HAMBURG: The use of neuroscience is reaching into new areas, as a German researcher claims that consumers are willing to pay up to a third more for products and services than they are currently being charged.
Neurobiologist Kai-Markus Müller told Der Spiegel that many people considered that a business such as Starbucks, the international coffee house chain, was selling a relatively inexpensive product for a lot of money. "But," he said, "the odd thing is that even this company doesn't understand it."
Müller argued that "classic market research doesn't work correctly" and instead he has focused on "neuronal mechanisms" that people cannot consciously switch off.
His work in this area has included the use of electroencephalography (EEG) to measure brain activity when people were shown a cup of coffee several times with different suggested prices.
The results indicated that subjects were prepared to pay up to €2.40 for a cup of coffee, which was 33% more than the €1.80 Starbucks actually charged.
"In other words, the company is missing out on millions in profits, because it is not fully exploiting consumers' willingness to pay money," Müller stated.
While Starbucks may be undercharging in Germany, it has been accused of overcharging in China, where China Central Television, the official state broadcaster, claimed that consumers paid a third more than in the US.
Neurobiologist Kai-Markus Müller told Der Spiegel that many people considered that a business such as Starbucks, the international coffee house chain, was selling a relatively inexpensive product for a lot of money. "But," he said, "the odd thing is that even this company doesn't understand it."
Müller argued that "classic market research doesn't work correctly" and instead he has focused on "neuronal mechanisms" that people cannot consciously switch off.
His work in this area has included the use of electroencephalography (EEG) to measure brain activity when people were shown a cup of coffee several times with different suggested prices.
The results indicated that subjects were prepared to pay up to €2.40 for a cup of coffee, which was 33% more than the €1.80 Starbucks actually charged.
"In other words, the company is missing out on millions in profits, because it is not fully exploiting consumers' willingness to pay money," Müller stated.
While Starbucks may be undercharging in Germany, it has been accused of overcharging in China, where China Central Television, the official state broadcaster, claimed that consumers paid a third more than in the US.
The Financial Times reported a comment from Wang Zhengdong, director of the Coffee Association of Shanghai: “Starbucks has been able to enjoy high prices in China, mainly because of the blind faith of local consumers in Starbucks and other western brands.”
In response, Starbucks said its pricing strategy was based on local market costs, including infrastructure investment, real estate and labour.
These practical factors may place limitations on the future of neuro-pricing, but the idea that a "feel-good price" can be determined by brain testing in lab conditions may be attractive to some brands.
"Everyone wins with this method," said Müller as he pointed to the 80% of all new products that fail.
In response, Starbucks said its pricing strategy was based on local market costs, including infrastructure investment, real estate and labour.
These practical factors may place limitations on the future of neuro-pricing, but the idea that a "feel-good price" can be determined by brain testing in lab conditions may be attractive to some brands.
"Everyone wins with this method," said Müller as he pointed to the 80% of all new products that fail.
Data sourced from Der Spiegel, Financial Times; additional content by Warc staff
