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Episode 14 Sex in the City, charities, and the power of pricing

The expectations we have about food and drink can greatly affect our perception of their taste, and setting those expectations can be achieved through premium factors such as price, design, serve, and provenance, as well as creating a positive sentiment around a product being marketed.

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Episode Transcript

  • MichaelAaron: Welcome back to the Behavioral Science for Brands Podcast. I'm MichaelAaron Flicker.
  • Richard: And I'm Richard Shotton.
  • MichaelAaron: Today we're doing Sex in the City, charities, and the power of pricing going deep on Grey Goose Vodka. Let's get into it. So, Richard, let me set the stage for you and all our listeners about the beginning of Grey Goose Vodka. It started by a drinks entrepreneur, Sidney Frank in 1996. Thinking about the market in 1996, it was dominated by Russian brands and Sweden's Absolut Vodka. Frank, who had previously made his fortunes with the Jägermeister brand, saw the potential to create a French vodka brand.
  • MichaelAaron: He knew that people intuitively associated France with high quality food and drink, and then instead of competing with Absolut on price, he wanted to create a higher quality product that created an entirely new price point in vodka. So where Absolut was selling for about $17 for a 750 milliliter bottle, Grey Goose was seeking to charge nearly double: $30 for a 750. Absolut had made its bottle an iconic shape taken from old Swedish medicine bottles central to its marketing. Last season we even profiled the Absolut campaigns and talked about how Andy Warhol was inspired by the Absolut branding and really used it to make the brand iconic in the late eighties and nineties.
  • MichaelAaron: Grey Goose wanted to pick up on that success and build on it. So, they also made packaging a central part of their brand, but they really wanted to connect in consumer's minds with the French provenance. So, he put a small French flag on the bottle, he put it in a frosted glass to give it a certain premium allure, and he even put netting around the bottom of it, mimicking high class bottles of wine. And like wine, Grey Goose features a replaceable cork. And when he had finally created the product that he wanted to bring to market, he used product placement in one of the hottest shows of the mid-nineties: Sex and the City, to show all of New York's trendiest bars featuring Grey Goose at them. And his product placement didn't just stop there.
  • MichaelAaron: He also saw wealthy and sophisticated charity galas, and he was quoted in saying that he gave away Grey Goose to any charity that wanted Vodka at its bar. The people at charity events were the people he was targeting, and so he felt that that was a key reason sales started to explode. By 2004, he sold 1.5 million cases. And by 2008 with the luxury status of the brand firmly established, he sold to Bacardi for $2 billion. Since that day, there has been scores of spirit entrepreneurs that have been looking to recreate his success. So, Richard, from the very beginning, Grey Goose is concepted as a premium product, meant to make a new subcategory in the vodka market. A lot of intentionality was put behind the brand and you could really see how Sidney Frank envisioned the brand separating itself from the masses. A lot of behavioral science here at play.
  • Richard: Yeah. I think it's a fascinating brand. And I think what's interesting is the pricing, first of all. You reference almost double their main competitor. Now that's interesting because price sets people's expectations about quality. We assume if it's high priced, it must be high quality. And psychologists argue that expectation becomes self-fulfilling. So classic study: Baba Shiv, at Stanford, 2008, recruits a group of people, gives them five different bottles of wine that they can sample from.
  • MichaelAaron: Great study.
  • Richard: Great study. And there's an awful lot of studies by psychologists around booze. You know, they've got their heads screwed on. He serves these five different bottles of wine. People take a little glass from each. The twist in the experiment is that one of the wines is repeated. So, as to begin with, people are drinking wine, there's a prominent price label on each bottle. They think it costs $5. A few minutes later, they drink exactly the same wine, thinking it costs $45. When they come to rate how much they like the wine, there's a massive difference in ratings. People rate exactly the same liquid, 70% higher. Seven, zero. 70% higher. If they think it was expensive. Now that's fascinating. Going back to Grey Goose. Grey Goose vodka: it's odorless, it's tasteless, it's colorless. Everything about a vodka is your perceptions. That's what people are paying for. And by using this queue of price, by putting it at such a high markup, people assume it must be high quality, and that that expectation becomes self-fulfilling.
  • MichaelAaron: Such an interesting category because it is odorless, tasteless, colorless. This is not unlike bottled water.
  • Richard: Yeah, yeah. You are literally drinking the branding. You're drinking your expectations. So marketing is an absolute premium here. Harnessing some of these ideas from behavioral science is key.
  • MichaelAaron: So, as we sit here thinking about global recession, economic inflation, you might accept our argument that higher prices will create a premium feel for the brand. Richard and I would also argue that if you do lower prices, it will depreciate the value of your brand. If they see that there's lower prices at for the same product that they saw before, it will inevitably lead to a sense that the brand is less valuable than it once was.
