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The price placebo effect is a marketing take on the classic placebo effect. One of the most surprising things about our brains is how easily we can be tricked into believing something that isn’t true.

The classic placebo effect is a perfect example of this. In this scenario, you have two groups of people. One group gets an actual medication, like aspirin or ibuprofen, and the other group gets a sugar pill that has no effect on them whatsoever. But test after test has shown that many people who receive the placebo believe it works like the medication would and might feel better as a result. This suggests that if a person believes something will work, it just might.

The PRICE PLACEBO EFFECT takes this theory and expands on it. It says that if you have two products and one is marked as being more expensive, it will be perceived as the better product, even if it’s identical to the other! According to science, our expectation of something being better influences our brain’s perception of quality, even if it’s not a better product. Since most of us believe that the more money spent the better the product, we often fall for this tactic when purchasing goods and services.

Many years ago I worked on the Roundup herbicide account in my previous agency BallantyneTaylor. Roundup had long been the leading brand in the NZ herbicide market but was having its impressive market share eroded by generic brands that had a similar formulation to Roundup and were substantially cheaper than Roundup. This was a big challenge, but we used THE PRICE PLACEBO EFFECT to solve the problem.

Knowing that consumers innately equate higher price with higher quality, our solution was to loudly and proudly own the fact that Roundup was more expensive than other herbicides and to position it as the original and by inference, best brand.

Our creative director, Greg Taylor developed a brilliant campaign with ad headlines like: “Of course, there are cheaper herbicides. There are also plastic gumboots and imitation Swannies.”  The campaign worked exceptionally well and helped Roundup hold its share and premium pricing.

Research has also shown that THE PRICE PLACEBO EFFECT makes wine taste better. In several studies brain scanning showed people extract more pleasure from the same wine when they are told it is expensive.

What’s the lesson here?

Discounting prices always seems like a good solution to increase short-term sales, but it might hurt your sales in the long-term because people may assume your products are of lower quality.

Conversely, rising prices for the items that don’t sell may help to increase sales as people will assume these are better quality. Obviously, a lot depends on the category you’re in, but it’s worth considering THE PRICE PLACEBO EFFECT.