What is spillover pricing effect?

The spillover pricing effect refers to the phenomenon where the pricing strategy of one product influences the perceived value and pricing of related products within the same category or brand. This effect can occur when consumers compare prices among similar products, leading to adjustments in demand and pricing strategies. For example, a price reduction on a premium product may enhance the attractiveness of lower-priced alternatives, impacting overall sales dynamics. Companies often leverage this effect to optimize product positioning and maximize revenue across their product lines.