The paper “ Managing Price Discounting and Its Possible Impact on Brand Equity" is a pathetic example of an essay on marketing. Wherever there is a market economy, there will be intense competition; whenever there is intense competition, companies will be using different strategies to secure a larger market share and beat their competitors. The idea is to get to the consumer and hook him in before anyone else does. Price discounting is one such strategy where companies battle it out against each other’ s products by manipulating the prices in a downward slope pattern to make their goods look more attractive to the consumers.
It, first of all, affects the market share that is held by any firm; it can cause massive brand-switching as loyalties shift with the amount being charged, and can also alter the quantity that is being purchased. At first, glance at what price discounting does is add volumes to the number of consumers that are already with a firm, but the picture is never as simple as that. A firm may take to price discounting either to instigate competition or to hit back against it.
This can especially be prominent in a declining market such as the one we are seeing today because of the recession. Price discounting thus becomes an important part of the marketing mix. The problem with price discounting is that once one firm starts using it as a marketing strategy, most firms have no choice but to follow suit i. e. if Pepsi decides to slash its prices by 50 percent to attract customers, CocaCola will have no choice but to do the same because the products are extremely similar and are more or less interchangeable.
In a market economy, it is often the case that some products are homogeneous in nature. Then there are those that are not homogenous but are providing very similar products e. g. HP laptops and Apple laptops. In order to beat each other and obtain the most market share, the pricing war begins and once this starts more and more companies fall into a loop where they keep decreasing their prices to attract more consumers till it begins to hurt their businesses.
It becomes transparent that these firms are entrenched in a zero-sum game. No firm indefinitely introduces a pricing discount. This would mean losing their revenues, and subsequently, a part of their running costs, and most importantly their profits for an indefinite period of time. This is why the life of a pricing discount is short and its status rarely goes from the temporary to the permanent. In the short run, it may cause an increase in the market share of the product that is being promoted i. e. the higher the discounts being offered the higher the market share becomes.
However, as Shoemaker and Shoaf (1978) pointed out that most consumers often revert right back to their original brands and purchase patterns if the pricing discounts were temporary. The higher quantity that is sold during this period is only restricted to that period alone. Hence, only the short term purchase behavior of a consumer is disrupted and that doesn’ t account for much in the long run.