Branding Matters – A Peak Into the Fascinating World of Behavioral Economics and Consumer Psychology

Pepsi and Coke both claim that taste tests prove that their product tastes better. So who’s lying? Pepsi outperforms Coke on taste tests—but only the blind ones. When the loveable Coca-Cola branding is visible Coke crushes Pepsi. Something’s fishy, right? Turns out Coke actually tastes as good as it does because of the branding. Strip the branding from it and people get less enjoyment out of it. In steps Pepsi, with inferior branding and a superior drink and poof: things get baffling. I know it sounds ridiculous, I know. And here’s another weird one: energy drinks work better the more expensive they are. Even with identical products (with identical bottles and branding), when an energy drink is labeled as being more expensive people get a higher high from it. Simply messing with the price tags on something can influence how effective it is. Scarily enough, the same holds true for medicine.

Tylenol bought at 50c/pill works better than Tylenol bought for 5c/pill. That brings up another tricky issue, though: as a marketer you can’t just go messing with prices, because people anchor themselves to the first price they see. Let’s look at gasoline as an example. People aren’t mad about the price of gas because it’s expensive, they’re mad about the price of gas because it’s more expensive than it used to be. If you increase the price of something people are going to make a fuss. But then you have Starbucks… because of their excellent branding and their shop’s top notch ambience they’ve managed to take a mediocre tasting coffee and charge people through the ass for it. Like Coke, once the branding is applied, the coffee really does taste better. Pair that with a classy price tag (and a higher caffeine content) and poof—you’ve got an international sensation.

So what the hell is going on? Are people just crazy? You know as well as I do that we sure as Hell are… but there’s a method to our madness. If you can understand the basics of behavioural economics it all becomes clear.

Why Coke is King

I’m a big Coca-Cola fan. I only drink soda maybe once a year… but when I do it’s always Coke and I always love it. I’m a designer, so I suppose that makes sense. Coke has great branding and I’ll be the first to admit that branding matters to me. (And it really does taste better..)

You might remember the Coke and Pepsi commercials both claiming that their studies concluded that their drink tasted better. Turns out they were both right, but under different circumstances. Coke’s market research focused on people sipping from branded glasses, while Pepsi performed blind taste tests, with people sipping from innocuous glasses marked M and Q. That made sense to me. Sure. Some people, like me, love the Coca-Cola brand and therefore it seems to taste better to them. Once the fancy branding is removed and it comes down to pure taste Pepsi does better. I think I’m the exception, and that I actually prefer the taste of Coca-Cola…but don’t we all. (We’ll get to the fallacy of individuality in another post)

Here’s where it gets interesting. To get to the bottom of this mystery a group of neuroscientists (Sam McClure, Jian Li, Damon Tomlin, Kim Cypert, Latané Montague and Read Montague) decided to conduct an experiment of their own. The fancy twist with this test was that instead of simply having the consumers try some drinks, both branded and not, and asking them which they preferred, they decided to measure their brain activity using a functional magnetic resonance imaging (fMRI) machine.

So they hooked up some straw-like tubes and inserted the test subjects into the fMRI machine one by one.

So what were the results?

During the blind taste test, where the brand names were hidden, sure enough Pepsi held strong and outperformed Coke. How did they determine which soda won? “Whenever a person received a squirt of Coke or Pepsi, the center of the brain associated with strong feelings of emotional connection—called the ventromedial prefrontal cortex, VMPFC—was stimulated.” (Thanks Dan Ariely)

So Pepsi stimulated the VMPFC a little bit more and won the blind test. What about when branding gets involved? This time around they primed the test subjects by telling them which drink they were getting squirts of. This time around the frontal part of the brain (DLPFC) was stimulated as well and Coke took the lead. The fascinating thing though is that since there is a dopamine link between the frontal area of the brain and the pleasure center we actually physically get more pleasure and enjoyment from Coke when the brand is revealed. The Coca-cola branding has created a love for Coke that actually makes it taste better.

This is great news for me. Not only does this create worlds of possibilities for the branding that my business does and elevates its importance tremendously, it also justifies the ridiculously expensive black skinny jeans I keep buying. Maybe they actually physically feel more comfortable because I dig the brand so much.

