My good friend, Stan Pohmer, emailed today with a blurb from the April 28 issue of BusinessWeek (see below). He then asked “Do you think the same mindset applies to floral products?” An interesting notion for sure. Let’s take a quick look at the short article (below) and then I’ll comment on Stan’s question.
Your Taste Buds Are In Your Wallet
Is that Rubicon Estate cabernet worth the $80 you may have paid? The answer lies within the folds of your medial prefrontal cortex. A recent study conducted by researchers at Stanford Graduate School of Business and the California Institute of Technology concludes that when people know a wine is expensive, the pleasure they get from it is enhanced in the area of the brain where such sensations are processed. In the study, published online earlier this year in the Proceedings of the National Academy of Sciences, students were placed in an MRI machine and given sips of red wine–including the same one presented twice, with two different price tags: $5 (the actual bottle price) and $45 (a fiction). The subjects all said they liked the “expensive” wine better–a preference mirrored by increased activity in their prefrontal cortexes. The lesson, says Baba Shiv, an associate professor of marketing at Stanford: “There’s a temptation among marketers to keep reducing prices. We’re saying be careful before you embark on that strategy.” -Steve Hamm
Now bear in mind, Stan, that I am no medical doctor but even the neophyte knows the medial prefrontal cortex region of the brain has been implicated in planning complex cognitive behaviors, personality expression, and moderating correct social behavior. The most typical neurological term for functions carried out by the prefrontal cortex area is executive function. Executive function relates to abilities to differentiate among conflicting thoughts, determine good and bad, better and best, same and different, etc.
In the marketing literature, it is a commonplace observation that in many markets where consumers are not fully informed about product quality (e.g. safety, durability, probability of being satisfied) prior to purchase, goods sold at relatively high prices tend to be associated with high quality. In other words, price acts as a quality signal — in both directions.
It seems to me that the wine example fits this model perfectly since the novice wine drinker knows very little about what constitutes “quality.” They merely associate a higher price with a higher quality wine — at least until they take a wine tasting class. In the same way, the average buyer of floral products knows very little [in my humble opinion] about what constitutes a “quality” flower and in the absence of grades and standards to tell them what is quality and what is not, they will naturally gravitate to the same price signaling measure of quality as the novice wine buyer.
If this is indeed the case, much money is being left on the table.