True or false: In general, customers are more sensitive to price increases than to price decreases.

True or false: In general, customers are more sensitive to price increases than to price decreases.

• A. False
• B. True
• C. Cannot be determined
• D. Both equally

Answer: (B)

When we think about how customers react to price changes, a key idea is that people perceive price increases as a loss relative to a reference price, and losses tend to loom larger than gains. This loss aversion makes consumers more sensitive to price increases: they’re more likely to react by looking for substitutes, delaying or forgoing the purchase, or switching brands when costs rise. On the flip side, a price decrease is seen as a gain, but the positive effect on behavior is usually smaller, especially if the decrease is modest or already anticipated. So, in general, price increases provoke stronger, more negative reactions than equivalent price decreases provoke positive ones, which is why the statement is true. Exceptions can occur based on the product, the brand, loyalty, or how large the change is, but the general pattern holds.

When we think about how customers react to price changes, a key idea is that people perceive price increases as a loss relative to a reference price, and losses tend to loom larger than gains. This loss aversion makes consumers more sensitive to price increases: they’re more likely to react by looking for substitutes, delaying or forgoing the purchase, or switching brands when costs rise. On the flip side, a price decrease is seen as a gain, but the positive effect on behavior is usually smaller, especially if the decrease is modest or already anticipated. So, in general, price increases provoke stronger, more negative reactions than equivalent price decreases provoke positive ones, which is why the statement is true. Exceptions can occur based on the product, the brand, loyalty, or how large the change is, but the general pattern holds.