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Should Firms Lower Product Price in Recession? A Review on Pricing Challenges for Firms in Economic Downturn

By

Aidar Vafin

Recessions often result in the temptation of price cuts. For a firm to prosper despite a slow economy, a more holistic plan is required. Firms reduce their prices to increase sales volume.  However,  with an appropriate  pricing  strategy,  a  business  may  compete  and  even  prosper during slow economic conditions.
Keywords: Economy, Firm, Recession, Price cut, Purchasing behaviorResearch Article

Recessions often result in the temptation of price cuts. For a firm to prosper despite a slow economy, a more holistic plan is required. Firms reduce their prices to increase sales volume.  However,  with anappropriate  pricing  strategy,  a  business  may  compete  and  even  prosper during slow economic conditions. Thisstudy is an effort to shed light on pricing challenges for firms in recession. We posit that although buyerswant to save money in a recession, price is generally a secondary consideration in the majority of buying decisions. When  customers make  buying  decisions,  other  variables  such  as  quality,  service,  variety,  availability,  ease, recognition, trust, and support typically take priority even in a recession.  Purchasing inertia is high in the domain of recurring business-to-business transactions, and customers form long relationships  with  the  items,  suppliers,  and  processes  they  use  to  make  repeat  purchases. Switching costs are high, and unless there is a major service breakdown, it is uncommon for a customer to defect for a little price difference. Becausecutting priceshaslarge influence on profit, it is rare that low prices produce enough more demand to generate extra profits.  Firms should avoid allowing a slow economy to  diminish their value andshould insteadfocus on non-price ways of assisting customers in difficult economic times. This study concludes that slashing prices in a recession is rarely a proven strategy to boost profits.


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