The Effects of Price Variation in Luxury vs. Non-Luxury Products on Consumer Decisions

Abstract

Companies rely on their knowledge of how their clients and customers will react in response to actions taken to run their businesses. What drives consumers to make their choices is a question that revolves around knowing the behavior of consumers and how their behaviors can be utilized to work best with the goals of the company. Price is one of the many factors that play a key role in the purchase decision. This study is designed to determine price sensitivity regarding luxury vs non-luxury products. For this study, shoes and water were used as product lines and subtle vs obvious price increases as the variable. Fielding two questionnaires to obtain both non-comparative and relative data, the objective was to perform research to see what causes consumers to buy the more expensive brand for identical or similar versions of the same product. This study provides insights into consumer behavior and price sensitivity in the presence and absence of a luxury/non-luxury competitor and across high and low involvement categories. It demonstrated that luxury brands can retain consumer willingness to buy with price increases. Price sensitivity and the threshold at which consumers will switch from a non-luxury product to a luxury product could be affected by the price point of the product category. This study strives to understand the effects of price variation in luxury versus non-luxury products on consumer decision making. It is important to know the threshold of price that drives consumers to make the purchase decisions that they do.