Does the price you paid for that expensive wine at dinner influence your satisfaction with that wine? The answer to this question may reside in the folds of your medial orbitofrontal cortex, the part of the brain that registers pleasure. In what should be music to the ears of marketers, the old adage that you get what you pay for really is true when it comes to that most ephemeral of products: bottled wine.

The Research

A recent study by Baba Shiv, an Associate Professor of Marketing at Stanford University’s Graduate School of Business, and a group of researchers at California Institute of Technology concludes that people will experience an increase in activity and pleasure within the brain when they consume wine that they perceive to be expensive even though the part of the brain that interprets taste is not affected.

While many studies have looked at how marketing affects behavior, this is the first to show that it has a direct effect on the brain. In an article, co-authored by Baba Shiv, titled “Marketing Actions Can Modulate Neural Representations of Experienced Pleasantness,” published online Jan. 14 in the Proceedings of the National Academy of Sciences, students were placed in a MRI and given sips of red wine-including the same one twice, with different price tags: $5.00 (the actual price) and $45.00 (a fictional price). The subjects reported that they liked the expensive wine more than the cheaper wine even though it was the same wine - a preference that was mirrored by an increased activity in the medial orbitofrontal cortex of their brains as measured by the MRI.

The Marketing Implications

According to Shiv, the traditional assumption in economics is that a person’s “experienced pleasantness” (EP) from consuming a product depends only on its intrinsic properties and the individual’s thirst. Contrary to this basic assumption, several studies have shown that marketing can influence how people value goods. For example, Shiv has shown that people who paid a higher price for an energy drink, such as Red Bull, were able to solve more brain teasers than those who paid a discounted price for the same product.

Despite the pervasive influence of marketing, very little is known about how neural mechanisms affect decision-making, the researchers said. “Here, we propose a mechanism though which marketing actions can affect decision-making,” they write. “We hypothesized that changes in the price of a product can influence neural computations associated with EP.” Because perceptions about quality are positively correlated with price, the scholars argued that someone might expect an expensive wine to taste better than a cheaper one.

Says Baba Shiv, “What we document is that price is not just about inferences of quality, but it can actually affect real quality. So, in essence, [price] is changing people’s experiences with a product and, therefore, the outcomes from consuming this product.”

The lesson says Baba Shiva is that: “there’s a temptation among marketers to keep reducing prices. We’re saying be careful before you embark on that strategy.”

In keeping with this research marketers would do well to position themselves as the most expensive product or service in their market category. I realize this positioning is counterintuitive to the prevailing thought that most marketers have, and that many readers of this newsletter will have difficulty with this concept.

A Personal Experience

My study of marketing has demonstrated that most marketers want to position themselves somewhere in the middle of the price range in their marketplace. This positioning eliminates any competitive advantage by creating a “me too” perception in the marketplace.

Several years ago, I experimented with this concept by running a year long radio campaign that stated in every ad that “our training is expensive and difficult”. Instead of turning buyers away it actually attracted more of my ideal clients.

Interestingly, when prospects became clients their training experience was enhanced because they paid a handsome sum to participate and they would often brag to others about how “expensive and difficult” this training was.

Sure I lost some potential clients, but I repelled a far greater number of wimps, weasels and yahoos that I had no interest in working with. The clients I attracted were among the elite in their sales profession. They were committed sponges who soaked up every thing they could and they were a pleasure to work with. Since then, I have raised my prices several times, and every time I do so I get more clients and better quality clients.

As a side note, two years after the radio campaign finished I spoke at a local Rotary Club meeting. I gave the president, who was to introduce me, a written introduction for him to read. When he got up to introduce me he said, “well I had an introduction to read to you about our guest but I can’t find it. All I can remember about him is that his name is Steve Clark and you have probably heard his radio ads that talk about how expensive he is. So give a big Rotary welcome to Steve Clark.” That is the power of positioning.

A Military Application

Positioning is not lost on the United States Marine Corps. They are well aware of this concept and position themselves as the elite branch of military service. Their campaign for “a few good men” and “we don’t accept applications only commitments” is a practical application of positioning to attract the best. And while other branches of service struggle to meet their recruiting goals the Marine Corps does just fine.

How about you? Are you positioned as the elite in your industry or are you just a little bit better than most of your competitors? If you are anywhere in the middle of the pack, remember that only the lead dog ever gets a change of scenery.

While you may not be able to implement all of these ten strategies, read each of them carefully and ponder how you might creatively use them in your business or practice.

1. Raise your current prices and fees

This is a no brainer and requires little skill. However, it does require a lot of  courage. The reality is that people will pay you more than you are currently  asking. Maybe not 50% or 100% more but certainly 10% - 30% more. All you  have to do is convince yourself of this and transfer this conviction and  confidence to your buyers. 

