As you’ve no doubt heard a million or so times already, our current economic apocalypse has prompted some major belt tightening among consumers. Accordingly, discounting your company’s products and services (in order to make them affordable to said consumers) seems like a perfectly reasonable strategy.
Not so fast: According to a new study by the Futures Company, offering deep discounts during a recession may well be setting up your brand for long-term damage. Some 70 percent of consumers surveyed interpret such price cuts to mean the product or service in question was overpriced to begin with. Worse still, 62 percent assume these cuts are indicative of an attempt to offload old or outdated merchandise.
“Lowering prices during a recession clearly raises suspicions among consumers,” says J. Walker Smith, Ph.D., executive vice chairman of The Futures Company. “Drastic price cuts like those seen during the past holiday season create a double-barreled risk for brands. First, such price cuts generally fail to generate enough business to pay for themselves, although clearing inventory is of some value. Second, they create long-term difficulties in terms of consumer expectations.”
Once prices have been slashed, Smith explains, consumers anticipate they’ll come down ever further…leading them to hold off on making purchases. “These expectations of deflation are difficult to break and can keep a category mired in unreasonably low prices for years,” he says.
And contrary to popular opinion, resisting the urge to cut prices is hardly a one-way trip to disaster. When asked their impressions of a brand that doesn't lower its prices during tough times, 64 percent of respondents said they assume the product is “extremely popular” and a “good value.”
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