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Deep Discounts in a Recession Can Damage Brands

While geared toward retailers, the study has implications for foodservice, operators as well as distributors. The “Dollars & Consumer Sense 2009” study found that although price is a starting point—products and services must fit into consumers’ budgets—consumers react negatively when brands discount their products and services in response to the recession.

When asked what they assume when a brand lowers its prices during economic times like these, 70 percent of consumers responded, “The brand is normally overpriced,” and 62 percent said they assumed that “the product is old, about to expire or about to be updated, and the company is trying to get rid of it to make room for the new stuff.”

In contrast, when consumers were asked what they assume when a brand does not lower its prices during economic times like these, 64 percent reported that they assume that “the product is extremely popular,” and 64 percent assume that “the product is already a good value.”

“Lowering prices during a recession clearly raises suspicions among consumers,” explains J. Walker Smith, Ph.D., president of the Yankelovich MONITOR® and executive vice chairman of The Futures Company. “Drastic price cuts like those seen during the past holiday season create a double-barreled risk for brands. First, such price cuts generally fail to generate enough business to pay for themselves. Second, they create long-term difficulties in terms of consumer expectations.”

“These expectations of deflation are difficult to break and can keep a category mired in unreasonably low prices for years,” Smith notes.

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