Winning in Turbulence

Price for Today and Tomorrow

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. In a deep recession, ...