Paying less for goods, services may cost more in the long run

Dec 20, 2010 By Kim McGrath

The National Association of Business Economics November outlook predicts continued slow growth for the economy with the unemployment rate expected to hold above 9 percent.

As the drags on and and are concerns, it’s not surprising that consumers continue to wait for sales before making a purchase.

In the short-run, the consumer "wins" -- purchasing the item for less. But at what cost?

“When a brand goes on sale, it gives away part of the profit margin needed to invest in future innovation and quality,” says Sheri Bridges, associate professor of business at Wake Forest University and expert in branding and consumer behavior. “This affects the consumer’s satisfaction in the long run because the company cannot afford to develop the newer and better products we all want.”

In fact, says Bridges, firms that keep giving away margin will eventually have to reduce the quality of their goods and services.

“Too many brands think the only way to get and keep customers is by cutting prices. In reality, consumers are more interested in high value than low prices. Value is a function of the bundle of perceived benefits offered at a given price. Apple doesn’t discount its products, but it’s still one of the hottest electronics brands around.”

Continual price-cutting conditions consumers to wait for sales before making purchases and sends a message that, in the company’s eyes, the brand is not worth full price.

“Selling products at a discount is like paying someone to like you,” Bridges says. “Good marketers know that sales aren’t necessary, if you’re providing the right value to the right customer.”

Explore further: Launching a new brand: Is partnering with a popular brand a good idea?

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that_guy
not rated yet Dec 20, 2010
This is a hypothesis that does not include all variables, and does not include studies. If sales go up appreciably due to the discount, they could certainly overcome the smaller margin. and who is taking the discount. Most likely it's the retailer, and not the company developing said item. conjecture without evidence isn't news.

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