In medicine, placebos – dummy pills – often help patients heal, despite the fact that they contain no helpful ingredients. A study reported in the February/March 2009 issue of Scientific American Mind found that placebos costing only 10 cents worked considerably less well to relieve pain than those that cost $2.50 a pill. This highlights the tendency of the human mind to attribute higher effectiveness to higher prices.



Placebo studies show that we don't just believe higher priced remedies work better. In many cases do actually bring on better results.

What's true for health remedies applies to business, too. Clients often experience better outcomes when they shell out more for professional services or advice on what to do. Why? After talking with other business consultants about this, I've identified several factors that explain the dynamics.

(1)Higher prices require commitment. When you pay more, you show you are serious about whatever you've paid for. Therefore an organization that charges more gets clients who are not just dillydallying or giving a half-hearted try. Committed clients are more likely to experience results.

Greenfield Community College President Robert Pura had this notion in mind when he expressed concern about Massachusetts Governor Deval Patrick's proposal to eliminate tuition for state community colleges. "We want to really deeply explore what the word 'free' means and conjures up" before we implement such a proposal, Pura said, suggesting that increasing financial aid might be a better way to make college more affordable.

The effective cost might be the same for state residents with both proposals, but "free tuition" might encourage "a wave of students who take their education lightly, over-enroll and drop classes without much thought," Pura told the Daily Hampshire Gazette. Beefing up financial aid would communicate responsibility rather than entitlement and might encourage a more serious approach to education, he suggested.

(2)Higher prices induce compliance. Business coach Mark Silver says an acupuncturist

he worked with found her patients getting well faster when she raised her fees. It seemed that patients were more likely to do as she suggested between sessions, to get their

money's worth, when they were paying more.

This too applies outside the realm of health care. It's far easier to blow off a friend's advice that cost nothing than the suggestions of a $1,000 an hour consultant. Likewise, a weight-loss class that cost just $100 for eight weeks would normally have a much higher dropout rate than one that charged $100 an hour whether you showed up or not.

(3)Higher prices inspire confidence. Many of us don't know how to select the most effective practitioner or the best marketing program, so we go by pricing, assuming that people and organizations can't get away with high prices unless they deliver quality. The common saying “You get what you pay for” fits here. Hence with higher fees people tend to worry less and experience greater satisfaction.

As with the placebo effect, the greater satisfaction goes deeper than just thinking. When researchers at Stanford University and Caltech asked people to judge the quality of wine that ranged in price from $5 to $90 a bottle, they found the more expensive wines tastier, although they were in fact drinking identical wines. Moreover, the tasters showed higher activity in the pleasure center of their brains when they drank the wines they'd been told cost more.

Likewise, a study conducted at Ohio State University in the 1980s compared theatergoers who paid full price for season tickets with those who were randomly chosen to get their season tickets at a discount. Those who paid full price attended significantly more plays than the discount groups. Even more interestingly, the researchers concluded that the discount devalued the plays in the minds of those who received the discount and apparently produced less pleasure for them.

With higher prices, normally your profits go higher too. But there's more to it than that. Business owners who dramatically raise their prices usually notice getting more gratitude, more referrals and fewer complaints from clients. Try this out yourself. As long as you don't apologize for your high fees in any way, you benefit, and the clients do also.