In addition to pricing strategies and methods of pricing, businesses will sometimes face situations where they are forced to change prices compared to the original plan to adapt to changes in competition in the market.
Depending on the business situation and the market, the business will decide whether to reduce or increase the price. It should be noted that, whether increasing or decreasing prices, businesses must anticipate the reaction of customers and competitors to such changes.
Price cutting strategy
In a market economy, supply and demand are the two main factors affecting the price of a product. The ratio between supply and demand is always fluctuating, and when supply is greater than demand, it is time for businesses to consider deciding to reduce the cost of products/services. The price reduction will help products/services increase their competitiveness compared to competitors, thereby helping to maintain or increase market share.
Price cutting strategy
In other cases, businesses actively reduce prices not due to the influence of supply and demand changes, but for the purpose of increasing market share, dominating market share or defeating competitors. In the consumer product markets such as packaged food, dishwashing liquid, washing powder, etc., price is a decisive factor for customers to choose to buy products of enterprises or competitors. When market leaders reduce prices, businesses with small market shares are forced to reduce prices, thereby leading to many other consequences such as loss of revenue, or worst, having to give up market share, close the business.
When a business lowers the price of a product, in most cases its profit will also decrease.
We can summarize the pros and cons of an active bearish strategy as follows:
- Helps increase the competitiveness of products/services compared to competitors
- Helping businesses maintain and increase market share in a fiercely competitive environment
- It is an effective tool for market leaders to eliminate competitors
- Businesses that reduce product prices will suffer loss of profits in most cases.
- The price reduction will also change the perception (in a somewhat negative direction) of customers about the product/service positioning of the business.
Price increasing strategy
When demand is greater than supply, of course most businesses will decide to increase product prices to earn more profits. This phenomenon occurs mainly due to the impact of factors in the macro environment (macroenvironment), for example, the development of technology, changes in legal regulations, changes in culture increasing demand for certain products/services.
Sometimes some businesses actively raise prices not because of supply or demand, but because of a change in the product positioning strategy of that business, or because the price of input materials increases.
The price increase will almost always have a negative impact on the customer's attitude about the product/service. Therefore, businesses will often apply measures such as giving away other products, free accompanying services to retain customers, thereby helping to maintain market share.
In summary, an price increasing strategy will have the following pros and cons:
- Help businesses increase profits / products sold
- Negatively affect the psychology and attitude of customers when choosing to buy products/services of the business