Cutting prices n' discounting ain't the same

'Cutting prices' is slightly different from offering promos on a full price. Why this distinction is important is due to the subsequent 'reference price' that consumers internalise. Price cuts drop the brand's internal reference price. That is, that brand will then be accepted only at the lowered (cut) price. This is unlike discounting. A discounted price may not drop the 'accepted price' in the minds of consumers.

I agree that discounts may drive the customer away from a purchase should the brand not offer one. But at least that's better than the customer dropping the price of brand in his mind, in addition demanding a discount on the lowered price.

When FT reports with a headline that reads, 'GM to cut prices to lure back US buyers', it assumes 'dropping prices' is the same as 'discounting', and that's a flaw. In fact GM intends to lure back buyers with promos. FT reports that, 'General Motors is preparing a fresh barrage of discounts and other promotions to coax Americans into buying more cars after an upcoming US government decision on further financial aid to the Detroit motor industry. The incentives will be designed to counter a slump in sales and GM’s market share, amid signs on both sides of the Atlantic that its financial woes are beginning to drive away customers.'

Comments

Tiger said…
Well said sir. Once the price is dropped in the consumer's mind it would take a lot more effort to take it up and make him pay more.

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