So how does this apply to business?

Marketers are always looking for ways to build up hype for new products, raise expectations so that they can create anticipation and enhance the experience when customers actually interact with their products. Moreover, shaping expectations is not limited to pricing strategy. When you think about Volvo, you think about safety; when you think about Chevrolet, perhaps not. However, according to safercar.gov, Chevy Impala is just as safe as a Volvo S60, receiving a 5-star rating on overall safety tests. The examples can go on but the point is that businesses work relentlessly to influence our experiences by shaping our perceptions.

Let’s revisit the medication example and take a look at a research study that was conducted to observe the effect of price on customer experience. To test the placebo effect, Baba Shiv, Ziv Carmon and Dan Ariely gave two groups of students a certain brand of energy drink that claims to enhance mental functions, prior to solving a puzzle. The first group paid a premium price for the beverage while the price was marked down significantly for the second group. To set a point of reference, they also gave the puzzle to a control group that was not given the energy drink in question.

According to the results, the control group and the students who bought the beverage at full price solved an average of 9 out of 15 puzzles. What is interesting is that the group that bought the drink on discount was only able to solve an average of 6.5 questions, which translates into a 28% difference in performance between the two groups that were being tested.

As irrational as this seems, we instinctively assume that a product is better than its counterparts if it is priced at a premium level. When AMD started competing against tech giant Intel, it adopted a market penetration strategy by pricing its microprocessors lower than the competition in order to steal market share. This created a perception among shoppers that AMD products are worse than Intel, even though they performed equally (or in some cases even better) in most tests.

In short, expectations are powerful influencers of perception and in turn, experiences. As difficult as it is to set aside preconceptions when looking at a brand, it might serve us better to compare products based on the features and benefits they offer rather than how they are positioned to be perceived.