According to classical rational economic theories, lowering prices increases demand and revenue. But, pricing learning 1 has shown that consumers relate to prices in an irrational way. This leads to the question of whether a price decrease can have similar irrational outcomes?
Dan Ariely asked himself the same question. Ariely is best known from the behavioural economic book 'Predictably Irrational'.
During the experiment, participants were offered a drink called SoBe Adrenaline Rush, a drink containing a ‘high performance energy supplement’ (see image). Then, participants had to solve puzzles by forming words with the given letters.
For example: with the letters LEPZUZ, you can form the word PUZZLE. The subjects were asked to form as many words as possible within 30 minutes.
The 3 different groups
- The first group was the control group. The participants didn't drink SoBe before starting on the puzzle. This group solved 9,1 puzzles on average.
- The second group drank SoBe before starting on the puzzle. The drink had its regular price, without a discount tag. This group solved 9,5 puzzles on average, almost the same amount as the control group.
- The third group also drank SoBe before starting on the puzzle. But, the drink had a discount tag. This affected the performance of the group as they had only solved 7,7 puzzles on average.
The discount had a negative influence on the effects of the drink. The discount gave participants the impression that the product was less valuable and thus less effective. This directly influenced participants' mental acuity, reflected by the amount of words they could form.
Furthermore, participants responded that they weren't aware of the price of the drink. This shows that a discount can unintentionally and unconsciously influence the product perception in a negative manner.
Therefore, it's a good idea to evaluate the unconscious effects of price changes as a discount can be costly.