  • Richard: Yeah. If you engage in excessive promotions, you are essentially training consumers to think you are lower quality. And remember, it's not just the perceptions of quality that will be damaged, it's the actual experienced quality that gets damaged as well.
  • MichaelAaron: You know, interestingly, Richard, one of the brands in our portfolio is Wellow Compression Socks. This is a brand that we started and built from the ground up using behavioral science. And one of the things we found super surprising, many brands feel that Black Friday and Cyber Monday is an incredible opportunity to capture first time buyers because you're offering great discounts and they will then get the brand at a lower price and then come back and rebuy. What we've found at Wellow is that when you enter them at a lower price point, that becomes their anchor and they are much less likely to want to buy at full price in the future. And this was a pretty startling discovery for us that made us think differently about how we run promotions, to your point, and how we acquire first time customers.
  • Richard: Yeah, because I guess if you've had a reduced price, you pay say, $20. If the next price you're expected to pay is $30, you frame that in your head as $10 more. So absolutely. It's that first experience with a product that is particularly important. So yeah, I think you are right. Be very, very careful about trialing your product at a low value cause you're teaching people it is a lower quality product.
  • MichaelAaron: Well said. Even if it's through a promotion. Even if you say it's a one-time, once in a lifetime offer, they forget that. They just remember the price they paid.
  • Richard: There is another tactic that you think of rather than discounting to get people in and it's using free gifts with purchase. And it's a bit tricky cause, on one hand, you're not reducing the price, so you don't damage quality perceptions. But the problem you have is whatever you give away, people will assume that's low quality. So, there is a lovely set of studies from 2004. There's a psychologist Priya Raghubir at NYU. And what she does is show people an ad for a pearl bracelet, and she shows like the amount of pearls and the quality of those pearls and people rate how much they think it's worth.
  • Richard: And then later on to another group, she shows exactly the same ad, but this time that pearl bracelet has been given away free with a fancy bottle of whiskey. Now when people rate, in that second group, what they think the value of those pearls is, even though they've got exactly the same information, they rate it as thinking it's 35% lower value. Priya Raghubir argues people are working on assumption. Well, if it's given away for free, it can't be that good. It's probably pretty too generally. So, there is this trap as a brand, if you give away a free gift, the danger is people will expect that gift to be low quality. What Raku Bira shows though, is there is a very easy way to get out of that hole. What you have to do is state what the normal retail price is. So, in a third variant of the experiment, she shows the bracelet being given away with the whiskey. But this time she says the-
  • MichaelAaron: Manufacturer suggested retail price.
  • Richard: You state that and you still see a little bit of a decline in the perceived value versus the original experiment, but almost disappears. So, if you ever give away a free gift, make sure you state what that gift is worth. Otherwise, you are spending loads of money on buying these gifts and they're not getting the full value.
  • MichaelAaron: So, let's head to break, and when we come back, let's talk about Sidney Frank's insight that, where it comes from might be just as important as how it was priced.
  • MichaelAaron: The Behavioral Science for Brands podcast is brought to you today by Function Growth. They are a team of direct to consumer experts and marketers who snap into brand-side teams and accelerate growth. And here's the best part: Function Growth leverages a shared risk and reward model, which means they only profit when your brand profits. They have a proven track record of using behavioral science with some of the fastest growing direct-to-consumer brands in the country. To learn more, visit them at functiongrowth.co.
  • MichaelAaron: All right, welcome back everyone. We're talking vodka. We're talking Grey Goose. Last season we talked Absolut. But Richard, what would be your favorite vodka cocktail?
  • Richard: Ooh, good question. I would say normally cocktails. I would go mescal or whiskey. But if I wasn't going for those two, espresso martini.
  • MichaelAaron: You can't go wrong with an espresso martini. For me, if I'm drinking vodka, it's a dirty martini.
  • Richard: Okay. What's a dirty martini?
  • MichaelAaron: You fill it ice cold, vodka, a little bit of olive juice and olives on the side. Best type is olives stuffed with blue cheese.
  • Richard: My god. That sounds horrendous.
  • MichaelAaron: Don't knock it till you try it, my friend.
  • Richard: Very good point. Very good point.
  • MichaelAaron: Okay. So, Sidney Frank has a lot of things that he tries to build into the base of the brand. And he makes the argument that price is going to get me pretty far on this journey. But the French provenance, the French heritage is really speaking to the provenance of the product was very important to him.
  • Richard: Yeah. So that's a lovely point. This whole idea - and I'd say this is crucial to the kind of psychology of food and drink - basic principle that happens again and again is we do not just taste the physical constituents of a food or drink.
  • MichaelAaron: What it actually is.
