The not-so-gullible consumer

Imagine a patient who goes to the doctor for help with sleeplessness. If the doctor were to prescribe a medication saying, “this may or may not do any good, it’s not especially strong, but let’s give it a try to start out with and see if it helps,” it’s not very likely that the patient’s sleeplessness will be remedied. But if the doctor were to prescribe the same medication with the admonishment, “This is very powerful, so make sure you don’t leave the bottle on your nightstand. You can’t take the chance you might take an extra one while you’re half-asleep. Keep it well inside your medicine cabinet” -- it’s much more likely the patient will get to dreamland.

The power of suggestion can be surprisingly effective. For example, research on placebos has found that they can alleviate pain, depression, and anxiety, lessen the symptoms of Parkinson’s disease, and have even shrunk tumors. John Tierney's recent New York Times article ”Calculating Consumer Happiness at Any Price” explores the power of suggestion in the consumer realm: do we place a higher value on items that we’re told are more costly? According to social psychologists’ and behavioral economists’ research, it depends.

In the lab, there’s evidence consumers respond better to items they’re told are more expensive. If you tell participants the wine they’re tasting costs $90 a bottle, the reward centers of their brains will light up more than if you tell them it’s a $10 bottle. But when customers are spending their own money rather than the hypothetical dollars in a laboratory, it turns out to be difficult to sway people from following their own tastes. Two behavioral economists in Tel Aviv monitored the choices of people who ordered from a prix fixe menu where the actual cost of each entrée was noted next to the items. After three months of testing various combinations of prices, the researchers found they couldn’t sway the customers. They were no more likely to select the entrée with the highest perceived value than any other entree. As one of the behavioral economists said, “Maybe when it comes to food, people do have reasonably stable preferences. Some people like shrimp and some don’t, even if it’s worth a lot of money.” (The fact that Israeli researchers were testing pork shank and shrimp gnocchi as part of the menu experiment is another story…..)

Despite the mountain of laboratory evidence that variations in sticker prices sway consumers, the effect fell apart in the real world test at the restaurant. That should serve as a warning to those of us who study customer behavior. While techniques such as focus groups and virtual reality shopping may provide some insights, it’s vital to watch how consumers actually behave when they’re spending their own money in the store, not just in the lab.