While many businesses are pulling in their horns and cutting back in order to maintain profitability. Waitrose has made the decision to cut its prices so reducing margins. This could be just what's needed to keep the company on top of its game.
The result of cutting prices has been an increase in sales (3.6%) albeit in step with a fairly heafty fall in pre-tax profits (26.6%).
However, the thinking behind the strategy is that evidence has clearly shown that the pending recession is causing a shift in consumer loyalty toward down-market brands (see previous stories in Knowledgebase). If further evidence were needed Primark has just announced another growth quarter and is expanding its total sales space.
By reducing prices Waitrose will improve its chances of retaining its existing customers who may spend a bit more as they are attracted by the bargain prices. And it stands to attract new customers who previously thought Waitrose was out of their price range.
Sales have increased suggesting that the plan is working. Waitrose will now sit tight until the economy stabilises while also cutting unnecessary expenditure and it may come through with a bigger client base than before.
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