Pricing is a critical tool in a downturn. Confronted by
weakening sales and excess capacity, management teams
often resort to cutting prices. It's easy to see why.
Price cuts are quicker and easier to implement than,
say, introducing new products or improving service
levels. Customers often respond immediately to lowered
prices. A swift uptick in sales can reinforce
executives' belief that they did the right thing.
But there's a reason promotional price cuts are
sometimes called "management heroin." Price cuts are
addictive. Customers quickly develop a craving for big
discounts and an aversion to full prices. Companies grow
accustomed to the boost in volume and hesitate to raise
prices to previous levels for fear that revenues will
crater.
Is there an alternative?
pdf 2009
