Why Retail Price Cuts Don’t Always Pay Off

Price wars have broken out in many consumer industries, including grocery, retailing, telecommunications, airlines and even exchange-traded funds. Companies have been making huge investments in price reductions for a variety of reasons – to attract new customers, to get current customers to spend more, or to defend market share against new discount-oriented competitors. But here’s some sticker shock for many companies: Many of them aren’t getting much of a return on their price-reduction investment. A recent survey by my colleagues at Bain & Co. explains why. Bain and ROI Consultancy Services surveyed almost 2,200 shoppers in Atlanta and Washington, D.C., about prices at eight retail chains carrying groceries. We found that consumers often thought retailers were cheaper or more expensive than warranted by the actual shelf prices. In other words, companies’ actual prices are often at odds with how consumers perceive their prices. This helps explain why consumers so often don’t react as anticipated to price cuts and discounts: Often they don’t realize the magnitude of the price cut – or they don’t even notice. Read more at Market Watch.