Wine Memo: Does Price Really Matter When it Comes to Wine Marketing? Modern Science Says Yes it Does

Researchers at Stanford University's Graduate School of Business and the California Institute of Technology (CalTech) say a recently completed scientific experiment they did demonstrates that at least when it comes to wine, the old adage that "you get what you pay for" is true.

The Stanford B-School and CalTech researchers say if a person is told he or she is drinking two different wines--and that one costs $5 and the other $45 when they are, in fact, the same wine--the part of the brain that experiences pleasure will become more active when the drinker thinks he or she is drinking the more expensive wine.

"What we document is that price is just not about inferences of quality, but it can actually affect real quality," says Baba Shiv, an associate professor of marketing at Stanford's Graduate School of Business, and a co-author of a paper titled: Marketing Actions Can Modulate Neural Representations of Experienced Pleasantness published online in the Proceedings of the National Academy of Sciences. "So, in essence, price is changing experiences with a product, and therefore, the outcomes from consuming this product," Shiv says.

Professor Shiv and company at Stanford and CalTech used functional magnetic resonance imaging (commonly called MRI) to conduct the scientific study that resulted in the paper mentioned above with a title that certainly is a palette-full.

MRI scans have been used often in various studies to gauge brain activity. But this study is one of the first to test subjects using an MRI scan as they swallow a liquid. In the study, the research subjects consumed and swallowed wine through a pump attached to their mouths, while being given an MRI scan. The MRI then measured the subjects blood flow to their brain.

Commenting on the study's results, Shiv says that a "basic assumption in the field of economics is that a person's 'experienced pleasantness' from consuming a product depends only on its intrinsic properties and the individual's thirst.' However, "marketers try to influence this experience by changing a drink's external properties like its price," he added.

Of course, many marketers have long known intuitively that price matters, and that pricing an item a bit higher can actually create more of a demand for it than reducing its retail cost.

According to the paper, "This type of influence is valuable for companies, because 'experienced pleasantness' serves as a learning signal that is used by the brain to guide future choices."

Despite the pervasive influence of marketing, very little is known about how neural mechanisms affect decision making, according the researchers. In our paper, "we propose a mechanism through which marketing actions can affect decision making," the researchers state in the scientific paper. "We hypothesized that changes in the price of a product can influence neural computations associated with 'experienced pleasantness'," the paper's authors conclude.

Shiv and his fellow researchers argue in the paper that because perceptions of quality are positively correlated with price (you get what you pay for) that someone might expect an expensive wine to taste better than a cheaper one.

Their hypothesis--which turned out to be correct--went even further. They said a person's anticipated experience would prompt higher activity in the part of the brain (the medial orbitofrontal cortex, or the mOFC, located in the forehead) that experiences pleasures. The results of the study subject's MRI scans showed just that result. The medial orbitofrontal cortex has also been identified by researchers as an area of the brain that has to do with food cravings, including a craving for chocolate.

Professor Shiv says he initiated the study in part because he lives in California where wine is a big deal, and because he personally is interested in wine, and professionally is fascinated with wine pricing and its wild variations.

You can go from $4 bottle up to $200 or $300 bottle in nothing flat, he commented. "Why are people going for that?" Some people are trying to show off, but most aren't," he says. "They're serious about it (wine)," and they think the more expensive it is, the better (it is). That has always befuddled me. Is it really that people are getting more pleasure from it? Or do they just think so.?

Well, thanks to the study and paper from professor Shiv and his associates, he--and all of us--have a little better answer to those questions he asked himself before conducting the study.

We do wonder though: As a result of the study, should Trader Joe's immediately increase the price of its famous, best selling $1.99 bottle of wine called "Two Buck Chuck," to $2.99? Or even up to $3.99? Where does the price elasticity begin to have a negative effect at this end of the price-point market for wines? We aren't sure. But "Three Buck Chuck" has a nice ring to it. And "Four Buck Chuck" doesn't even sound all that bad.

If Trader Joe's, as an example, could charge an additional dollar or two per bottle, imagine the profit-effect it would have based on all those bottles of "cheap" wine the specialty grocer sells every year. The implications could be staggering.