Reducing the (Perceived) Price with Coupons, Rebates & Discounts

February 1997
by Robert C. Brenner, M.S.E.E., M.S.S.M.

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Cutting book prices can increase sales, but it could also encourage
competitors to follow your lead, starting a price war. If you advertise your
books at one price point and then cut prices, some past customers will
suspect that they’ve been gouged. Value, not price, convinces a buyer.
Customers want quality, but at a cheap price. This forces you to walk a”value-quality-efficiency” tightrope. Pricing requires special skills and a
mindset that can relate clearly to the customer.

IBM and Compaq drastically cut PC prices in the summer of 1991. Normally,
during a sluggish economy, price cuts stir increased sales. However, the cuts
by IBM and Compaq were not enough to stimulate demand in a recession. Sales
remained relatively flat, and conservative buyers purchased clone computers,
believing that clones offered a better deal (perception). As sales stagnated,
these two computer giants suffered huge revenue losses.

Setting your price below costs just to move your products or to “build or
regain market share” may be foolhardy. You’ll attract “el cheapo” bargain
hunters. And when you must later raise your prices to make a profit, you may
not find new customers willing to paying the higher price. Everybody loses
except the low-price bargain buyers.

Don’t target “customers” who aren’t willing to pay enough for your product.
Let them go, and focus on buyers who appreciate value and are willing to pay
for the products that you work so hard to produce.

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