Why Expensive Wine Tastes Better
For Neuromarketing readers, it’s not big news that the perception of wine drinkers is altered by what they know about the wine (see Wine and the Spillover Effect, for example). Now, researchers at Stanford and Caltech have demonstrated that people’s brains experience more pleasure when they think they are drinking a $45 wine instead of a $5 bottle – even when it’s the same stuff. The important aspect of these findings is that people aren’t rationalizing on a survey, i.e., reporting that a wine tastes better because they know it’s a lot more expensive. Rather, they are actually experiencing a tastier wine.
“What we document is that price is not just about inferences of quality, but it can actually affect real quality,” said Baba Shiv, a professor of marketing who co-authored a paper titled “Marketing Actions Can Modulate Neural Representations of Experienced Pleasantness,” published online Jan. 14 in the Proceedings of the National Academy of Sciences. “So, in essence, [price] is changing people’s experiences with a product and, therefore, the outcomes from consuming this product.”
Shiv, an expert in how emotion affects decision-making, used functional magnetic resonance imaging (fMRI) to conduct the study with co-authors Hilke Plassmann, a former Stanford postdoctoral researcher; Antonio Rangel, a former Stanford economist; and psychologist John O’Doherty. (Both Plassmann and Rangel are now at Caltech.) Although researchers have used fMRI scans in recent years to gauge brain activity, the study is one of the first to test subjects as they swallow liquid – in this case, wine – through a pump attached to their mouths, a tricky complication because the scanner requires people to lie very still as it measures blood flow in the brain.
According to Shiv, a basic assumption in economics is that a person’s “experienced pleasantness” (EP) from consuming a product depends only on its intrinsic properties and the individual’s thirst. However, marketers try to influence this experience by changing a drink’s external properties, such as its price. “This type of influence is valuable for companies, because EP serves as a learning signal that is used by the brain to guide future choices,” the paper says. Contrary to this basic assumption, several studies have shown that marketing can influence how people value goods. For example, Shiv has shown that people who paid a higher price for an energy drink, such as Red Bull, were able to solve more brain teasers than those who paid a discounted price for the same product. [From Stanford News Service, Price changes way people experience wine, study finds by Lisa Trei.]
Here’s the conundrum for marketers… On one hand, we know that buying pain kicks in when people perceive that a product is overpriced, and that they are less likely to make a purchase. Now, we have multiple studies showing that people enjoy a product more when they pay more for it. How should a marketer determine the price point?
I don’t think these neural reactions to pricing are necessarily in conflict. If the wine drinkers in the Stanford/Caltech study had been sent to the supermarket and asked to pick up a bottle of wine on the way to the lab, they would have no doubt have felt the pain of paying too much for a bottle of wine and, unless they were wine aficionados, would in most cases have chosen a less costly bottle. (Other factors could influence the selection process, too. Would the researchers see the bottle chosen? If it was too cheap, would they think the subject was a wine ignoramus? Would blindly choosing a costly bottle make the subject look like a snob or spendthrift?) The pleasurable boost from a higher price occurs AFTER purchase and consumption, so marketers still face the same problem they always have: setting a price that consumers will accept and that will yield a suitable combination of profit margin and total revenue.
The Opportunity For Marketers
What this does suggest is that marketers need to understand that price is an important part of the experience for a premium product or luxury brand. This isn’t huge news – we’ve seen once-proud brands destroyed by over-distribution and pervasive discounting. And it isn’t even the price that the consumer pays – the subjects in the study didn’t pay anything for the wine they tasted, but still found the expensive wine tasted better. The consumer has to believe that a product is priced at a certain level for the brain effect to kick in. If someone gives me a $100 bottle of wine, I’ll no doubt taste it as such. If I find the same bottle mispriced at the wine shop and buy it for $10, it will still be a $100 wine to me (and I’ll have greatly reduced my buying pain as well). But, if I find a bin full of the wine priced at $10 and marked “huge sale, save $90 per bottle!” some skepticism will kick in. Did this vintage turn out poorly? Did the shop store a few cases next to the furnace and find they had gone bad? Was the wine simply not selling? I’m certain that these doubts would convince my brain that I wasn’t really drinking a $100 wine. And, if the wine was advertised with a “new low price” of $10, my brain would be certain it didn’t taste like a $100 wine.
