The more you pay, the more value you are expected to get – but for an unexpected reason!
Could choosing an ERP be in some way similar to choosing a prestige wine?
No, I don’t mean Wine the compatibility layer that allows Linux and Mac users to run Windows applications – I’m referring to grape juice that burns.
Researchers at the University of Bonn performed studies using fMRI scanners to show that, aside from subjects reporting that the same wine tasted better when they were told it was more expensive, there was significantly more brain activity for the more expensive wines. Known as the “marketing placebo effect”, people subjectively reported different experiences based on price.
Similar studies at the Stanford Graduate School of Business and the California Institute of Technology found that people who were given the same wine, and told it cost either $5 or $45, showed more activity in the part of the brain that experiences pleasure, when they tasted the supposed $45 wine.
With a different mechanism but a similar result, many consultants and executive coaches already know that if they charge more, then the customer will take the process more seriously and put in more effort, and this will result in the whole process creating more value.
Could this extend to experiences with ERP? If so then it could mean that cheaper or even free ERP might make it harder to extract value, and that more expensive ones would automatically create more value through the same process.
I have personally experienced a simpler version of this phenomenon where I have purchased a “cheap” product (not ERP), and then never taken it out of the cupboard to use it. Even though the product was perfectly adequate for its intended use, my effort automatically gets focused on more expensive items that I feel I need to extract enough value from to make them worthwhile. I have also seen companies purchase cheaper ERP systems and never extract the full value from them. “Cheap” is relative, and I’ve worked with at least one company that shelved an ERP (for a division) despite it costing a fair amount – partly because the investment was very small compared to other projects that the company was involved in which needed more value to be extracted.
Another related aspect is the depth of experience that the consultants involved in higher-end ERP implementations have to offer. Lower cost offerings are normally provided to more cost-sensitive markets and require a lower cost base. Because of this, many lower cost solutions would usually have lower cost consultants who might not be able to add the same value to your business.
As with the wine studies, there are limits to these effects – a higher price won’t make a bad wine taste better and price would therefore have less impact on the experience if the product quality were inadequate. According to Prof. Bernd Weber, from the Center for Economics and Neuroscience at the University of Bonn, “The marketing placebo effect has its limits: If, for example, a very low-quality wine is offered for 100 euros, the effect would predictably be absent.”
Bringing it back to ERP, changes in price are not going to necessarily increase the perceived value of a bad ERP. And also, this is not to say you should automatically choose the “most expensive” ERP, there certainly is a cost-benefit relationship based on a sound business case and value statement. It is however important to be aware of these effects and know that you might have to put in extra effort to extract significant value from the cheapest solutions.
Obviously, ERP is not the same as wine. ERP systems are incredibly complicated, have long sales-cycles, and only some of the users may get to know the full price. There are many more variables in terms of adoption and value extraction and various models to explain these. However even with ERP, even if it may be self-fulfilling – you really might get what you pay for.
This article was written by Dr Daneel van Eck, strategy director at epic ERP.
