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You Cut Your Prices. So Why Didn’t Consumers Notice? | WSJ

In fact, other tactics, such as clear in-store or website signage and clear marketing communications, generally cost less and do a better job of helping shoppers understand a brand’s position in the price-value equation.

For example, one major discount apparel retailer, facing stiff competition from other fashion discounters, fought back by slashing prices across the board. But the price cuts did not produce the anticipated benefits in price image and sales volume. When the company did some analysis, it learned that consumers incorrectly believed it had higher prices than a key competitor. A key reason was that the retailer offered many more price points, which confused people. Also, the company discovered that customers were more price sensitive about certain product categories, like children’s T-shirts.

The retailer defined clear roles for each product category, based on perceptions of the category and whether it had a halo effect, meaning it influenced how people perceived the retailer’s brand overall. The retailer refined communications about pricing so they were consistent with the price images it wanted to portray, and it reduced the number of price points. As a result of the program, the company was able to achieve its target price image, develop stronger internal pricing capabilities and grow revenues by roughly 1%.

As this apparel retailer discovered, lowering prices may not supercharge sales. Worse, it might backfire if consumers’ perceptions don’t give the company sufficient credit on its relative price position. More indirect tactics, such as signage and private-label goods, on the other hand, may have an outsized impact on pricing perception—a proven route to profitable revenue growth.

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You Cut Your Prices. So Why Didn’t Consumers Notice? – The Experts – WSJ.