Dan Ariely: Placebo Effects of Marketing Actions Consumers May Get What They Pay For

Most Important Excerpt !!! (Via Dan Ariely, Baba Shiv, Ziv Carmon @ MIT)

On the other hand, in general, investigations of the relationship between price and objective indications of quality, such as Consumer Reports ratings, arrive at a different conclusion. For example, Riesz (1979) examines the correspondence between prices and indications of objective quality from Consumer Reports for 679 brands in 40 packaged food product classes over a 15- year period. He concludes that the correlation was near zero, and in cases such as frozen foods, it was even negative. More generally, such investigations conclude that the empirical relationship between those two variables is weak at best (Gerstner 1985). Why would consumers perceive the relationship between price and quality to be significant when, in general, it is not so?

Abstract (Via Dan Ariely, Baba Shiv, Ziv Carmon @ MIT)

The authors demonstrate that marketing actions, such as pricing, can alter the actual efficacy of products to which they are applied. These placebo effects stem from activation of expectancies about the efficacy of the product, a process that appears not to be conscious. In three experiments, the authors show that consumers who pay a discounted price for a product (e.g., an energy drink thought to increase mental acuity) may derive less actual benefit from consuming this product (e.g., they are able to solve fewer puzzles) than consumers who purchase and consume the exact same product but pay its regular price. The studies consistently support the role of expectancies in mediating this placebo effect. The authors conclude with a discussion of theoretical, managerial, and public policy implications of the findings.

Introduction (Via Dan Ariely, Baba Shiv, Ziv Carmon @ MIT)

Consumers’ beliefs and expectations, shaped by experiences in their daily lives, often influence their judgments of products and services. For example, consumers often believe and, therefore, judge lower-priced items to be of lower quality (see, e.g., Gerstner 1985; Huber and McCann 1982; Rao and Monroe 1989). Consumers’ beliefs and expectations can also affect their subjective experiences. For example, a drink may taste better if it has a favorite brand’s label than if it is unlabeled (Allison and Uhl 1964; McClure et al. 2004). Similarly, meat that is labeled 75% fat free tastes better than the same meat that is labeled as containing 25% fat (Levin and Gaeth 1988). The question that we address in this research is whether beliefs and expectations that marketing actions evoke can affect more than judgments and subjective consumption experiences. Specifically, can they also influence the actual efficacy of the marketed product? For example, can consuming an energy drink that is purchased at a discount lead not only to judgments of lower quality or to a less favorable consumption experience but also to diminished performance in, for example, a cardiovascular workout or a puzzle-solving task?

How Placebos Work (Via Dan Ariely, Baba Shiv, Ziv Carmon @ MIT)

Two notions are believed to account for placebo effects: expectancy theory and classical conditioning. According to expectancy theory, placebo effects arise because beliefs about a substance/procedure serving as a placebo activate expectations that a particular effect will occur, which then affect the subsequent effectiveness of the substance/ procedure. The classical conditioning view considers consuming substances with known therapeutic effects to be conditioning trials. The active substances giving rise to these effects serve as unconditioned stimuli, and the vehicles by which they are delivered (e.g., pills, capsules, drinks) serve as the conditioned stimuli. Pairing the unconditioned stimuli and the conditioned stimuli over time endows the vehicles with a capacity to evoke therapeutic effects in the form of conditioned responses. These two views have been contrasted and debated, but an emerging view is that expectancies mediate all placebo effects, and conditioning is one means by which people initially form and then activate expectancies (Kirsch 2004; Rescorla 1988). The growing acceptance of expectations as the basic mechanism for placebo effects has led to an increased interest in how beliefs lead to placebo effects and the role of expectancies in mediating this effect.

Findings (Via Dan Ariely, Baba Shiv, Ziv Carmon @ MIT)

The effect we document is akin to placebo effects in medicine. We contribute to the placebo literature by extending the types of features that are known to evoke such effects from those that are inherent to the placebo (e.g., information about the placebo, the substance/treatment it replaces, how a placebo is administered) to price, a feature that is not inherent to the placebo. Given placebo researchers’ interest in when placebo effects occur nonconsciously, it is also significant that we found that the process by which expectations lead to the placebo effects occurs nonconsciously. Our findings extend what is known about the association between price and quality in a significant way, showing that price affects not only perceived quality but also actual quality (i.e., the actual efficacy of the product). Indeed, the effect we found and its dependence on expectancies shed light on a puzzling disparity between two conclusions of the

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09. January 2010 by Miguel Barbosa
Categories: Behavioral Economics, Curated Readings | Leave a comment

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