Price Reductions Can Backfire

Published on December 10, 2007

The goal of marketing promotions is to stimulate short-term sales. This dictum leads many marketers and small-business owners to reduce prices. However, as Michael Goodman explains, cost cutting is not always the best or most effective way to achieve this goal.

Sound counterintuitive? After all, if the goal is to increase sales, wouldn't cutting prices accomplish this?

According to Goodman, a senior marketing consultant and presenter for a number of MarketingProfs seminars, there are several things to consider before jumping on the price-cutting bandwagon:

Margins. The amount of profit you earn on the product or service greatly impacts the amount of discount you can offer. "You need to consider what the cost of the discount is as well as the benefit," Goodman says.
Trade loading. Will the promotion subsidize future purchases? After all, if customers stock up on your product during a promotion, they may not need to purchase your product next month. That could negatively impact future sales.
Cheapening the image. Frequent discounts can lead customers to believe that the product is overpriced.
Long-term effect. Recurring price reductions also influence buyers' expectations. After all, if customers know the product will soon be discounted, why would they make a purchase today?

The Po!nt: Before attempting to increase short-term sales by offering a price promotion, consider the long view. Think about the long-term sales potential and the image of your product.

Source: MarketingProfs. Attend Promotions: Instant Gratification for Small Business Marketers, a 90-minute online seminar, this Friday at 12pm ET.

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