Do Desperate Price Cuts Work Long-term?

Marketing Viewpoint by Ruth Winett

Creative Ways To Cut Prices To Retain Customers

Prices have soared since the pandemic, and corporate buyers and individuals--particularly Gen Z customers born 1997-2024-- are pushing back. Major causes of the increase are tariffs and high prices for diesel fuel, which rose 77% in the last year to $6.53/gallon. Consequently, distributors have imposed fuel surcharges, which affect prices for the entire delivery chain. To avoid passing cost increases onto customers, many organizations have found creative ways to lower prices. The challenge is to retain quality and service and, of course customer loyalty, while boosting profits. In contrast, other companies try to justify "fair" increases.

Reducing Costs to Lower Prices and Beat Competitors

Kroger's "roots" were in "high-low pricing," not everyday low prices. Because Kroger had lost market share to Walmart and others, Greg Foran, Kroger's new CEO, decided to cut costs and reduce prices. This required tough negotiations with suppliers. In contrast, Walmart has used $3 billion in tariff refunds to [further] cut prices. But, tariff refunds will not last forever. Walmart's prices are estimated to be 5% to 20% lower than Kroger’s.

Deploying a Barbell Strategy

With food prices escalating, casual dining restaurants like Chili’s, Applebee’s, Red Robin, and IHOP, now offer barbell pricing, which means offering both "low-cost and premium options.'" For instance, IHOP features both stacks of pancakes ($12-$18) and everyday value meals ($7). "When time are tight, [the barbell strategy] pops up," says Cornell Professor Alex Susskind. Financiers also deploy barbell strategies. When adopting a barbell strategy, companies should advertise the lower cost options, as well as premium options.

Cutting Tuition To Maintain College Enrollment

With college enrollments declining because of soaring tuition, smaller private colleges are cutting tuition, sometimes in half, to attract more students. These colleges are also providing more financial aid, lowering tuition for in-state students, or offering interest free loans. The Ivy League colleges, plus Amherst and Williams, offer aid rather than loans. Nevertheless, enrollment has dropped in less competitive colleges, and some colleges have even closed. To help students find jobs, some colleges have made academic changes. Brandeis University will provide career development alongside liberal arts classes.

Justifying Price Increases To Retain Customers

Rather than cutting prices, some companies attempt to justify price increases. In February and March, 2026, KPMG studied how tariffs affect the prices of 300 companies that have $1 billion or more in revenue. KPMG found that companies can justify a price hike by presenting the cuts as "fair." For example, price increases are the result of rising healthcare premiums and tariffs. Given an explanation based on the market, customers are less likely to bolt. But, when all companies use the same justification, the rationale/justification becomes less effective. Ultimately, customers will switch because of price increases if they have acceptable alternatives.

Sources:

"The Great Price Debate," H. Damavandl, K. Antia, P. Kopalle, The Daily News, 9/13/26

"The Cost of Transporting Pretty Much Everything Is Going Up," E Fung, L Cooper, C Paris, Wall Street Journal, 9/27/26.

"Kroger Takes Hard-Ball Tactics, Like Walmart, in Overhaul Bid," S. Nassauer and P. Thomas, Wall Street Journal, 9/30/26.

"How to lure the spendy and the thrifty? Use the 'barbell.'" L. Kelley, The Boston Globe, 9/13/26.

Framingham, MA, IHOP menu.

"Colleges Slash Tuition In New Marketing Tack," R Fernandez, Wall Street Journal, 9/27/26.

https://www.brandeis.edu/plan/ .

"Fielded in February and March 2026, the survey captured perspectives from 300 U.S. C suite leaders at organizations with $1B+ in annual revenue."

https://kpmg.com/us/en/media/news/kpmg-2026-tariff-survey.html

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