The dangerous game of price-cutting

The thumbnail version:

  • Your market may impose pricing pressure
  • Mismanaged price cutting can be a downward spiral

The full version:

Simon Sinek in his book, Start with Why, raises some interesting issues relative to price cutting. Here are some excerpts that should be considered in the context of the market in which your shop operates:

How do I get out of this downward pricing spiral?

“Many companies are reluctant to play the price game, but they do so because they know it is effective. So effective, in fact, that the temptation can sometimes be overwhelming.”

“Playing the price game, however, can come at tremendous cost and can create a significant dilemma for the company.”

“Once buyers get used to paying a lower-than-average price for a product or service, it is very hard to get them to pay more.”

“And the sellers, facing overwhelming pressure to push prices lower in order to compete, find their margins cut slimmer and slimmer. This only drives a need to sell more to compensate. And the quickest way to do that is price again. And so the downward spiral of price addiction kicks in.”

What all of this confirms is that price cutting should only be considered with the big picture in mind. It should never be a spur-of-the-moment knee-jerk reaction to a competitor. That would be playing a dangerous game with no end in sight.