Using brain-scanners, researchers from the California Institute of Technology and Stanford's business school have discovered that if we're told a wine is expensive our brain produces more blood and oxygen which stimulates the pleasure senses. So you won't be surprised to hear that when participants were asked to rate two wines they scored the wine they believed to be $90 much higher than the wine they thought was $10 even though unknowingly the wines were exactly the same. And this happened with everyday drinkers and experienced tasters too.

Expensive = Good

I have to say, this study comes as no surprise, whenever I'm in Tesco doing my grocery shopping I'll always be suckered into the wine that "was" £10 and is now £5. If it was a tenner it must be better than all these other wines, right? However, realistically it was probably priced higher for 28 consecutive days (this is the UK trading standard law) and then reduced so that their claim of generosity is allowed. We've all been brought up to believe that expensive = good and cheap = bad. And it's not all unfounded, we've all been burnt before by buying a cheap alternative only having to replace it several months later when the item breaks-down. Moreover, whenever we're in a purchasing situation and we have limited knowledge of the product, using cost to determine quality is all we have to rely on.

Mega Expensive = Awesome

A great example of a company adopting this physiological strategy of higher price = higher quality was Chivas Regal Scotch Whiskey. They were a struggling brand until its managers decided to raise its price to a level far above its competitors. Sales skyrocketed, even though nothing was changed in the product itself (Aaker, 1991).

Testing Prices

The guys over at Marketing Experiments tested three different prices on a newly published book; $7.95, $14.00 and $24.95. An even split of website visitors was distributed across three separate landing pages that was exactly the same other than the price being promoted. What price generated the most revenue? (You've probably guessed the winner.)

Of course, what we've learnt doesn't always work. If you're selling a commodity such as an ipod, you can't get away with selling it for double what your competition is charging. But undoubtedly there are many occasions when price testing your product/service higher should be an intrinsic part of your marketing campaign.