Why Price Matters

Expensive pills work better than cheap ones when the ingredients are identical. Similarly, take two cans of Red Bull’s fictional brand new energy drink, put a 50c price tag on half the cans, and a $4 price tag on the other half. Give them out to people (as free samples) and ask them afterwards how energized they feel. Let’s say these people are used to paying $3 for the normal kind of Red Bull, so 50c sounds like a ridiculously cheap new product, and $4 sounds like a premium new product. So who feels more energized afterwards? The people that bought the more expensive one. Interesting, right? Here’s why:

You’ve all heard of the placebo effect. The placebo effect, put simply, is when something works simply because a person believes in it. The human mind is a powerful thing. The placebo effect can produce some incredible results out of pure belief. It’s because of this that faith healers really can cure you if you believe in them thoroughly enough. And worm poop can cure toothaches when applied topically. Yup. That was a real (and effective) bogus treatment from 1794.

As you can imagine, the placebo effect can really mess with experiments. For this reason most good scientists do them “double blind” to remove the placebo effect from the results. This means that some patients are given real treatment and some are given fake treatment, and neither the doctor nor the patient knows whether the treatment is real or mocked up (they’re both “blind”). At the end the groups can be compared. Generally the placebo group will experience moderate results, and if the drug really is effective the other group will experience further results on top of that.

So what does this have to do with the price of energy drinks and painkillers? Consumers assume that the higher the price, the better the ingredients, and thus the better the product. Since they believe it, the placebo effect makes it true. Red Bull works better than Red Rain. Jared and I… we uh.. we drink Red “Rave”. It has the same active ingredients, but it’s 1/6th the price of Red Bull. The placebo effect doesn’t really work if you know that the products are the same, so we figure may as well cheap out on our energy drinks, right?

Ambience and Coffee

Here’s another interesting experiment, conducted by Dan Ariely, that looks into how packaging influences how much people are willing to pay for a product.

Ariely and some colleagues set up a booth offering free coffee in exchange for answering some survey questions about their experience. The victims were given a cup of coffee and pointed in the direction of the milk, cream, half-and-half, sugar, paprika, orange peel, anise—wait…paprika? Orange peel? Huh?

I love this experiment.

The only packaging they changed was the packaging of the strange condiments—Condiments that not a single test subject used. At certain points they would be in beat-up white styrofoam cups and labeled with permanent marker. At other points the weird condiments were in silver containers on brushed silver trays with classy silver spoons. The test subjects were interviewed after drinking the coffee and were asked how much they would pay for it.

The results came in and well. Even though none of the test subjects USED the weirdo condiments, the packaging of those condiments affected how much they enjoyed the coffee. They were willing to pay substantially more for the coffee when the “ambience” was upscale.

They did some further testing, using beer, and further refined their conclusions. It turns out that you can induce the same effect by telling someone about how great something is before they try it. If you tell someone how fabulous the coffee is at this new coffee shop down the street, they’ll be more likely to think highly of it. This doesn’t, however, work AFTER they’ve tried the coffee. Once the person has that initial impression it’s much harder to influence them. The classy silver containers served that purpose, by influencing the test subjects’ views of the coffee before they tried it.

So How Does it Come Together?

So how do you rocket yourself to superstardom? Let’s look at Starbucks. They’ve got classy branding, fancy metal condiment containers, upscale looking stores, mediocre coffee and inflated prices. It’s the perfect combination. Get a buzz going about how it’s the cool place to be and rave about how great the coffee is (even if it isn’t) and you’ve got it made.

Does that make it right? Shouldn’t music be about the music, not the style; and coffee be about the coffee, not the cup?

I’m not saying the product doesn’t matter. Substance helps. It really does. What I’m saying is that if you want to make it as a band you can’t JUST sound good. You’ve got to have the whole package. If you want to make it as a coffee dealer your coffee SHOULD be good… but you need the ambience too. If you want to sell a supplement or drug, yeah it should work, but you might also consider finding a way to amp up its effects by pricing it appropriately and showing off how effective it is by citing studies. And if you’ve got the best tasting new soft drink out there and want to knock Coca-Cola out, you’d better get the best branding out there.

Find this interesting? Want even more? You’ll love Predictably Irrational, by Dan Ariely. Amazing book. Stay tuned for our recommended reading list. And if you liked this article, share it!