In the bus hire business in Sydney, prices are fairly stable. If you suddenly dropped your prices by 50% you would generate a lot of business immediately. You wouldn't make any money (in fact you'd lose a lot) but you would be innundated.
What about a different industry like dining cards? Surely if you offered people a 50% discount you would sell so many more cards? Well,wrist watches, the answer is no. The elasticity of demand for dining card memberships is almost zero. If you drop the price of a discount dining card by 50% you'd be lucky to get an increase of 10% in sales.
For some time senior managers who aren't close to the front line have pushed the "let's sell at half price to capture the mass market" line. But doing this would be a disaster (and I have explained why every time the topic is raised).
Not only would you have just shaved a slab off the membership price and therefore wiped out any profit, but you would have also destroyed the price of the membership and taken it to a place where it is hard to come back from.
Interestingly the other companies have has done just that with their memberships. The Privilege Club was $1888,chronograph watches, but now you can buy it for $1488. Bad advice and a disaster for them. Ouch. Their vendor is out of control and they have just caused major damage to that dining card programme.
In response to flagging sales, they dropped the price by $400 and they are going to learn this lesson the hard way.
The lack of elasticity is great news however when it comers to raising the price of discount dining club memberships. You can raise the price and still maintain your sales. Now there is of course a breaking point (you can't keep raising the price and think sales will remain constant) and at each rise you must add a voucher or two just to convince the sales staff that the price rise is justified.
So, if you're selling something like a discount card then forget about lowering the price to incresase sales. It doesn't work ... and you'll go out of business if you do.
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