Anytime sales are low, it is the entrepreneur’s natural instinct to find creative ways to boost sales. When all else fails, small business owners are often faced with the choice of bearing the cost of decreased sales until consumer shopping picks up again, or cut prices to incentivize sales.

While cutting prices may seem attractive in the short-run as the decrease in profit margins can be offset by the increase in the amount of sales made, one must carefully consider the long term impacts of decreasing prices.

There are many cost-cutting consequences which can be analyzed, but there are two in particular which I would like to discuss in this post: readjusting prices and the implications lower prices may have on the perceived quality of the products that you sell. The ideas are simple enough; however, it is vital that they are carefully incorporated into the analysis of your company’s financial future, using your company’s specific financial information, industry reports, and sales figures, when considering a reduction in prices.

When you cut prices today, you are taking the risk that consumers will come to expect discounted prices and thus will negatively react when prices rise in the future. When considering a temporary decrease in prices, the small business owner obviously takes into consideration the positive impact on sales when prices decrease and the negative impact when prices increase. However, business owners often underestimate the importance of the magnitude of these changes in consumer preferences. A decrease in prices in the present may increase sales; however, the fact that a future increase in prices could decrease sales by more than they were increased in the first place cannot be overlooked and must be carefully considered when deciding whether or not a company can afford to cut prices.

The other issue, a decrease in perceived quality of your products as a result of a lower price, is much more complex as it is intangible. While specific statistics on this may not be available (sparing a collection of various consumer satisfaction surveys of your product when purchased at different price levels), this information can be used more generally to see where your brand stands in the market and what a decrease/increase in prices and the consequent changes in customer views towards your products will do for your brand image.

Just something to think about.