Why does lower price not work always in the business?

Why do lower prices not mean success only? Find 5 disadvantages of low-cost leadership strategy in this article.

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Why does lower price not work always in the business
Why does lower price not work always in the business

In spite of the lower price, if you’re not getting successful in business then this article is just for you. Here, we have shared 5 reasons, Why does lower price not work always in the business? If you are selling the product or service at the lowest price then it does not mean you get successful in the business.

Price is a very important component of the Marketing Mix. It determines your profit and survival in the business. A business can use a variety of pricing strategies like Cost Plus Pricing, Going Rate Pricing etc. when selling a products or services. But since it is a very critical part of the business, you need to be very much careful while analyzing it.

Lower Pricing Strategy
Lower Pricing Strategy

One of the very common pricing strategies for getting successful is ‘Lower Price‘. Lower Price Strategy means to sell the product or service at the lowest price in the market. For example, Reliance has launched Jio using lowest pricing strategy.

To learn more about Marketing Mix, please refer the Marketing Mix Examples from TechShristi website.

5 disadvantages of Lower Price Strategy

To know why you should not set lower price strategy for your business please read the below article.

Survival

If you sell your product or service at the lowest price then it would become difficult for you to survive in the industry. It is said that if you decrease the price by 5 to 10% then you need to increase the sale by 20 to 25% to maintain the same profit.

Profit is the Survival of the Business
Profit is the Survival of the Business

So, in the long term survival becomes difficult in low price strategy.

Low-Quality Preception

Low Pricing Strategy comes with Low-Quality Perception also. If you’re selling product or service at a cheaper price then your consumer will perceive it as a sign of a cheap product. Just check out below image, Reliance is offering telecommunication service at a cheaper price and how the consumers are preceiving it?

Reliance JIO Lower Price Preception
Reliance JIO Lower Price Preception

Low Profit

Lower Price means low profit. If you’re not making enough money inspite of having good sales then lower price could be the reason for it. Initially, EmbroideryShristi is also facing the same issue. In spite of having more than 500 orders daily, it was making the very low amount of profit from it. This was because it was selling Machine Embroidery Design at a very low price.

So, if your profit is decreasing but not sales then Lower Price Strategy could be the reason for it.

Lower Prcing Strategy means Lower Profit
Lower Pricing Strategy means Lower Profit

Competitors can lower their prices, too

Yes, it is true. If you can reduce the price of the product or service then your competitor can too. Your competitor can also lower their prices until you (and/or they) are no longer in business.

Competitors can lower their prices, too
Competitors can lower their prices, too

So, lower pricing strategy can be unhealthy for both, You and Your Competitors.

Consumer Expectation

Consumer Expectation is another reason for not selling product or service at a lower price. If you’re the lowest cost leader in the market then you will always have the pressure for providing more surprises.

But it is very difficult to surprise the consumer at a lower profit margin. Further, your surprise fades when you reduce prices over and over again.

 

Consumer Expectation for surprise
Consumer Expectation for surprise

Now your turn. What do you say? Will Lower Price Strategy work in the business? Please share your feedback in the below comment box.

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