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What You Need to Know About High-Priced Fake Pills

What You Need to Know About High-Priced Fake Pills

September 22, 2008

It's well documented that placebos - sugar pills or saline injections that are made to look like the real thing - can actually cure headaches, pain, depression, and a list of other ailments. But now comes something even more interesting.

The price of a pill can prove just as powerful too. In a recent study, MIT behavioral economist Dan Ariely showed that a higher priced placebo can perform better than a cheaper placebo. Stay with me here because this is fascinating.

He told volunteers he was testing a new pain-killer. He created brochures about the new 'drug,' imprinted pens with the pill's logo and even set up an office made to look like a doctor's office with old Time and Newsweek magazines lying on a table, Ariely explained on www.Fora.tv while promoting the findings in his book, Predictably Irrational: The Hidden Forces That Shape Our Decisions.

In the study, he applied electric shocks to the wrists of volunteers before and after giving each one the placebo (vitamin C). In the 'company' literature, half were told that the pills cost $2.50 each, and the other half were told that they cost 10 cents.

About 85 percent of the volunteers who received the 'more expensive pain-killer' reported a pain reduction from the placebo compared to just 60% of the '10-cent group.'

He ran a similar test selling an energy drink. When he sold it for half-price, drinkers exercised less, felt more tired and performed poorly on mental tests. Similarly, in a blind taste test, beer with vinegar was more popular than regular but when people were told ahead of time they were about to drink beer with vinegar in it, they hated it!

'The big point from all this is that when we have certain expectations, these expectations have an incredible power to shape the reality we live in,' he says. 'If you expect something to be worse just because it costs less, it has a tendency to become that 'your ideas overwhelm reality.'

Price is not linked to the item itself, but rather, the price is a direct link to the perception of the value that's held in the eyes of the customer. If you sell a simple commodity, think of ways to link it with something of greater value.

This extra value can be something that doesn't have to cost you too much up front. For example, you can create an informa'tion package, where you simply have some books and manuals. It only costs you a few dollars to produce, but you can sell it for hundreds of dollars because the value to the client is so high. If you have a stress-manage'ment system, you can only sell it for $4.95, but if you have a stress-manage'ment system specific to attorneys, then you can charge $495. Just by tailoring a product for a specific market you've increased its perceived value.