Make Customers Happy: Charge Them More

Last Updated Apr 3, 2008 3:27 PM EDT

Okay, I'm being puckish -- anyone in business knows that customers constantly argue for a better deal. But in at least some contexts, like buying wine, people feel better about what they buy if it costs more. That's the gist of what's called the price-placebo effect, reported on recently by Shankar Vedantam (full disclosure: Shankar is on the advisory committee for the Templeton-Cambridge Journalism Fellowships in Science and Religion, and I was a 2007 Fellow). Shankar begins by asking just why Eliot Spitzer paid a premium price for a prostitute and winds up looking at a central issue in business (in fact, the price placebo research was marketing research: Placebo Effects of Marketing Actions: Consumer May Get What They Pay For, by Baba Shiv, Ziv Carmon and Dan Ariely (author of "Predictably Irrational", and featured recently on Big Think in Irrational Economics)).

The column is

Eliot Spitzer and the Price-Placebo Effect
Here's a commentary on the experiments establishing the price placebo effect, which notes that experimenters should look into whether paying discount prices for drugs makes them less effective, a kind of reverse placebo effect.
Price, Placebo and The Brain
Here's a link to a study that confirmed an aspect of the price placebo effect, The Placebo Effect in Marketing: Sometimes You Just Have to Want it To Work
Presumably there are other factors at stake in paying more, like not bankrupting yourself (or ruining your career).

Will you start paying retail?

  • Michael Fitzgerald

    Michael Fitzgerald writes about innovation and other big ideas in business for publications like the New York Times, The Economist, Fast Company, Inc. and CIO. He’s worked as a writer or editor at Red Herring, ZDNet, TechTV and Computerworld, and has received numerous awards as a writer and editor. Most recently, his piece on the hacker collective the l0pht won the 2008 award for best trade piece from the American Society of Journalists and Authors. He was also a 2007 Templeton-Cambridge Journalism Fellow in Science and Religion.