Mind-reading your brain’s budget: How neuro-pricing proved Starbucks undercharges

Oct 11, 2013

Starbucks could charge you a third more for a cup of coffee and, not only would you pay it, but you'd think it justified, one study of brain waves suggests, opening the door to market testing product pricing using neuroscience. The research, by neurobiologist and former marketing consultant Kai-Markus Müller, took Starbucks coffee as its basis Spiegel reports, using electroencephalography (EEG) to track instinctive reactions to different suggested prices for cup. He found that, while the same cup would usually sell for €1.80 ($2.44) in German cafes, those surveyed would actually have readily paid between €2.10 and €2.40 ($2.85-3.25).

Traditional pricing research would involve surveying people and asking them to honestly say exactly what they might pay for a product or service. That, however, is inherently flawed: "classic market research doesn't work correctly" Müller argues, since it relies on an entirely unbiased response.

In contrast, Müller found, the brain's instinctual response to the same question is far more candid. He measured the speed at which strong reactions - triggered by pricing considered "extreme" - showed up in the brain, finding a range within which coffee drinkers saw prices as reasonable.

"When the brain was expected to process unexpected and disproportionate prices, feelings of shock, doubt and astonishment manifested themselves," Müller explained. At extremes, such as when a cup of coffee for €10 ($14) was suggested, the reaction showed up within milliseconds, though it also allowed for far more granular understanding that indicates Starbucks could charge significantly more a cup and still get customers.

A follow-up study proved the system's accuracy, benchmarking a "pay what you think it worth" coffee machine against EEG testing of perceived value of the same cup. Both averaged out at 95 cents per cup.

"A study like this has never been done before, even though scientists have been studying brain waves for decades" Müller concludes. While being asked to don an EEG headset when you step into a store is hardly practical, the scientist predicts that so-called "neuro-pricing" could see lab-based marketing decisions take the element of surprise away from new product launches, as companies are better able to see just how much the consumers would be willing to pay, even if those shoppers themselves aren't aware of it.

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