Chris Wirthwein, CEO of 5MetaCom, a technical and scientific marketing agency, and the author of Brand Busters, writes in the spring 2012 issue of Marketing Management that marketers should not fall into the trap of believing that lowering prices will sell more product.
He cites several examples, also explained in his book, of products that are sold at a premium price because they have intrinsic value to the customer. He argues that discounts or lower prices have to be considered in the context of profit margins, but also in the context of other effects within a company.
It seems to us that he has an important point when he writes that a more insidious loss than even the obvious one of revenue is "the effect price cuts can have on everything from employee morale to customer service. When the focus becomes all about cutting the price, employees can become so driven on cutting things out that they lose sight of the things customers appreciate."
Focused on cost cutting, "companies may forget that they have to invest in research, marketing, merchandising, and customer service innovations, all of which help to sustain a brand and a business."