Veladone StudyZero as a Special Price

Taya Leary

July 9, 2008Harvard University

Agenda:

Why do we study Placebo?

Veladone Study at the Media Lab.

Results of the Study.

Why do we study Zero Price?

Experiment at MIT.

Results of the Experiment.

Q&A

Why do we study Placebo?

To understand the effect of expectation on medicine:

e.g. antidepressants are up to 70% placebo

By manipulating the placebo component we can increase the effectiveness of the medicine

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Veladone Study at the Media Lab

Imagine that you are participating in an experiment to test the effectiveness of a new painkiller - Veladone - Rx.

Experiment Setup

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Veladone Study at the Media Lab:

Experiment Factors:

• Country of Origin (China vs. US)

• Price (high price $2.50 and discounted price $ 0.10)

• Subjects believed that Veladone - Rx was an opioid pain reliever, in fact it was placebo

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Results of the Study:

Price Level and the Pain Relief Effect

34

26

6

16

0

15

30

45

High Price Low Price

Price

# o

f su

bje

cts

Pain Relief

No Pain Relief

Subjects on average reported less pain after taking more expensive pill

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Country effect and Ethnicity

-6.5

9.65

18.27

10.12

-10

-5

0

5

10

15

20

Asians Non-Asians

Ethnicity

Me

an

Diff

ere

nce S

core

s p

er

su

bje

ct

America

China

Results of the Study:

The significant Country and Ethnicity effects in the regression are a result of a strong Country*Ethnicity interaction. While non-Asians do not respond to the Countrymanipulation, Asians demonstrate a much larger reduction in pain scores when in the China condition.

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Results of the Study:

Differential effect of price as a function of recent pain experiences

14.88

0.76

9.44

14.13

-5

0

5

10

15

20

Pain-Free Mild-Severe Pain

Recently experienced pain (today or in past month)

Mean

Diff

ere

nce S

core

s p

er

su

bje

ct

Low Price

High Price

Subjects who report experiencing pain other than the experimental procedure the day of the experiment, or the month prior to the experiment, show a significantly different response to the two price levels (p<.05) than do subjects reporting no pain in this time frame (p=.237). This interaction is significant, p<.001. Subject’s self-report of painful experiences during their lifetime, however, does not interact with response to the Price factor

Why do we study Zero Price?

Zero is used in a qualitatively different manner from other numbers.

Transition from small positive numbers to zero is of discontinuous.

E.g. Zero reward vs. small positive rewardPenalty for parents who are late picking up their children

Why do we study Zero Price?

People apply market norms to the product when prices are mentioned

People apply social norms when prices are not mentioned

E.g. Thanksgiving dinner

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The Experiment at MIT

Imagine that you are asked to fill out a survey and as a reward you are offered Lindt truffles.

Factors:

Social or market surveyFree truffle or 1 ¢

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Results of the Study:

We asked about 160 people:

when the price is zero people take either one candy or zero

when the price is 1 ¢ people on average take 4 pieces

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Results of the Study:

These results suggest that social norms are more likely to emerge when price is not a part of the exchange.

Extra positive effect of the free product: Buy One Get One Free(BOGO) is better promotion emotionally than all-at-half-price Promotions.

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Related Literature :

Kristina Shampan'er and Dan Ariely (2007), "How Small is Zero Price? The True Value of Free Products". Marketing Science.

Dan Ariely (2008), “Predictably Irrational”

Dan Ariely, Rebecca Waber, Baba Shiv, Ziv Carmon (2008), “Can Price Modulate the Actual Efficacy of Medications?” New England Magazine of Medicine.

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Questions?

Thank you!