What are retailers doing to increase sales? One strategy is offering deeper discounts. Nordstorm has slashed prices, starting at 40%, vs. 33% last year. While Nordstorm is offering deep discounts, other retailers are going after a different customer segment altogether. Earlier this year, Old Navy began pitching their clothing at twentysomethings. Now, their ideal customer is the budget-conscious mom shopping for herself and her family. When retailers realize slashing prices and targeting different customers altogether is not enough, what else can they do? Perhaps teaming up is the answer. For instance, retailer Macy’s has teamed up with FAO Schwarz to bring toys back to its stores.

Do price cuts work?

Yes, price cuts work in the short-term, especially during hard economic times when consumers are ultra price conscious. However, one problem retailers might face is that consumers will get use to the lower price points. Even when the economy does improve, customers might not be willing to pay full-price for items.

As a long-term strategy, price cutting does not work. One problem retailers might face is that they start a price war with competitors. Once this happens, prices will keep on dropping and no one wins.

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