2. Change your target market

Start going after the type of clients who are not price shoppers. While price is a  consideration in most buying decisions, research shows that less than 10% of  buyers buy strictly on price. You must retrain yourself that price is not the reason  most people don’t buy from you. It may be that they don’t trust you or they don’t  see you as an expert or they don’t see the value in what you offer. Whatever the  reason, it isn’t price.

3. Stop giving stuff away for free

Sales people are notorious for giving away products and services for free. Some  where in their head they have the idea that if they will be nice and give “more  value” (that usually means the company’s resources) they will be elevated and  achieve exalted status in the eyes of the buyer. That’s rubbish. The reality is that  the more you give away the more they want for free and the harder it becomes to  get them to pay for future products or services. The solution: Charge for everything.

4. Bundle products and services together

 Instead of selling individual items, start selling packages by bundling various  products and services together into one sale. It is much easier to sell three items as  a package deal than it is to make three individual sales.

5. Sell a deluxe version of your product and service

Offer a premium or deluxe version of what you sell. At least 20% of your buyers  will upgrade and by the “platinum” version of your product or service. This is  easy money that you are leaving on the table. The more affluent the buyer the  more likely they are to want the “upscale” version. 

6. Upsell with the current sale

Once you make a sale give the buyer an irresistible offer to buy an additional  product or service or add on as part of the original order. Present this as a one  time offer and have the guts to stick to it. You will be amazed at how many  people will buy it because they don’t want to let the opportunity pass them by. 

7. Upsell immediately after the sale

Immediately after the sale offer the buyer an opportunity to purchase an additional  product or service within a very limited time frame. This offer can be made via  the phone or mail or in person.

8. Build in a renewal program

Offer an automatic renewal program that will lock your customers into future  purchases unless they opt out of the program. This eliminates the need to sell  them every time your current contract expires.

9. Develop a continuity program

Develop and offer a continuity program so that you get ongoing, residual, monthly income from each account or customer. Examples of this might include  newsletter subscriptions, service contracts, etc. Sell once and get paid  repeatedly.

10. Change what you sell and how you sell it

The fastest growing segment of the North American market is the affluent  market. Every 8 minutes a new Millionaire is created. At present there are 8.4  new middle class millionaires in the US alone.

While the middle class struggles, this class continues to amass wealth. They have  plenty of disposable income and are not price sensitive when it comes to  indulging their preferences. Seek them out.  If you don’t have a high end product  or service that targets the affluent you are missing the runaway economic freight  train.

In Sunday, April 6th’s issue of The Tennessean, the Nashville daily newspaper, David Bohan, founder of Bohan Advertising and Marketing, writes about the resurgence of direct response marketing.

In his article, Bohan points out that, contrary to popular belief, people actually look forward to reading their daily mail . He says, according to the U S Postal Service, consumers spend 30 minutes a day reading their mail.

Smart direct marketers are taking advantage of this by selectively targeting niches and crafting messages that have high appeal to their audience. This market segmentation and quality copy is producing incredible results for those marketers who have honed their direct marking skills.

“The offer is the hero of the direct mail piece, but the creative is the sizzle”, says Chris Kelman, creative director of Catapult Marketing in Westport, Connecticut.

Using market segmentation, Kimberly Clark’s Huggies brand created a direct response program that targeted mothers by the age of their babies from pre-natal through a child’s 30th month. The long copy, information rich content focused on benefits of Huggies and directed mothers to the Huggies web site where they could obtain additional information.

Instead of trying to sell the mothers directly, the direct response campaign “sold” the mothers on going to the web site where they were offered more information, coupons to use and contests to enter. Every click of the mouse brought the mothers deeper and deeper into the sales funnel where they were giving their permission to be sold and marketed to.

Using Direct Response to Sell Season Football Tickets

One of the most prestigious football programs in the country is the University of Alabama. In Alabama football is more than a game. It borders on being a religion. That being the case, you would think that selling season tickets would not require a direct mail campaign. If you think that you would be wrong.

Seems as though the Crimson Tide has found a marketing strategy that will be copied as fast as you can say “Roll Tide Roll”.

In 2007, the University of Alabama’s Athletic Department hit the jackpot by developing a personalized ad campaign that was directed to season ticket holders. This campaign featured a postcard of Bryant Denny Stadium with the recipient’s name spelled out on the field by the Alabama Band. The postcard also included a personalized URL that directed ticket holders to a web site where the Alabama cheerleaders held up signs with their name on them.
The result: online renewals doubled from the previous year.

Smart marketers are reexamining their thoughts of direct response marketing when designing marketing campaigns. Maybe it is time you consider doing the same.