This analysis can be very revealing and whether the answers are positive or
negative will guide the sales and marketing manager in making good pricing
policy decisions.
Some of the typical reasons why every business periodically reduces prices on
its offerings are to:
Discounting prices
These are all good reasons for discounting prices under the right circumstances.
However, a sales and marketing manager needs to be fully aware of the
consequences of discounting prices on a regular basis.
The two charts below illustrate what happens when you discount prices.
The first chart tells you that if you reduce your price, you obviously need more
business to maintain the same amount of gross sales dollars that you had before
you reduced the price.
That is why you need more customers spending the same average gross sale
dollars or you would need to increase the amount of the average gross sale
to your customers.Attract customers and thereby stimulate sales activity
Meet competitive prices
Accelerate the movement of slow-moving inventory, discontinued
inventory, and obsolete inventory or damaged inventory
Reduce inventory levels to increase inventory turnover ratios
Reinvestment of cash realized from clearing out stock into inventory
items with a higher turnover rate