Regulatory Engagement Theory: Which Prices Will Get Lower?

I read an interesting article last month in Business Week. Apparently, consumers have changed their spending habits somewhat in light of the recession. Discount stores like Dollar General and Family Dollar are becoming suddenly more profitable, as consumers are more willing to buy cheaper household products. However, sales of high-end prodcuts like the Apple IPad, the Amazon Kindle, BMW, and Mercedes-Benz are also increasing. Interestingly enough, it would appear that consumers are spending more on luxury items but less on convenience items.

While the article seems to indicate that consumers are buying cheaper convenience items like toothpaste and shampoo in order to justify indulging in luxury expenses like cars and electronics, I think something different is going on. According the Regulatory Engagement Theory in marketing science, value is not only determined by the benefit the consumer gets from the product. Value is also heavily dependent on how involved the consumer is in the product. Value is subject to how much the consumer thinks and how strongly he feels about the product--how engaged he is, how much he cares.

In times of economic uncertainty, producers of high-involvement goods like luxury cars and electronics are going to be able to keep prices up because the engagement consumers have in such products drive interest. When it comes down to toothpaste, shampoo, trash bags, cereal, etc., many consumers don't really give a lot of thought to such commodities. Price competition becomes more likely in these items because consumers are more or less indifferent to the quality of the items. The only difference they see is the price, so they may just buy the cheaper one. Consumers are heavily involved in their BMWs, though. The price doesn't matter so much because they can see the difference between the Bimmer and other cars. They can justify paying the higher price.

In theory, then, the only prices that will get lower are those in commodity industries--or mock-commodity industries. Only in industries where consumers see little differences between products will producers be forced into price competition, giving the consumer a lower price. As long as there is product differentiation within an industry, as long as the Ipod stands out from the generic MP3 player at Walgreens, prices will continue to be high. If you want lower prices, then, just stop caring so much. The moment you lose interest, producers will be forced to lower prices to get that interest back.