RSS feed for
News Items

STANFORD GRADUATE SCHOOL OF BUSINESS—In what will be music to the ears of marketers, the old adage that you get what you pay for really is true when it comes to that most ephemeral of products: bottled wine.

According to researchers at the Stanford Graduate School of Business and the California Institute of Technology, if a person is told he or she is tasting two different wines—and that one costs $5 and the other $45 when they are, in fact, the same wine—the part of the brain that experiences pleasure will become more active when the drinker thinks he or she is enjoying the more expensive vintage.

“What we document is that price is not just about inferences of quality, but it can actually affect real quality,” said Baba Shiv, Sanwa Bank, Limited, Professor Marketing, co-author of the paper titled “Marketing Actions Can Modulate Neural Representations of Experienced Pleasantness,” published 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 now at INSEAD; Antonio Rangel, a former Stanford economist; and psychologist John O’Doherty (both 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 the intrinsic properties of something like wine and the person’s third determine the individual’s “experienced pleasantness” (EP) from consuming that product. 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 a painkiller reported more benefit from taking the medication than those who bought a cheaper product.

Despite the pervasive influence of marketing, very little is known about how neural mechanisms affect decision-making, the researchers said. “Here, we propose a mechanism though which marketing actions can affect decision-making,” they write. “We hypothesized that changes in the price of a product can influence neural computations associated with EP.” Because perceptions about quality are positively correlated with price, the scholars argued that someone might expect an expensive wine to taste better than a cheaper one. Their hypothesis went further, stipulating that a person’s anticipated experience would prompt higher activity in the part of the brain that experiences pleasure, the medial orbitofrontal cortex, or mOFC, in the forehead.

Shiv said he decided to study wine because so many people, especially in the Golden State, are crazy about it. “I’m just fascinated with wine,” he said. “It has always amused me how much time and effort people put into this hobby. I couldn’t understand it until I moved to California and started appreciating the whole thing. But, in the back of my mind, the price variation in wines has always puzzled me. You can go from spending $4 to $200 to $300 and up a bottle. Why are people going for that? Some are trying to show off, but most people are not. They are very serious about it, and they think that the more expensive it is, the better it is. That has always befuddled me. Is it really that people are getting more pleasure from it? Or do they just think so?”  (more details with video)

Citation:

 ”Marketing Actions can Modulate Neural Representations of Experienced Utility;” H. Plassmann, J. O’Doherty, B. Shiv, and A. Rangel;  Proceedings of the National Academy of Sciences,  2008, Vol. 105 (3), 1050-1054.

- Lisa Trei

Share, Email or Print:
  • Print
  • del.icio.us
  • Facebook
  • Google Bookmarks
  • email
  • LinkedIn
  • MySpace
  • Twitter
  • Yahoo! Bookmarks

Also on Stanford Knowledgebase:

  1. The Price of a Medication May Affect How Well it Works
  2. Why a Ferrari May Make Imported Wine Seem Expensive
  3. Global Warming Threatens Premium Wine Industry

Comments are closed.