The effect of pricing on perception
You have probably heard of the 4p´s in marketing. Product, Price, Promotion, Place.
Those four words give a rough overview of the tools a marketer has. But I do not want to talk about what can be done with those tools. I want to talk about psychology and perception.
Price influences the value of products
When a product costs more, the price pain is higher and we value the product more and have higher expectations. That is a given. Interestingly, we fool ourselves into giving the product a little boost towards reaching those expectations. How come? I guess this emerges from the deep desire of humans to not be wrong and be fooled by others. Before we admit that we were fooled, aka. not smart enough to see through a lie, we fool ourselves.
There was a scientific study conducted on customers. The study was not conducted by asking the customer questions about a product. Today we know that this is inaccurate. The customers were scanned by an MRT (Magnet resonance tomography). The MRT captures the electric impulses in our brain. With this method, we can find out what goes on inside a customer’s brain. He may be not even consciously aware of what he perceives, but the MRI will capture it. A question on the other hand would be answered inaccurately.
So the study tests consumers in an MRT (Plassmann, O`Dohrety, Shiv and Rangel 2008). They got three different types of wine. The patients were presented with five different price labels. This means that the cheapest wine was labelled as 5 Euro and as 35 Euro wine. The 10 Euro wine was also 90 Euros. The study showed that the higher-priced wine tasted better than the cheaper one, even though they were the same.
As a non-scientific explanation by me, this could explain what I stated above.
Price is a marketing, branding and expectation management tool
We now know that price influences the taste of a product such as wine. We know that price pain is a relevant driver for sales (Read my article “Why we buy what we buy” for more on the three factors that drive buying behaviour). We know that there is a difference between a desired or a needed product. Prices set expectations, even if we fool ourselves sometimes, they need to be set very carefully. For some products, a higher price might improve the taste or perceived value. For other products, a higher price might set the expectations too high. As a consequence, the customer will not buy it again. That means that prices need to not only be set according to competition and costs but concerning the perception of the customer. It is an expectation mananagement tool.