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Behaviorial Psychology

The Surprising Power of Price: Marketing Can Influence Product Efficacy

TL;DR: Higher-priced products are more effective than lower-priced (but otherwise identical) products. They don't just seem more effective; they actually are more effective.

Have you ever wondered why brand-name Ibuprofen seems to work better than generic, even though each contain the same ingredients? Recent research suggests that the answer may lie not just in the product itself but also in its marketing—specifically, the price.

Higher Price = Better Efficacy

A fascinating series of experiments demonstrated that pricing can significantly impact product efficacy, a phenomenon the researchers termed the "placebo effect of marketing actions." Their findings, published in the Journal of Marketing Research, shed light on the complex relationship between price and perceived quality.

The experiments focused on an energy drink called SoBe, which claims to improve mental acuity. After consuming the drink, which was available at either its regular price or a discounted price, participants were asked to solve a series of puzzles. Those who purchased the drink at a discount consistently solved fewer puzzles than those who bought it at the regular (higher) price. This suggests that the mere act of paying less for a product can actually reduce its effectiveness.

What's behind this phenomenon? The researchers propose that it all comes down to expectancies – the consumers' beliefs and expectations about a product's efficacy. When we see a high price, we tend to believe that the product must be of high quality and, therefore, more effective. Conversely, a low price can signal lower quality and effectiveness. These beliefs are activated automatically and non-consciously, influencing our behavior without us even realizing it.

The study also revealed a "desirable" placebo effect: When participants were exposed to strong advertising claims about the drink's effectiveness, those who paid the regular price solved more puzzles than those in the control group who didn't consume the drink at all. This highlights the power of marketing to not only influence perception but also enhance products' real-world efficacy.

Explaining the disconnect between objective quality vs. perceived quality

These findings have implications beyond energy drinks and puzzle-solving. As Gregory Berns discusses in his commentary on the study, the placebo effect of pricing may help explain the well-documented disconnect between objective product quality (as measured by expert ratings or objective criteria) and perceived quality in consumers' minds.

The Berns article can be found here: Price, Placebo, and the Brain

That is, if higher prices can lead to improved product performance, this may partly explain why consumers continue to buy expensive branded products even when cheaper alternatives are available.

However, Berns also raises some questions about the neural mechanisms behind this effect. While the SoBe study suggests that expectancies are the key mediator, more research is needed to understand exactly how beliefs about price and quality are represented and activated in the brain. Neuroimaging techniques like fMRI may help to shed light on these questions and deepen our understanding of the placebo effect.

For marketers, these findings underscore the importance of carefully considering pricing strategies and the messages conveyed through advertising and branding. While slashing prices to attract customers may be tempting, doing so could have unintended consequences for product perceptions and even actual efficacy. At the same time, emphasizing the quality and effectiveness of a product through strong advertising claims could enhance its real-world performance.