In numerous cases, price reductions are made due to competitors’ prices. However, customer complaints that another company made them a more reasonable offer is not a cause to create a global sale. One should always comprehend that a price is a tool for positioning the product on the market, and not in all cases, reducing it can bring short-term and long-term benefits. For example, lowering the cost of luxury items, such as bags or clothes, not in a discount format can make customers doubt the quality of the product. Suppose the owner of the business desires to increase sales or get rid of surplus. In that case, discounts will be appropriate because regular customers will remain, most of the new will leave after the return of prices to their previous level, and the objectives will be realized. At the same time, the usual price reductions for well-known brands can harm the brand name. Price reductions often mean savings on materials, which is not what customers expect from the luxury stores.
However, if the business owner is interested in attracting new customers, the situation becomes much more complicated. Undoubtedly, the price reduction will encourage potential clients to try the product. However, at the same time, it will lead to many customers who will never buy it at the total price. The costs of such actions may exceed the benefits many times over. The formation of cost leadership is focused on mass-market goods with a low price and adequate quality. Mass production of standardized products provides a lower level of total costs, allowing the manufacturer to set a more acceptable price than competitors. Thus, not all companies achieve success, and the necessary condition of the applied price approach is preservation or improvement of quality of production even in the states of cheapening its output.
Consumer expectations are oriented to an uncertain level of quality. Under the condition of quality reduction, even the price drop will not ensure the preservation of consumer commitment to the given product. Strategy differentiated prices are more profitable and imply a particular scale of possible discounts and premiums to the average price level for different markets, their segments, and customers. It enables the recovering of costs and stimulates or restrains sales. In this way, it ensures stability and increases the company’s financial performance.