3.14: Price Changes
Price cuts and increases are significant business strategies influencing profitability, market share, and customer perception.
Price Cuts:
Price cuts are often used to stimulate demand, increase market share, and utilize excess production capacity. This strategy can be effective in price-sensitive markets or during economic downturns. Companies like Walmart have built their entire business model around offering lower prices than competitors. In the technology sector, companies often reduce prices on older models when new versions are released.
Price Increases:
Price increases can reflect rising raw material costs, labor, or other operational expenses. They may also occur when demand exceeds supply, as seen in the housing or ticket resale markets. Companies may also raise prices to position their product as premium or luxury, enhancing perceived value. For instance, luxury fashion brands like Gucci or Chanel often have high price points to create an exclusive image.
However, both strategies need careful execution. Excessive price cuts can devalue a product, while drastic increases can alienate customers. Understanding the target market, competition, and overall economic conditions is crucial to effective pricing decisions.
