Companies that lower the prices of their products during the recession may risk damaging long-term brand perceptions because suspicious consumers assume something is wrong with the product or brand if it’s being discounted, according to a study from The Futures Company.Results from the Dollars & Consumer Sense 2009 study show that maintaining prices even in a down economy may actually be the best way to protect brand image. When asked what they assume when a brand lowers its prices during tough economic times, 70% of consumers say, “The brand is normally overpriced.” Another 62% of consumers said say”the product is old, about to expire or about to be updated, and the company is trying to get rid of it to make room for the new stuff.”
When probed about how they view a brand that does not lower its prices during economic times like these, 64% of consumers assume that “the product is extremely popular,” and another 64% say they assume that “the product is already a good value.”
J. Walker Smith, president of the Yankelovich Monitor and executive vice chairman of The Futures Company, said lowering prices during a recession can raise consumer suspicions. “Drastic price cuts like those seen during the past holiday season create a double-barreled risk for brands,” he said. “First, such price cuts generally fail to generate enough business to pay for themselves, although clearing inventory is of some value. Second, they create long-term difficulties in terms of consumer expectations.”
Smith also added that when a price is reduced, consumers delay purchase in anticipation of further price cuts. About half to 60% of study respondents think that when companies lower prices, it means that prices will go down further if they wait long enough. And roughly 50-70% percent think that brands that do not lower prices will have to do so eventually.
Anxiety over “Keeping Up
The study also examined consumer anxiety levels during the economic downturn and found that 50% of respondents are worried about keeping up with the cost of living, while 72% say the current financial crisis has forced them to prioritize what’s most important in their lives:
Related to this, the study divides consumers into eight key segments to show the wide variation in consumers’ economizing behaviors and lifestyle priorities, and it suggests how marketers can appeal to each segment. For example, one of the eight segments is called the “Postponers,” which represents 12% of all US consumers. These consumers are distinguished by the fact that they are putting off purchases in an effort to economize.
Price Cutting Affecting Retailers
To lend credence to study findings, a number of retailers have recently released quarterly and annual earnings releases indicating that markdowns, clearance pricing, and other significant price-cutting actions have negatively impacted gross margins and other financial results. These include Ann Taylor, Urban Outfitters, J. Crew, and Costco. J. Crew and Ann Taylor’s business is entirely private label and Urban Outfitters has significant private label operations, writes Retailer Daily.
About the survey: The study was conducted by The Futures Company, which was formed in 2008 by the merger of Yankelovich, Inc., of Chapel Hill and Henley Centre HeadlightVision of London.The Dollars & Consumer Sense 2009 study was an RDD telephone survey conducted in January 2009 among 1,002 adults ages 18+.