Imagine you are at a wine tasting with an expert sommelier. She starts with a few samples that she describes as mass market, because they are available in most liquor stores. Then she starts with the surprises.

First comes a glass from one of her vineyard's finest wines of recent years. You and the other guests have now entered an entirely different realm of taste and sophistication. For the finale, she brings out some rare bottles of red wine from the vineyard owner's exclusive private collection. Each guest had the option to buy one of those bottles at the end of the night for $550.

As you swirled the $550 wine in the glass and took the first sip, you are overwhelmed with the taste. You look to your companion, who nods and whispers ‘this might be the best wine I have ever had!’ You are anticipating another round of questions from the sommelier about the bouquet and the special flavour accents, but her next question catches you completely off guard.

‘How did that price taste?’ she asked.

People generally don't think that prices have a taste. Price is only a number, right? Even the Cambridge Dictionary defines price simply as the amount of money we exchange for something. Yet, several scientific studies over the past two decades – backed up by business experience – have solidly demonstrated that prices trigger intense sensory and emotional experiences in both buyers and sellers. These effects are deeper – and also more universal – than one could ever imagine by thinking of prices narrowly as mere numbers representing amounts of money.

Those last two statements may sound far-fetched. By the end of Part II, however, we expect that you will not only take those statements for granted, but also have practical ideas on how to make them cornerstones of your negotiation strategies. But there is work to be done. Salespeople cannot steer prices until they understand how prices steer people, and that includes yourself, not just the buyers.

Let's return to the wine-tasting. What would your reaction be if you found out that the sip of the $550 wine came not from the vintner's private cellar, but from a $55 bottle of wine you had tried earlier in the evening? You would probably feel shocked, upset, misled, and ripped off. But your inclination to mistake an affordable bottle of wine for one that costs 10 times as much would not surprise Antonio Rangel's Neuroeconomics Laboratory at the California Institute of Technology (CalTech).¹ One team led by his former post-doc student Hilke Plassmann used magnetic resonance imaging (MRI) to understand how people's brains respond to the combination of a sip of wine and a price level.²

They told the respondents they would be sampling five types of Cabernet Sauvignon, each with a different price point: $5, $10, $35, $45, and $90 per bottle. In reality, the wines priced at $5 and $45 were identical, as were the $10 wine and the $90 wine. The researchers found two clear positive correlations, one in the self-reporting from the respondents and one in the MRI scans. As the price points increased, the respondents reported a more pleasurable tasting experience, but the scans told an even more eye-opening story. They revealed that higher prices were accompanied by stronger activity in a brain area called the medial orbitofrontal cortex. This is important, because the medial orbitofrontal cortex becomes more active when people experience pleasant odours or tastes.

These results indicate that our brains translate a higher price on a bottle of wine into an enhanced sensory experience. The prices we see exert a strong influence on the pleasure we feel, but that is only one of the aspects of the behavioural, psychological, and neuroscientific power of prices.

The overarching concept behind the effect of prices on the taste of wine is the price-quality heuristic.³ In its simplest form, it means that higher prices signal higher quality, while lower prices signal lower quality. Buyers use these relative relationships to make judgments about the quality of a product and whether they should purchase it.

Have you ever stepped back for a moment and asked yourself what a ‘price’ really is?

We are not talking about that simplistic Cambridge Dictionary definition of price that we cited above. We define a price as an arbitrary association between a product – including its stories and context – and a number. Think back to our discussion in Chapter 4 about the illusion of numbers. The reason we say ‘arbitrary association’ is that as human beings, we have no natural scale or meter to tell us what a price number means. That is what the suitcase experiment demonstrated. We don't have fixed barcode scanners hard-wired in our brains, in the same way we don't have built-in scales, or thermometers.

What we do have are ranges of sensations and impulses. Each of us can stick a foot in a swimming pool and tell immediately if we think the water is cold, hot, or just right. Our brains and bodies then respond accordingly, but we can't describe those sensations with numbers until we have reference points and context. That's why the recommended water temperature for a swimming competition is not simply warm, but rather 28 degrees Celsius. Similarly, we can infer the usefulness of special chemicals for water treatment through great stories or first-hand experience, but we can't have a ‘number’ conversation about water treatment chemicals until someone assigns a scale to that quality, such as a ‘good’ reference price of €100 per jug.

To show just how arbitrary these scales and their numbers are, that same conversation about swimming pools in the United States would put those reference points at 82 degrees Fahrenheit for the ideal water and $110 per jug for the chemicals to treat it. The numbers that represent prices have no intrinsic, absolute meaning on their own. They derive their meaning from the context that the seller provides and the associations that the buyer makes.

A team led by Brian Knutson of Stanford University showed that our brains make these associations and react to prices even before we consciously decide to make a purchase. When Knutson and his team used functional MRI to track people's purchase decisions as a function of price, their findings suggested that ‘activation of distinct brain regions related to anticipation of gain and loss precedes and can be used to predict purchasing decisions’.⁴ In other words, what buyers say about a price and what they really think and feel are two distinct things, and the latter one is often the more powerful of the two.

Steering those feelings to your advantage is one secret to playing defence and offence in a sales negotiation. Kai uncovered this phenomenon in his own research, in what the international media came to refer to as the ‘Starbucks study’. One could safely assume that Starbucks sets its prices based on the value perception of its customers, just as it selects flavours based on their taste perceptions. After all, it has achieved spectacularly successful market entry in many places, including Europe, where Kai conducted his studies.

Think back to the research Kai described in the Introduction. The respondent's delayed responses and comments made him think that there was much more going on inside the respondent's mind than her simple yes-or-no responses to price points Kai revealed. In their ‘Starbucks study’ Kai and his team showed respondents the same cup of Starbucks coffee at different price points and also asked the participants to respond to the respective price with words such as cheap or expensive.⁵ By tracking the brain waves of the respondents, they noticed that people quickly dismissed prices far outside reasonable boundaries, such as 10 cents or €10 per cup, but when the prices moved into a reasonable range, the optimal price worked out to €2.40 per cup.

What makes that finding astounding, however, is that the prevailing price for that cup of Starbucks coffee in the respondents' hometown was only €1.80, or 25% lower than the price that customers would find acceptable based on their brain waves. In numerous follow-up studies with companies such as PepsiCo, Kai demonstrated that the brain-based measurements vastly outperform traditional questionnaire-based methods for estimating a customer's willingness to pay. In the case of PepsiCo, traditional explicit pricing research predicted a revenue loss of 33% if the company raised the price for a pack of Lays Potato Chips in the Turkish market by 0.25 Turkish Lira. In contrast, the neuroscience approach predicted a revenue decline of only 9% following the price increase. PepsiCo implemented the price increase and incurred a revenue loss of 7%, far closer to that which the neuroscience approach had predicted.⁶