What You Can Learn From the Wine Industry

The Price Is Right -- and for Some Brands, Higher Is Better

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By now, you may have heard about that wine study done in California.

Participants -- very, very happy participants -- were given samples of a bunch of different wines that varied wildly by price.

Or so they thought.

They were actually given just three different wines, but they were told, right before each squirt, "This one comes from a $90 bottle," or "This one comes from a $5 bottle!" Or several price points in between.

Since participants' brains were hooked up to an MRI, researchers could watch what was happening in their taste centers as well as their so-called pleasure centers.

Turns out, the taste center was as rational as Spock. Price differences affected it not one whit. But the pleasure center? That shallow ninny lit up like a pinball machine whenever it believed it was drinking the more expensive stuff.

Which only goes to show that price matters on an even deeper level than anyone ever guessed.

"This came as a big surprise," says Baba Shiv, a Stanford Business School professor and co-author of the study. "We have long known that factors such as price and brand influence people's perceptions," he said. But this study showed that price affected "the actual pleasure that the brain experiences."

This wasn't Mr. Shiv's first foray into examining the role of price on brain function. In an earlier study, he gave all his participants a can of Red Bull before asking them to solve some puzzles. But he told half of them that the drink had been purchased on sale.

Darned if the kids who thought the Red Bull was bought at discount didn't end up solving fewer puzzles.

"When you actually buy something on sale, you do get an emotional boost because you think, 'Hey! I got a great deal!'" said Mr. Shiv. "But there is this downside when you actually use the product." Somehow, the sale item just doesn't feel as effective.

So, clearly, anyone considering a discount (Howard Schultz, are you listening?) should think twice -- or at least listen to my sister-in-law, Carmella.

Carm was such a devoted Bed Bath & Beyond shopper that she -- like everyone else in America -- started receiving an avalanche of its coupons. "They came in the mail seemingly every week and gave 20% off one item," she says. "However, you cannot carry them in your wallet because they are too big."

As a result, she usually found herself without one whenever she happened upon the store. And when that was the case, she no longer went in. Paying full price now felt like a rip-off, and, worse, the stuff seemed cheap, too.

Price matters most when the product is something whose quality we really can't judge for ourselves. So with technical things, like computers; rarefied things, like fancy coffee; and even unusual things, such as Bed Bath & Beyond's escargot tongs (ick), we feel so ignorant, we tend to judge them on price: the higher, the better.

That's a crucial lesson for anyone peddling premium brands, says Robert Passikoff, president of Brand Keys consulting. "You're never going to see discounts on Tiffany diamonds." Neurons all over the world light up when they see that blue box because price and pleasure are one.

If, however, a company has reached the point where the premium price no longer brings satisfaction, it should try to disguise any discounting it finally does. For instance, Passikoff says, when GM cut prices a few years ago, "They did it as 'the GM employee discount.' Now that's something special." GM didn't sound desperate -- it sounded generous.

Next time around maybe they'll give away a free bottle of wine, too. If so, they'd better tell folks it's the $90 kind.
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