Avoiding the 'death spiral': Why commanding a price premium is the best strategy for profitable growth
While dropping prices is likely to increase sales volumes in the short-term, the long-term consequences of training people to expect cheaper prices can send brands into a death spiral.
Over-reliance on price promotions hits margins hard, and it becomes difficult to find and justify the money to invest in advertising and innovation – both of which are essential for building a strong brand that customers will stay loyal to for years to come.
And the vicious cycle continues: a lack of innovation and marketing will increase dependency on price cuts, customers will then expect more and deeper discounts, and margins will continue to suffer.
Smart brands take the longer-term view, sustaining their margins through a growth strategy that is focused on earning the right to command a price premium – the additional amount of money a brand could charge for a product compared to an equivalent or similar alternative from its competitors.