You Really Do Get What You Pay For
STANFORD GRADUATE SCHOOL OF BUSINESS -You walk into the drugstore. You see
two comparable national brands of aspirin positioned next to each other on
the shelf. One happens to be on sale for 25 percent off the regular price.
You go ahead and buy it-but maybe you shouldn't. The fact that it is
discounted might actually make it work less well for you.
This scenario is actually quite plausible, according to recent research by
Baba Shiv, associate professor of marketing at the Business School. Among
other things, Shiv's research found that marketing actions, such as pricing
and advertising, can actually alter the efficacy of products.
"Price can have strong behavioral effects," said Shiv, who co-wrote the
paper with Ziv Carmon, an associate professor of marketing with INSEAD
business school in Fontainebleau, France, and Dan Ariely, a professor of
marketing science at MIT.
It has long been known that consumers' beliefs and expectations influence
their judgment of products and services. For example, consumers often judge
lower-priced items to be of lower quality. Consumers' beliefs also can
affect their subjective experiences. In one well-known study, beer was rated
as better tasting when it had a favorite brand's label than when it was
unlabeled. What makes this new study different from previous research is
that it shows marketing actions can affect more than just judgments and
subjective consumption experiences-going so far as to change actual consumer
behavior.
"We have these general beliefs about the world-for example, that cheaper
products are of lower quality-and they translate into specific expectations
about specific products," said Shiv. "Then, once these expectations are
activated, they translate into self-fulfilling prophecies that actually
impact our behavior."
In each of three different studies, participants were given energy drinks
that supposedly make consumers feel more alert and energetic. Some
participants paid full price for the drinks; others were offered them at
discounted prices. The participants were then asked to solve a series of
word puzzles. In all three studies, the people who paid discounted prices
consistently solved fewer puzzles than the people who paid full price for
the drinks.
The studies have enormous implications for consumers, especially with regard
to medications-both prescription and over-the-counter products. "You might
get 10 percent off an over-the-counter medication, but the net result is
that you could get less effect than if you bought the medication at full
price," said Shiv, who said there could be similar results if a patient buys
cheaper prescription drugs from Canada as opposed to paying full price at a
U.S. pharmacy.
And not only pricing, but advertising also can impact the effectiveness of a
product. "Promoting the efficacy of a medication can have significant
improvements to a consumer's health," said Shiv. "Advertising, if done well,
can give rise to a positive placebo effect."
Shiv said that he and his fellow researchers were struck by the strength of
the research results. "We thought pricing might shape behavior at the
margins, but it turned out to be a pretty strong effect across the board,"
he said. "We ran the study again and again, not sure if what we got had
happened by chance or fluke, but every time we ran it we got the same
results." Moreover, said Shiv, it was clear from the studies that that
people had no idea that price was actually influencing their performance.
"The results signaled to us that this was largely a non-conscious effect,"
he said.
Shiv and his colleagues are now at work at follow-up research studying the
impact pricing has on the effect of painkillers. He also hopes to get into
the neural underpinnings of the phenomenon, particularly because the effects
noted seemed to be non-conscious. "This might be happening more at the
primitive brain structures in the limbic system rather than in the
higher-order brain structures such as the prefrontal cortex," he said.
"There's a lot more to explore in this area."
-Alice LaPlante
source: www.gsb.stanford.edu/news/research/mktg_shiv_pricing.shtml#