Cost and Experience

Yesterday I hypothesized that price plays a role in how consumers feel about high-end beer. It prompted a reader to send me the results of a 2007 study that tested this same hypothesis among wine drinkers. Upshot? Price definitely affects appreciation:
We tested this hypothesis by scanning human subjects using functional MRI while they tasted wines that, contrary to reality, they believed to be different and sold at different prices. Our results show that increasing the price of a wine increases subjective reports of flavor pleasantness as well as blood-oxygen-level-dependent activity in medial orbitofrontal cortex, an area that is widely thought to encode for experienced pleasantness during experiential tasks.
While I'm feeling a little sheepish about the experiment I suggested yesterday (a market-based model dependent on a beer company), this does lend credence to the original hypothesis. The study model was fascinating. First, they asked people to taste the same wines and told them they were different and cost different amounts ("reported pleasantness was correlated with wine prices"). Eight weeks later, they had them taste all the same wines blindly, with no information ("ss expected, in this case, there were no reported differences among the wines").

Two interesting side notes. The researchers acknowledge one confounding factor: the test subjects may have been influenced in their opinion of the wines by the scientists conducting the experiment, "deeming it inappropriate to report to the experimenter that a cheaper wine tastes better." And yet they also found in the brain scans a mechanism analogous to the one observed in the placebo affect--suggesting that the subjects actually experienced the wine as better.

The paper concludes with these thoughts, which I also find interesting:
We show that, contrary to the standard economic view, EP [experienced pleasantness] depends on nonintrinsic properties of products, such as the price at which they are sold. It then follows that marketing manipulations might affect subjective perceptions of well being. This raises several difficult questions for the field. Should the effect of prices on experienced utility be counted as real economic well being or as a mistake made by individuals? To what extent are measurable differences in preferences based on intrinsic differences between products and price effects we have identified? What happens to the efficiency of competitive markets when firms can influence experienced utility by changing the price of items?
In other words, what happens if everyone jacks up the price of their beer to $20 a bottle? Would it damage the overall high-end market? (It raises a related question in my mind. Why don't breweries charge different amounts for their own beer based on cost, availability, and subjective factors like tastiness? I assume it's because they don't want to damage sales of other products, but I nevertheless wonder.)

The full pdf is here if you'd like to read it.
Jeff AlworthBeer Biz2 Comments