The Behavioral Impact of a Higher Price


The Behavioral Impact of a Higher Price

Studies show that subjects report a medicine less effective when it doesn't cost as much.

You are offered two painkillers, one selling at full price for $2.50 per pill and the other discounted to 10 cents each. In most phases of life we all look for bargains but when the issue is health, the cheaper version may not work as well for you.

According to a recent study coauthored by Baba Shiv, Sanwa Bank, Limited, Professor of Marketing at the Stanford Business School, how well a medication works may be affected by how much it costs — with cheaper products being less successful at stopping pain.

"Price can have strong behavioral effects," said Shiv, who co-wrote the paper with Rebecca Waber, a master's student at MIT; Ziv Carmon, an associate professor of marketing with INSEAD business school in Fontainebleau, France; and Dan Ariely, a professor of marketing science at MIT.

It has long been known that consumers' beliefs and expectations influence their judgment of products and services. In a separate recent study that measured reactions of brain pleasure centers, wine drinkers experienced more pleasure when sipping a vintage they believed was more expensive. Shiv and his coauthors said that despite the apparent difference in price, the wines were identical.

In the study of painkillers, researchers applied electrical shocks to the wrists of study participants before and after they took a placebo they believed was a pain pill. When the results were compared, 85 percent of the patients who believed they were taking the expensive pill reported a reduction in pain from the shocks compared to 61 percent for those in the low-priced sample group.

"We have these general beliefs about the world — for example, that cheaper products are of lower quality — and they translate into specific expectations about specific products," said Shiv. "Then, once these expectations are activated, they translate into self-fulfilling prophecies that actually impact our behavior."

The experiment may help explain why some high-cost medical therapies are popular when inexpensive alternatives are available, such as prescription painkillers versus over-the-counter nonsteroidal anti-inflammatory drugs (NSAIDs).

Shiv has conducted several studies showing that subjects found less expensive alternatives less effective. In one series of studies, participants were given energy drinks that supposedly make consumers feel more alert and energetic. Some participants paid full price for the drinks; others were offered them at discounted prices. The participants were then asked to solve a series of word puzzles. In all three studies, the people who paid discounted prices consistently solved fewer puzzles than the people who paid full price for the drinks.

The studies have enormous implications for consumers, especially with regard to medications — both prescription and over-the-counter products. "You might get 10 percent off an over-the-counter medication, but the net result is that you could get less effect than if you bought the medication at full price," said Shiv, who said there could be similar results if a patient buys cheaper prescription drugs from Canada as opposed to paying full price at a U.S. pharmacy.

And not only pricing, but advertising also can impact the effectiveness of a product. "Promoting the efficacy of a medication can have significant improvements to a consumer's health," said Shiv. "Advertising, if done well, can give rise to a positive placebo effect."

Shiv said that he and his fellow researchers were struck by the strength of the research results. "We thought pricing might shape behavior at the margins, but it turned out to be a pretty strong effect across the board," he said. Moreover, it was clear from the studies that people had no idea that price was actually influencing their performance. "The results signaled to us that this was largely a non-conscious effect," he said.

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