sense of the price they pay. if they can't then it's not good value. However, they'll (we'll) go to extrodinary lengths to beleive in anything to justify something they (we) really want.
Stell Artois certainly based their UK advertising on price, I don't know about the rest of the world. But in its Belgian home it is on the same price level as other beers.
This is known in economics as a signalling effect. Consumers who have limited information about a product use price a signal for quality. A high price should signal high quality (relecting for example higher quality and more expensive inputs - materials or craftsmanship).
Sometimes however, a high price mearly reflects the manufacturer trying to push for the highest profit possible which is why you need to gather information other than the price to discern value
Post a Comment