The Pitfalls of Price Cutting

During each selling season growers generally receive numerous calls from individuals shopping for the lowest price for a Christmas tree. Each grower has the option of pricing their trees based on species, quality and demand and the BCCTA will attempt to provide guidance in this regard. The BCCTA suggests wholesale pricing should be reserved for charities, retail stores, garden centres, nurseries or lots that are reselling Christmas trees. The price of a Christmas tree is generally adjusted by growers on an annual basis.

BC grown Christmas trees are highly sought after because of their quality and freshness. Our BC growers do not produce enough trees to satisfy local demand and each year many retailers import trees from the US and Eastern Canada. To further compound the shortfall problem, several Christmas tree farms have been sold, growers are retiring and land values throughout BC have increased dramatically.

The following demonstrates the economics and pitfalls of price cutting and discounting our BC grown Christmas trees:

Regular Price – Sell 10 trees @ $100 = $1000, with a gross profit of $500 (Cost = $50/tree or 50% gross margin)You want to reduce the tree retail price 20% to $80
You need to sell 16.67 more trees to make the same gross profit

You want to reduce the tree retail price 25% to $75:
You need to sell 20 more trees to make the same gross profit

Disadvantages of a Price Cutting Strategy

  • Customers come to expect it, especially if it’s a straightforward price decrease with no other components
  • It creates a disproportionate decrease in profits
  • It can lead to long-term loss of customers and a decline in sales
  • You start to attract the wrong kind of customer—the price shopper
  • It can create a lower perceived value (people think your product is simply worth less)
  • It damages your brand – customers perceive your product as lower quality
  • It’s not a band-aid for systemic problems – it won’t fix less than stellar customer service

 

pitballs price cutting