"Even in a historic downturn, Buffett’s instinct is worth keeping in mind. Many managers underestimate the power of pricing, and the unanimous advice from pricing experts in this troubled economy is to price with courage and creativity. In businesses where demand has plunged, slashing prices may be a terrible idea—and it may not be necessary at all....For the vast majority of businesses—those facing strapped customers and shrunken demand—the No. 1 imperative is to avoid cutting prices if at all possible, what experts in the field call “maintaining price integrity.” In the B2B world, “you get a lot of pressure back from your customers to reduce price, which can manifest itself as hesitancy to move forward with the purchase,” says Ron Kermisch, a Bain consultant who leads the firm’s global pricing practice. “Companies too quickly move to price as the lever, without really understanding what’s driving the customer hesitancy.”...If you cut prices 20%, you have to sell 25% more units just to maintain revenue. In a severe downturn, how likely is that? And if a competitor matches your price cut, the pain will be much worse. The economics of every business are different, but McKinsey research has found that in a typical S&P 1500 company, a 5% price cut would have to spark a 19% volume increase just to pay for itself, and that hardly ever happens. Even if holding prices steady reduces sales and profits, price cuts may reduce them even more.The long-term effects can be more harmful. Price cuts, even temporary ones, train customers to behave badly, always waiting for the next sale. Perhaps worse, they destroy brand equity."
Trechos retirados de "Why slashing product prices is usually a terrible idea"
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