The Impact of Price on Sales

Not everything has a downward sloping demand curve.

In analyzing the results of their experiment, Fisher and Gaur found that sales of the family game center and the Phonics traveler were downward sloping in price – i.e. more of them sold at the lower price than at the higher one. However, the walkie-talkie showed a different pattern. It sold 74 units at the middle price point ($19.99), 47 units at the $14.99 price and 36 units at the highest price ($24.99.)

To understand the reasons for this behavior, Fisher and Gaur spoke with merchandise managers at Zany Brainy and several other retailing firms. They came away with several explanations. First, because the headset walkie-talkie is a complex electronic item, consumers find it difficult to judge its quality. They therefore depend on price as an indicator. Wine, the researchers note, is another example of a product where consumers – most of whom are not wine connoisseurs – often use price to judge quality.

The family board center, however, is easily understood by the customer, "so that price need not be used as an indicator of quality." As for the Phonics traveler, because it is a branded item made by a recognized manufacturer, consumers don't rely on price to judge the item's quality. "You might buy a $10 walkie-talkie from Sony because you know and trust the brand," says Fisher. "But a consumer might worry that a $10 walkie-talkie with an unknown brand would be a piece of junk." (The walkie-talkie at Zany Brainy is not branded.)

In their paper, Fisher and Gaur also cite outside research suggesting that consumers "uniformly perceive a stronger association between price and quality for durable products" – such as microwaves and televisions – than for non-durable products, such as paper towels, orange juice and detergents. This is most likely because consumers make fewer purchases in the durable goods category and have greater difficulty evaluating the products' complexity.

Complex products will sell better if they are priced higher, because consumers perceive this as quality. See this for another post on pricing dilemmas, and note the comments section, where "hp" makes some interesting points.