Most companies have begun to cut prices in a post-recession world, where getting new customers has been particularly difficult. As each company tries to slash its prices, customers seem to know where to go. Many research have pointed towards the success of such price cuts. However, recent studies have shown that price cuts can work against the companies in the long run.
Though customers may initially get attracted by price cuts, eventually they move on, and do not stay loyal to the company anyway. Smaller companies stand to lose the most. If one decreases prices by 1%, and the customer-loyalty remains the same, there would be a reduction of 8% in profits.
However, when one increases the price by 1% and the number of customers remain the same, the profit increases by 8%! Allen Ackerman increased prices for his employee-placement services offered through his company A-List Placement LLC. His revenue is up by 30%. This is just one of the examples which point towards what has been believed all along. If you are a small company owner, and would like to stay in the business, do not decrease the prices but rather offer good services and increase the prices!
Read the detailed article on the Wall Street Journal.
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