Why dropping prices can be the wrong thing to do when market share is slipping.

 

Under some circumstances, price cuts can be a smart move to boost market share.  But when managed poorly, price cuts can damage a company's bottom line.  According to a recent McKinsey & Company study, a tiny price cut has a dramatic impact on earnings.  In the chart below, McKinsey illustrates how a 1% price cut impacts operating profit in various sectors.  (Data was extracted from actual company information.)

 

 

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