Answer
Apr 04, 2019 - 07:06 AM
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Electronics
History shows that as new electronics become cheaper, they also consistently grow in popularity.
Just think about the debut of the television. They’re now near-ubiquitous household items, but when the T.V. first debuted in 1939, it cost the equivalent of over $10,000 in modern dollars. If the price had never fallen, television would never have become so popular.
The same thing has happened with cell phones, computers, and other electronics. As new technology improves and the supply grows, electronics reliably get cheaper, creating a pattern of falling prices that people have come to expect. Now, many consumers will wait to buy a new gadget, knowing that the price will almost certainly come down over the next few years.
However, there is one important caveat here. A discount that’s too steep on an item can negatively impact someone’s perception of its quality. For example, consumers might be more likely to buy a laptop if laptops overall drop in price. But if a single model drops by more than 50 percent, studies suggest that people will no longer want to buy it because they doubt its value.
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Appliances
Similar to electronics, appliances also became more popular as their prices went down.
The washing machine and dishwasher were once luxuries for the rich, but are now common in middle-class homes, because they’ve become more affordable.
People won’t suffer through a hot summer if an air conditioner is perfectly within their price range. The more companies made these items, and the better the technology became, the more the prices dropped.
Of course, few new kinds of appliances are hitting the market today, unlike electronics, so this isn’t an example that’s super applicable to the modern world. However, it does illustrate your point that products become mainstream, and earn great fortunes for the brands that sell them, when the prices drop.
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Popular Novels
Amazon uses data to set its prices by the minute. One of their pricing strategies is to offer steeper discounts on the most popular kinds of items, like bestselling novels.
The idea here is that people aren’t likely to pay a premium for something they feel should be easy to find, like the lastest highly-reviewed beach read. Many consumers will wait for the price to fall on a popular book before they buy it, or will search longer to find the best deal.
On the flip side of this is the fact that consumers are willing to spend more if they’re buying a rare book. The assumption is that it’s hard to find, so it’s worth the higher price. Amazon actually uses this information to raise the price on rare reads.
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Home Security Systems
As the economy has bounced back over the past decade, home security system sales have risen. But this might be due in part to the fact that the cost of these systems has declined steeply in recent years.
Today’s home security systems often don’t require homeowners to pay for professional installation, or to keep up with monthly fees for the service.
The new technology means home security can easily be installed by consumers, and sensors can automatically monitor the home at a very low cost. These new, cheaper security options lead more homeowners to justify the cost of protecting their house.
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Entertainment
When people want or need to save money, entertainment is one of the first things to go. It’s easy to look at the price of a movie or a dinner out and decide that it’s just not worth it. If the prices of entertainment suddenly fell, more people would find room for it in their budgets.
For example, Statista found that 47 percent of people surveyed cut out movies from their budgets in order to save for vacations, while 43 percent cut back on restaurant meals. The appeal of a vacation is enough to get people to pay high prices for travel, but local entertainment doesn’t have the same draw.
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Medical Care
Although it’s not exactly a “product,” it is still an expense, and 44 percent of Americans avoid the doctor due to the high cost of a visit. If U.S. healthcare prices fell, purchases of things like medical tests and prescriptions would almost certainly rise.
While it’s easy to see why people avoid paying for entertainment when prices don’t fall, avoiding expensive medical care seems harder to explain. For many, there is simply no way for them to afford it. But for those who can afford it but choose not to, the best explanation might be the fact that humans are bad at risk assessment. People may underestimate the risks inherent in avoiding medical care due to its high cost.
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Anything Sold Using Price Anchoring
If two similar items are sold next to each other at different prices - let’s say one at half the price of the other - people are much more likely to buy the cheaper item. This is known as “price anchoring,” and it can apply to just about any product.
Anchoring doesn’t just apply to prices, either. It’s a psychological phenomenon: the tendency for people to put too much emphasis on the first bit of information they’re given.
So, for example, if you sell a $100 pair of sneakers next to a $50 pair of sneakers, people will be more likely to buy the $50 pair, because it seems like a better deal by contrast. This is an effective way for brands to sell a discounted item faster.
Final Thoughts
This question is a particularly tough one, because people don’t make purchases logically. While it’s tempting to say that people would buy more of anything if the price was slashed in half, that’s rarely the case.
Lower prices usually can’t spark sales on their own. Instead, they tend to drive sales when people can compare them to higher prices, and determine that the lower price is a better value. That’s why price anchoring works.
That’s also why people are willing to buy electronics when overall prices drop: it’s clear that the items have the same value, but the prices have changed due to availability or better technology.
On the other hand, people often won’t buy an individual item with a steeply discounted price, as in the laptop example above, because they suspect there might be something wrong with it.
Similarly, consumers often hesitate to buy things like stocks or homes when prices are falling, because they’re worried that it will be a bad investment if the market keeps going down. (Never mind that the stock and real estate markets almost invariably bounce back over time.)
Some products do enter the mainstream when their prices fall, like the television. But most of the time, pricing is a more complex game, with companies incentivizing consumers to buy for emotion-laden reasons that don’t involve money. Among the factors that drive sales, price is rarely at the top of the list.
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