I often hear things like: “Demand is dropping, so we need to cut prices to boost it again.” That logic is not just flawed, it’s expensive.
Sounds like basic macroeconomics but failing to understand the difference costs businesses real money.
In my view, there’s a critical mix-up between two very different situations (simplified to the extreme, on purpose):
– Fewer consumers willing to buy (graph on the left)
In the classic price–demand curve, this is a leftward shift. The price elasticity hasn’t changed. There are just fewer people wanting to spend.
– Consumers who need a lower price to buy (graph on the right)
Here, the curve becomes steeper. The number of consumers might be the same, but they’re more price sensitive thus overall elasticity increases.
Why does this matter? Because each scenario calls for a totally different playbook.
Based on our benchmark at Simon-Kucher, and taking foodservice retail as an example:
– Markets like Spain, the U.S., Japan or Brazil clearly fall into the first category. Consumer confidence is low, and demand shows little to no response to price promotions.
– On the other hand, in markets like China, India, Indonesia or KSA, demand shows highly price sensitive. In these cases, (the right) promotions can still move the needle.
When consumers are more elastic, price-based tactics like discounts can indeed drive volume. But when there are simply fewer buyers, price isn’t the problem, motivation is. You need a new occasion, a new product, or a new reason to get them to show up.
The default (and tactical) response from many businesses is to slash prices when demand softens. But if you get the diagnosis wrong, you end up losing both volume and margin. Worst of both worlds.
Before reacting, figure out what kind of world you’re in. It’s hard, because it means thinking strategically, not just reacting tactically.
If your solution is always “cut the price”, you’re just making it cheaper, not solving the problem.
*This article is my own, not ChatGPT’s. It was written with time, care, and data.
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