Question

Joseph Gallo, the founder of the famous wine company that bears his name, said that when he first started selling wine right after Prohibition (laws outlawing the sale of alcohol), he poured two glasses of wine from the same bottle and put a price of 10 cents a bottle on one and 5 cents a bottle on the other. He let people test both and asked them which they wanted. Most wanted the 10-cent bottle, even though they were the same wine.
What does this tell us about people?
Can you think of other areas where that may be the case?
What does this suggest about pricing?
As a reminder, see below regarding my course policies on "Discussion" (Also located in the Course Syllabus).

Answer 1

Answer to Question 1: What does this tell us about people?

The experiment shows us that people always associate higher prices with higher quality. But this is not always the case.

According to a research in 2008 by Goldstein and his team it was established that people do not derive more satisfaction or utility from more expensive wine when they don’t know much the wine cost.

In a more recent but similar study,  results showed that there is a clear correlation between price and perceived value.

When participants were told that a wine had a high price, participants gave that wine higher ratings.

So in summary:

• when people know the cost or the value of things, they tend to appreciate it more.
• When people are presented with options involving cheap and expensive items of the same function they'd always attribute the expensive one to be of higher quality.

Answer to Question 2: Can you think of other areas where that may be the case?

A similar research was carried out by Dan Ariely.

This scenario was tested on drugs and how people reported to have felt when they were given an information about the drug they are taking.

It was discovered that students who paid more for cold medicine said they felt better than students who purchased the same medicine at a discounted price.

Answer to Question 3: What does this suggest about pricing?

Pricing goes beyond numbers. Its all about how clients perceive your product in relation to the problem they are trying to solve or the pain point, or pleasure point they are trying to satisfy.

Cheers!