You May Get No More Than You Pay For - Ruminating About Placebo Effects of Marketing Actions

Can the effectiveness of a product for an individual be largely "psychosomatic"? For example, can erroneous beliefs and expectations about an energy-giving beverage -- marketed as giving a mental boost, as well - be less beneficial if the consumer knows its been bought at a discount? Associate Professor of Marketing Ziv Carmon, and co-authors professors Shiv and Ariely document a robust, newly discovered "placebo effect", in which customers can -- however subconsciously -- mentally link lower prices with lower quality to their own detriment.

by Ziv Carmon, Baba Shiv,Dan Ariely
Last Updated: 23 Jul 2013

Can incorrect beliefs and expectations about effects of marketing actions influence the actual efficacy of the marketed product? For example, because consumers believe that lower prices reflect lower quality, can drinking an energy beverage believed to help mental acuity and bought at a discount lead to poorer performance in solving word-jumble puzzles versus when the same drink is purchased at its full price?

In the lead article of the November issue of the Journal of Marketing Research, INSEAD Associate Professor of Marketing Ziv Carmon, and co-authors Professors Baba Shiv and Dan Ariely document this phenomenon. They demonstrate that price discounts can hurt the efficacy of products, and that advertising messages can also affect actual product efficacy.

The researchers show that people paying the full price of a product (an energy drink believed to increase mental acuity) can benefit more from consuming it (are able to solve more puzzles) than people who purchase the exact same drink at a discounted price. They also demonstrate that people drinking a beverage advertised as being very effective derive more benefit from it (able to solve more puzzles) than consumers drinking the very same beverage but see an ad claiming that the drink is somewhat effective at enhancing performance.

The paper's findings demonstrate a robust new placebo effect that is a direct result of marketing decisions, and that is mediated by consumers' expectations. The authors rule out several alternative accounts in three experiments, such as those relating to cognitive dissonance and mood states. Their results also suggest that the process by which expectations give rise to these placebo effects occurs non-consciously.

The research extends the scope of effects that marketing actions are known to be capable of evoking, showing that they can influence the actual efficacy of the product in question. It also expands upon prior research into consumer beliefs involving price and quality demonstrating that price affects actual, and not only perceived quality. This means, for example, that consumers may indeed get no more than what they pay for, and that advertising claims that are originally baseless can nonetheless come true if consumers believe them.

Journal of Marketing Research, November 2005

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