What makes consumers believe that a high-priced branded product or one with a fancy packaging is better? Baba Shiv calls it the placebo effect, with the brain deriving more pleasure from extraneous factors that may not be directly linked to the intrinsic quality of the product. How then does a consumer guard against the placebo effect? Gather information, compare the effectiveness of rival products and take informed decisions, says the professor.

It is this attempt by Shiv to understand the non-conscious placebo effects of marketing that led to findings such as people consuming high-priced drinks solving more brain teasers compared to those who consumed cheaper energy drinks.

Shiv, who has served as a consultant for several marketing and law firms on issues ranging from branding and pricing to trademark infringement, says his primary aim is “to change business practices" and “help people take better decisions". Edited excerpts from an interview:

In one of your research papers, you have said price can influence the consumer’s experience of a product. The research, citing an example, says a consumer who pays a higher price for an energy drink is likely to solve more brain teasers than the person who pays a discounted price. On the face of it, this seems far-fetched. It makes the consumer seem naive.

Close to 90-95% of the mental processes are not accessible—the conscious brain cannot access the mental processes taking place in the subconscious mind. Most of the time, that is good for humans as it differentiates us from a computer. For evolutionary reasons, we have developed habits where routine processes go to the subconscious mind.

Illustration: Jayachandran / Mint

Are you saying that consumers are likely to buy a product at a higher price when people are usually looking for bargains?

You have to divide the notion of utility in economics in three ways. First, predictive utility—it’s when before you buy, you think of what utility you will derive at what cost; second, experience utility—when you consume the product you know what utility has been derived, and third, remembered utility—consumers who are coming back the next time to purchase the product. And this is triggered by both of the above.

Having said this, let’s look at women’s apparel—look at women at a certain income status (level) buying clothes. It is well known that women prefer to buy items at a discount—if the item is not at a discount, they bargain more than men. Men usually don’t worry about the discount but women get an emotional buzz from the lower cost or the bargain they managed. Now, that forms part of the predictive utility, (but) the same low price before they bought it at a bargain can manifest itself as a lower experience utility.

So, on one hand, there is this huge emotional buzz before the purchase, but because of the discount, your brain will not derive much pleasure—so you will start using the item less or get rid of it sooner than you would if the item was bought at a regular price. There are two forces working in opposition (opposite directions) —positive and negative—and the important thing is the remembered utility driven by predictive utility—which means getting it at a discount. So, when you think of utility, a combination of predictive and experience (utility) is what determines remembered (utility).

In a nutshell, this is not a paradox. Yes, people like bargaining but this is their emotional buzz.

Besides pricing, what are the other marketing factors that can influence consumer response to a product?

The first and foremost factor that modulates consumer response to a product is the brand name that is made powerful by brand communication. A consumer responds in a different way to a product that is a well-known brand to one that is not branded, even if the two products (branded and unbranded) are made up of similar properties.

The other factors that give out cues to a customer, in ways that are not related directly to the product, are packaging and presentation. For example, there may be a bottle of perfume beautifully packaged standing on a shelf versus the same perfume with no packaging that sends out a completely different message. Similarly, the presentation of the retail setting, whether it is food in a restaurant or the same bottle of perfume in a well-lit, well-designed store as opposed to the food or same perfume sold at a no-frills outlet. The brain derives more pleasure from these factors in the environment that may or may not be directly linked to the product itself.

So, do these factors that influence consumer response and experience so strongly work on products across the board or only on certain categories such as perfume and food?

These factors do not depend on the categories under which the products come. They are determined by the nature of benefits being offered by the product and the benefits can be categorized in three ways: search—these are products, looking at which you will know this is what you require; experience—products which do not depend on the look as much as they do from actually using or experiencing the product, and credence—under this type, whether you see it or not, you will not know whether the product has worked till some time has passed.

For example, when you start taking medication for a health problem that starts showing its effectiveness after six months or when you send your car for servicing, you do not know what the mechanic has done until you realize things are working differently, if at all, at a later time. Consumers, in this case, just believe that the product has the benefit. The placebo effect is at its minimum in search and maximum in credence.

Are there any downsides to adopting such extraneous influencers to change consumer perceptions?

For the consumer, there are huge downsides because they may make wrong decisions based on the placebo effect.

Take the case of medication I used earlier—you have a generic medicine at a regular price and a branded one at a much higher price. The placebo effect will make the consumer choose the branded medicine, even though it may not be as effective as the unbranded one. Or a manufacturer may have a wonderful presentation for his wares, but he may be charging the consumer a higher price on products, so the consumer may end up paying for the presentation without knowing it, whereas she may get that very product at a much lower cost elsewhere. Apart from causing customer disappointment, the environment also suffers as the materials used for presentations are what landfills are made up of.

Aren’t there any ethical issues related to this phenomenon of mapping brain signals to understand consumer behaviour? At the end of the day, isn’t it going to help companies exploit consumers’ emotions more?

I get asked this question all the time—I am doing research which is not for the benefit of any firm. I do it for the consumer, so (that) she can make educated decisions—not only for herself but also for others. What I hope to tell consumers is that you may give in to fancy packaging but you’re the one paying for it. I don’t help firms and that’s true for researchers that study the brain and decision making.

Do you use the results of your study for commercial purposes?

No. If a firm does go ahead and use the results of my study, I really can’t stop them. But yes, when I talk to brands they are more of a guest lecture, where I share my expertise on human decision making. So, companies call me to talk about how the brain makes decisions—these are more scientific talks.

Could you share with us some interesting insights that you may have given a company? Did the company apply them?

I really cannot share the names but the one (company) I can talk about is Google Inc. I gave guest lectures as they have a (lecture) series where professionals come in to talk. When companies come to me to solve their problems, I normally say no because I’m here to change business practices by making people think differently (so as) to help them take better decisions. So, I’m there as a scientist answering questions on my research—so hopefully, consumers can make an informed decision. My papers and research are available openly on the Internet, so there is no reason why they would pay me—but yes, I can elaborate on my experiments—(but) I don’t solve problems.

What are you currently working on?

My current research interest includes the study of the emotional and the motivational brain and their implications for human decision making. An example is my current research showing strong dissociations between wanting and liking through the phenomenon of “jilting", wherein an individual is eager to receive a rewarding outcome but the outcome does not materialize. What we show is that under such situations, the individual has reduced liking for the rewarding outcome (and) at the same time wants the outcome more (than if the individual were not jilted in the first place).