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Innovation Insights
by Stephen Shapiro

Increase the Price – Increase the Pleasure

I wrote a blog entry entitled, “How to Lose a Sale By Charging Too Little.” In it I describe why charging too little reduces the perception of value.

According to a recent Stanford Graduate School of Business study, there are biological reasons why price impacts perception.

Subjects were given a number of wines for tasting and were told their price. Some of the wines were given to tasters more than once, with a different price tag each time.

What did they find?

The same wine, when given a higher price tag, tasted better.

Surprisingly, according to fMRI scans, the pleasure centers of their brains light up more, even though the “taste” centers do not. The body knows the wine tastes the same.  Regardless, it is enjoyed more when it is more expensive.

“We have known for a long time that people’s perceptions are affected by marketing, but now we know that the brain itself is modulated by price,” said Baba Shiv, an associate professor at the Stanford Graduate School of Business, and one of the authors of the study.

As the recession looms on the horizon, companies may be tempted to drop their prices to stay competitive. But there may be powerful biological reasons not to do so. Price can drive perception. And perception is reality.