  • Richard: Yeah. That's of course, important, right? But alongside that, our expectations are super important. If we think something's going to be amazing, it tends to taste better than if our expectation is going to be poor. The expectations we have become this self-fulfilling prophecy. Now, one way of setting those expectations is to price at a premium, cause generally in life, it's probably a pretty fair assumption, if it's expensive, it's going to be high quality, right? But that is not the only way to set expectations. The quality of the serve. If something comes out of a beautiful glass bottle, wonderfully designed exactly the same liquid will tastes better than if it's just served out of a plastic beaker.
  • Richard: Yeah, so the design, the serve is super important. But the other one, which you've mentioned, is provenance. You know, where something comes from, sets expectations. If it was a vodka from New Jersey, that might have different set of expectations than a vodka from France.
  • MichaelAaron: How dare you, sir.
  • Richard: New Jersey I'm sure has many benefits. I'm not sure if anyone would say it’s the culinary capital of the world.
  • MichaelAaron: I don't think so. Or the vodka capital.
  • Richard: I agree. So, the point being, because France has this reputation for very sophisticated food, people assume that anything coming from that is going to be high quality and that becomes self-fulfilling.
  • MichaelAaron: Not unlike our episode last season about Häagen-Dazs being from, is it the Bronx?
  • Richard: Yes, I think you're right. In either the Bronx or Brooklyn.
  • MichaelAaron: And instead he builds the brand-
  • Richard: Yeah. Rose and Reuben Mattus, although they invent this ice cream in New York, they have nothing to do with Denmark. They think that, at the time, people associate Scandinavia, Denmark with sophisticated, you know, food and drink. So, they call the brand Häagen-Dazs. It sounds like it's Danish, not really a Danish word though. They stick an umlaut over the As, even though umlauts, I don't think, exist in Danish, but it looks as though it is. They even stick a little map of Denmark on the original tubs. So, when people experience this ice cream, they've got all these positive associations with this faraway country that feels really sophisticated. It makes the ice cream taste better.
  • MichaelAaron: Season one, episode four. We'll put the link to it in the show notes. Check it out. We spent the whole episode talking about it, really fascinating stuff. And it wouldn't be the Behavioral Science for Brands podcast if we didn't have an academic study to back up what we're saying here.
  • Richard: Absolutely. One thing I love about behavioral science is nothing is ever based on logic or argument alone. Everything has to be proven experimentally and there is certainly a lot of evidence for this.
  • Richard: So early study, into providence, 2007, there is a controversial psychologist called Brian Wansink. Recruits a group of people, serves them wine. Sometimes the people are told that wine is from North Dakota, you know, not well known for its wine industry, sometimes people are told that wine comes from California.
  • MichaelAaron: Same liquid.
  • Richard: Oh yeah, exactly the same liquid. When people then rate how much they like the wine, the group that thought it came from California rate it 41% higher than those who thought it came from North Dakota.
  • MichaelAaron: Unbelievable.
  • Richard: Yeah. So, it is this point again. What we think something's going to taste like, those expectations change, not just the perceived quality. They'll change the actual experienced quality.
  • MichaelAaron: To throw back to another episode we've done earlier, Dyson vacuums in season two, we profile. And they make the effort of their product clear by having transparent casings on all the critical components. This feels pretty connected.
  • Richard: Yeah, I guess you could say that is that setting expectations, there? I mean, we've got price, we've got provenance, we've got the serve and the illusion of efforts. Yes. If you think people have put lots of effort into creating this food or drink, it will also boost expectations.
  • Richard: So, if you are a brand, you are a tonic water or a wine, if you can talk about that you have spent years seeking out the perfect quinine, or cardamom, or whatever goes into your product, that will make it taste nicer than leaving those efforts unspoken.
  • MichaelAaron: Richard, we always end the Behavioral Science for Brands podcast the same way. What are the key things we want our marketers to take away today?
  • Richard: Key points: we experience what we expect to experience. Your job as a marketer is to create as positive a set of expectations around your products. We know from various experiments that that can be by using price. We assume high price items are going to be a better quality, but alongside that, it could be about emphasizing the efforts you've been to create your products. It could be about emphasizing the provenance, it could be about making sure the design of the packaging is as premium as possible. Lots of different tactics to get to the same result.
  • MichaelAaron: For all our listeners out there, have you used pricing or provenance to improve the perception of your brand? If so, we'd love to hear about it. Email us at [email protected]. I'm MichaelAaron Flicker.
  • Richard: And I'm Richard Shotton.
  • MichaelAaron: Thanks for tuning in and we'll see you next time.

Episode Highlights

Drinking Your Expectations

Professor Baba Shiv's study shows that cost doesn't merely interfere with perceived quality, it actually affects real quality.

Pearl Bracelet

Psychologist Raku Bira's study demonstrates the best strategies for promoting and discounting in order to maintain customer's high value perceptions.

Vive La Vodka!

Sidney Frank elevated Grey Goose by linking the brand to its French provenance, creating an association with higher quality and sophistication.