Behavioural economics and wine
either a $5 wine or a $45 wine; in another they were told they were testing a $10 wine and a $90 wine. The researchers, using brain imaging technology to detect activity in areas of the brain associated with pleasure, found that participants experienced more pleasure when tasting the more expensive wine than when tasting the cheaper wine. The researchers concluded this was through ‘ an increase in taste expectations ’ i.e. the participants thought the wine would be better because of the price, so it tasted better to them (Plassmann et al., 2008). The reason for this is the expected correlation between price and quality. Firms can use this to their advantage. Alcohol is an industry particularly open to this bias, meaning a firm can build a more luxury brand associated with quality based largely on price. This is exactl y the purpose of Stella Artois’ famous strapline ‘ reassuringly expensive ’ , which highlights this connection directly to the consumer. Impact of discounting Placing items on sale, especially when they are luxury products, can not only diminish brand image, and appeal, but also, according to a 2005 study by Baba Shiv, their perceived quality (Shiv et al., 2005). Shiv ran a study where he assigned 125 participants to drink a well-known energy drink to (SoBe, recognized by 92% of participants). The researchers made sure that the participants thought the drinks would enhance their performance by telling having them watch a video for ten minutes ‘ to allow the ingredients to have their effects ’ . Participants were then asked to complete a number of word-jumble puzzles in 30 minutes. But before doing so, participants were informed that their drink cost either $1.89, or $0.89 (purchased at a discount). The participants who were informed that they were drinking the discounted beverage completed an average number of 7.7 puzzles in the time; participants who were informed they were drinking the full priced drink completed an average of 9.5 puzzles. This was compared to a control of 9.1 when no energy drink was administered. These results demonstrate that knowing that you are consuming a discounted good affects your view of its quality. In the context of wine, this could suggest that for restaurants, especially luxury ones, discounting wines could have negative consequences. In fact, certain wineries and restaurant, if it aligns with their brand image, could in fact increase wine prices and improve the perceived quality of their product. Pain of payment However, it is not as simple as this. Although expensive wine usually is more appealing to taste to consumers; it is not more appealing to purchase. This is due to the ‘ pain of paying ’ (Zellermayer, 1996). This is the idea that consumers do not rationally think about money at all points in time and through all mediums but are affected differently according to the circumstances.
MIT’s Professor Duncan Simester ran an experiment that found people were willing to pay double the amount for basketball tickets when they were paying with credit card rather than cash. Zellermayer identified three key concepts about pain of paying, as follows:
1. Present over future . Consumers feel more pain thinking about handing over money in the present than they do thinking about it in the future. 2. Losses over gains . Consumers feel more pain over losing something than not having been able to gain it. 3. Coupling . This is how much a payment method feels connected to spending real money. The stronger this is, the more pain is felt.
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