MGR eCommerce Edge Weekly | August 19, 2020
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Is Lowering Prices During the Pandemic a Good Idea? Maybe Not
As brands scramble to adjust to ever turbulent times, it seems one of the first levers that often gets pulled when looking for a sales bump is that of discounting. But is that the right answer? What are the long term impacts of positioning yourself as a discount brand instead of premium or higher?
Luxury brand adviser, Daniel Langer has this to say on lowering prices:
“Brands’ biggest error is to underestimate pricing effects. Research on competitive market signaling has shown that actively changing prices creates the single greatest competitive signaling effect, with some comparing it to a nuclear bomb. Changing a price always has a short-term lift effect, but the long-term fallout is almost always catastrophic.
If a luxury brand was able to sell a specific item at full price to hundreds of their best and most loyal customers, but then — due to a crisis or slow period — decided to detonate an atomic price drop, all they’ve done is reward a group of one-time, price-sensitive, non-loyal customers.
They trade in their brand equity, which their best customers built by paying full price, for short-term, easy growth. And then, any loyal, full-price customer of the brand who sees items they once bought become significantly discounted is sure to be alienated. Nothing makes loyal customers leave faster than deep discounts.”