Up Down Price Drops

You see the need to drop the price on an item you sell from $300 to $200. You want to do it in a way which maximizes sales profits. Would it be better to implement the decrease in one step of $100 or space out four progressive discounts of $25 each?
     Studies at Universitat Ramon Llull analyzed this question from the perspectives of the time value of money, consumers’ purchase deferral decisions, and consumers’ predictions of future price changes. Their findings indicate that if your objective is to stimulate immediate demand for the item, your better choice is to drop the price by $100 in one gulp. In addition to being attracted by a real bargain, consumers are likely to figure that this big a drop won’t last long. A price increase is due.
     However, progressive price drops of $25 each offer the opportunity for greater profits over time. Different consumer segments can purchase at the price point which is sufficiently attractive to them. Still, the researchers see a risk with this approach: They find that after three progressive discounts of this type, people expect further drops. They’ll hold off purchasing.
     So burst the expectation, the researchers recommend. After two $25 price drops, raise the price by $10 for a while, let’s say, before continuing the drops.
     Another longer-term advantage of the $25-at-a-time strategy is in maintenance of your retailing value price image. The frequency with which a shopper sees low prices influences price image more than does the amounts by which prices are lower.
     Although deep price discounts can attract shoppers, the tactic sometimes generates negative longer-term results, including judgments that the quality of the sale items is flawed and that regular prices charged by the store are excessive.
     After considering the evidence for these, business experts at Texas A&M University, University of Houston, Indiana University, and University of Delaware uncovered another downside: Shoppers who realize they’ve missed the big sale sometimes become less likely to purchase the item at a lower discount offered subsequently.
     The important word here is “sometimes.” We’d like to know how to avoid the negatives. Studies at University of Miami and University of Kentucky support use of “steadily decreasing discounting.” Before returning the item to its pre-promotion regular price, offer additional discounts on the same merchandise, each discount at a progressively lower percentage than the deep discount. That pretty much eliminated customer disgruntlement.

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Drop Prices Slowly 

Project Responsibility for Missed Discounts

Match Discount Depth to Duration