Increases in price of a product is always followed by a consequent decrease in its sales unless the price increase is accompanied by a substantial improvement in the function or utility of the product. This has been consistently substantiated by consumer behaviour and historical data. Wines are however, unusual, in that increases in the price of a particular producer’s batch of dress wines will, almost always, result in increased sales, even when the wines have had no functional or utilitarian improvements.
Which of the following, if true, most explains the discrepancy described above?
A – The wine market is characterized by an extremely wide range of competing products.
B – Many consumers make decisions about which wine to purchase on the basis of reviews of such watches published in lifestyle magazines.
C – Wine producers can generally increase the sales of a particular wine temporarily by introducing a price discount.
D – Consumers who are collectors of wine have strong preferences for specific brands of such wines.
E – Consumers who purchase wines in stores often use the price as their main evaluation to gauge the status and value associated with a wine.
Explanation : The paradox resides in the contrast between general evidence about products – that increasing prices without innovation results in lower sale volumes – and the case with wines, where increasing prices even without innovation leads to an increase in volume of sales. This can be possibly explained by the kind of product the wines are. Perhaps functionality and utility aren’t the primary means of judging such products and are not valued in those bases.
A – This does not help explain the contradictory data points.
B – This does not explain why price increases are followed by increase in sales volumes.
C – This brings evidence that makes the paradox worse.
D – “Collectors” are not relevant in this context.
E – This effectively shows that value of such watches are not pegged to utility but rather is perceived by the comparative prices and therefore explains why increasing prices results in increased volumes of sales.