Evaluate how effective a price discount will be in raising revenues during a recession

Evaluate how effective a price discount will be in raising revenues during a recession

The business environment and the current economic situation produce a profound impact on pricing strategies used by companies. In this respect, it should be said that many companies, in face of a progressing crisis, have started to widely implement discounting to minimize their losses and raise their revenues. In actuality, the price discount is an essential measure which is determined not by the free will of companies but rather by the current economic situation. In other words, the economic recession has forced many companies to reduce price in order to avoid considerable losses and maintain their sales rates at a relatively high level that allows minimizing negative effects of the economic crisis.
In actuality, companies cannot maintain high prices for their products because it is a serious threat to their market position. In order to understand the impact of the economic crisis on the current discounting policies of many companies, it is necessary to briefly dwell upon the general effect of the economic recession on customers’ behavior. First of all, the economic recession affected the buying power of customers. This means that customers cannot afford paying more, especially for products which are not vitally important for them. Therefore, when the economic recession begins and buying power of customers decreases, they start reduce their expenditures consistently (Siaroff, 1999). In such a situation, spending decreases substantially that leads to a considerable decrease in sales rates of companies operating in different industries because customers are not willing to buy as much products as they get used to. Instead, they prefer to save their money and spend them on essential products only, such as food, for instance.
In such a situation, it is important to underline the fact that the situation is likely to deteriorate in the nearest future. At any rate, the beginning of the economic recession marks or leads to a substantial decline in customers’ spending, but what is more important is the fact that if the recession is not stopped and negative economic trends will keep going, customers’ spending and their buying power are likely to decrease even more. Consequently, companies need to sell their products fast in order to avoid larger losses which are inevitable if the recession cannot be stopped immediately. Therefore, many companies take a logical decision to reduce price for their products because it can stimulate customers to buy their products at a discount price. This measure is particularly effective at the beginning of the economic recession, when the buying power remains relatively high and customers are ready to buy products at discount prices.
At this point, it is possible to speak about the efficiency of the price discount because it allows the company to sell its products. At any rate, due to the price discount companies can maintain their revenues relatively stable due to the growth of sales rates or maintenance of a stable level of sales rates (Dunning, 1998). In other words, the company can maintain its revenues by means of fast selling out its products, which customers could not afford buying if their prices were higher. In such a way, companies actually have a choice either to keep price high and decrease dramatically their sales rates to the extent that they will unable to sell their products at all during the crisis, or, instead, they can reduce price and sell all the products they have at the moment and get lower revenues for their products. The latter implies that companies will get some financial resources due to discount sales that is very important in the time of economic crisis.
Obviously, the price discount will minimize losses caused by the economic recession, though it does not mean that companies will have exorbitant revenues. In fact, the price discount is an essential measure, which is not highly profitable, if profitable at all, for companies, but they cannot fail to apply it because, otherwise, the negative effects of the economic recession will be even more severe if companies fail to change their pricing strategy. At the same time, the price discount can maintain the customers’ loyalty to the brand that is very important for any company since it improves its market position and can increase the number of its customers during and after the recession.
Thus, in conclusion, it is possible to say that the price discount can be an effective measure to maintain revenues of companies. Moreover, this measure is essential to avoid more dangerous effects of the recession and dramatic decline of sales rates and revenues of companies.


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