How Does Deflation (Negative Inflation) Affect Your Pricing Policy?

The potential of deflation has been talked about for what seems an age.  Now it has hit home with a rate of -0.4% as inflation has not dropped below zero since the 1960s (nearly 50 years).

Low mortgage interest rates have helped to take us into negative inflation.  As a consumer, you will have personally been affected by fluctuating prices – food and fuel in particular.  Likewise, your consumers and clients will also be affected, not just by the amount of money that they have in their pocket, but also by how confident and secure they feel about the future.

The Retail Price Index (RPI) measures prices of over 1400 items that includes transport, mortgage interest, food, fuel, leisure, catering, alcohol, services, clothes and shoes.  See National Statistics - http://www.statistics.gov.uk/instantfigures.asp for further details. 

Pricing as a Marketing Tool

Pricing is a crucial marketing tool and can either win or lose customers.  Pricing can help you to position your products and services in a particular market aiming it at a specific target group.  Whatever you are selling, the end user/consumer must feel that it offers value, solves a problem and that they can afford it.  If not, you will lose the sale. 

Impact of Continuously Lowering Your Prices

If you keep lowering your prices, then your potential customers and clients might put off buying from you thinking that your prices will fall again at some point in the very near future.  There is nothing wrong in lowering your prices to a level that you feel the market will tolerate.  However, you need to be aware that you can devalue your offering, and feed into the downbeat news that feeds into negative inflation. 

Add Value with Pricing Options

1. Consider putting promotional packages together (consisting of your products/ services) for set time periods and sell at a discount. 
2. In a downturn, consider maintaining your prices but offer more for the same cost.  Keeping your prices the same can demonstrate your confidence in what you do as long as you are completely in tune with what your target audience needs and wants.