Forbes covered the findings in an article, Study Spotlights Marketing’s Impact on the Brain, and chose to include some neuro-alarmist rhetoric:
“Marketing can trump our senses,” said Susan Linn, an instructor in psychiatry at Harvard Medical School and associate director of the Media Center of Judge Baker Children’s Center. “Using medical equipment and medical technology to help marketers do their job better is very troubling.”
I disagree – if a company can make my experience with their product more pleasurable in real terms, they are doing the right thing. Most consumers will have no problem in deciding whether the better taste (real or perceived) of a more costly bottle of wine justifies the difference in price. That’s why Two Buck Chuck has sold over 300 million bottles to date, while $50 bottles mostly gather dust on wine store shelves.
I’ve always found it interesting that American household expenses for alcohol remain more constant (as a a percentage of income or household expense) across income levels than do most other food, apparel or transportation expenses. Perhaps more affluent consumers are purchasing more “affluent” alcohol products — as opposed to drinking more alcohol. Is the strong emotional/neurological connection to alcohol and its effects on the mind leading to this behavior?
Interesting concepte, spandrel. If that statistic is true, I’d guess that your explanation about affluent consumer buying more costly products is correct. My first thought was that the percentage would have to start falling at some modest income level, as there is a limit to alcohol consumption and even premium spirits only cost a few times as much as bargain brands. Then I thought about wines that cost hundreds per bottle, and a lot more at restaurants, and decided that a constant percent might be plausible to a higher income level.
The consumer has to believe that a product is priced at a certain level for the brain effect to kick in.
You said something very important here. They have to believe. How do you do that, besides showing them the price? Well, through packaging. At least in wines, packaging says a lot about the wine’s price and expected quality.
I’ve even seen this fact in some stores’ pricing policies. For instant, there are some wines that are so beautifully packaged that some stores sell them at a very high price compared to the market’s average for that product. I’ve even seen differences of about 200%. Of course, those stores are either doing that to deceive uninformed customers, or they are misled too by the beautiful package.
I agree about the effect of packaging for wine, Darius. On one hand, novel packaging like bag-in-box, screw cap, etc. may offer advantages in preserving quality and reducing spoilage, any wine so packaged starts at a major disadvantage from a taste expectation standpoint.
On the other hand, I’ve seen some packaging that screams, “this is good stuff.” Just had a Concannon Pinot Noir that came in an extra-heavy bottle with the logo molded into the glass. Upscale labeling, too. Overall, an excellent presentation for a modestly priced wine.
[…] consume the brand and not the actual product. There have been fMRI studies showing this effect. – Believing that a wine is more expensive or 'prestigious' actually does make the brain think …. – Is Neuromarketing just a 'fad'? – Since the field is based on scienticfic research about […]
Got here from your Forbes article, good one, I believe this study is another instance of confirmation of the “Veblen Effect” that is, the perceived value of a product/service increases with increase in price.
And I believe one can use the similar approach to price setting by conducting similar studies, experimenting with different prices and then considering the highest price.
I believe such an approach would prove really useful in setting the right prices for any product/service.
Lastly “this post has been really thought provoking” all that I can say!!
Testing is always important, Arshad! Thanks for the expansion of the idea.
Indeed testing is really important but logical and reasonable conclusions from given results aren’t bad either, still confirming theories via experimentation is the best way to go.
And honestly, I find your website really something what I have been looking for, as for as I have suggested in the above comment about using the study findings and methodology for pricing, I have written an article on that, hope you and your readers would like it. here How To Price Luxury Items (Products/Services) and I would really appreciate your input on that.