Price-cutting

Price-cutting is the act of reducing the price of a product or service, often below the established market rate or the competitor's price, to attract customers. It is a common business strategy employed to increase sales volume, gain market share, eliminate excess inventory, or combat competitive pressures. While effective in the short term, sustained price-cutting can erode profit margins and potentially lead to a price war, which can be detrimental to all competitors involved. The primary motivation behind price-cutting is typically to stimulate demand, though sometimes it may also serve a secondary objective, for example, to rapidly deplete older models in preparation for a new release.

Price-cutting meaning with examples

• Retailers engaged in aggressive price-cutting during the holiday season to lure shoppers. Many stores slashed prices on electronics and toys to compete with online retailers. The strategy proved successful, driving up sales volume and clearing out inventory. Despite lower per-unit profits, the overall increase in sales boosted their bottom line, helping them to weather a challenging economic environment.
• To gain a foothold in the market, the new airline implemented a strategy of price-cutting, offering significantly lower fares than established competitors. This attracted budget-conscious travelers, and quickly helped them gain passenger numbers. However, the reduced fares put a strain on their operational costs and resulted in lower profits per passenger, making long term sustainability a challenge.
• Faced with surplus stock, the manufacturer initiated widespread price-cutting on its older models of appliances to make way for the launch of its updated product line. This enabled the company to reduce storage costs and generate revenue from unsold inventory. Promotional discounts and clearance sales proved to be an effective way to move inventory out of its warehouse.
• During a period of economic recession, a local restaurant chain resorted to price-cutting on their menus to maintain customer traffic and prevent a decline in sales. The introduction of value meals and discount promotions resulted in more visitors, though not to the same levels as before. However, lower prices were necessary to preserve business in the current economic landscape.