The value of value

Can more expensive services actually perform better? If we have a good product or service and are willing to express its value rather than lead with humility (which is an epidemic up here in Minnesota), recent studies show we may be doing our clients or customers a favor.

You know the placebo effect? It's well-documented that the human body can trigger the healing process, produce endorphins, opiates and other reactions based on our conscious and subconscious beliefs and expectations. In many studies people react positively to sugar pills, sometimes as much or more positively than to the medications the study is trying to test.

What's new and remarkable is that experiments detailed in Dan Ariely's excellent book "Predictably Irrational" show that price influences the placebo effect. In the first experiment on this, the research team made up a new painkiller (if I recall right they used aspirin for the pills) and told one group that the drug cost $2.50 per dose and the other group that it cost only $0.10 per dose. The ones who received the more expensive painkiller almost unanimously reported that it took away their pain; the other group with the cheap painkiller reported it effective half of the time, even though it was the same medicine. The more expensive painkiller was almost twice as effective solely based on its price.

They also found that the more pain a person reported experiencing, the more pronounced the effect price had on their pain relief. A similar study at the University of Iowa found that when students paid list price for cold medicine they reported better effects than those who bought the same medicine at a discount.

In another test, Ariely showed that not only does price alter the experience people report, it can actually change their results on a test - with the discount product making their results measurably worse and an "expensive" product improving performance. However, if the subjects were asked to stop and think about the relationship between price and quality, the effect of price on performance declined.

Okay so that's part one: if people believe something will be effective, it's more likely to work, and if the price tag is higher that bumps up their belief in its efficacy. The second factor that caught my eye came from the book "Get People To Do What You Want" by Gregory Hartley (which, by the way, is a pretty scary book because of Hartley's experiences as an interrogator).

Hartley breaks down the mechanics of charisma, the first step of which he lists as: "Demonstrate value." When you demonstrate value, people want to get to know you. That makes sense, of course, but when you pair it with the data from the Ariely studies you can see that not only is demonstrating value the first step to being charismatic, but if you're perceived as valuable ("expensive") you're likely to be more effective.

I know a lot of people have had to discount their prices or offer deals during the recession, but this gave me pause to think about how much one should discount. Perhaps there are ways to keep some prices higher and to lead with a sense of your own value.

Does this mean you should jack your prices through the roof? Of course not, Ariely also showed rational reflection on price and quality can reduce the effectiveness of price. But it does suggest that being able to strongly convey your value not only makes you charismatic but can actual result in a better, more effective experience for your clients.

(On a side note, I was going to review "Predictably Irrational," which is a very enjoyable read for any psychology geek like me who wants to know about dozens of studies in behavioral economics, but then I found that it has already been outlined online on the book outlines wiki. I will likely touch on it in other posts as the studies are eye-opening.)

Comments

[Deb B]

Very interesting article Rachel. Thanks for sharing.

[Elise]

See Daniel Gilbert's "Stumbling on Happiness" which is replete with corroborating scientifically proven anecdotes.