Low prices are a good thing, right?

Consumers in recent years have become accustomed to spending less. The vast majority have no choice in the matter. However, as the general public reins in expenditures and businesses become starved for cash, a downward spiral begins to form, and I’m not altogether convinced that a sudden increase in consumer spending would be the most practical or viable solution. Given that families are strapped for cash and saving is now a necessity rather than a preference, it seems entirely logical not to spend on anything more than the absolute bare minimum. Thus, stores have only one option available to appeal to discounted consumer tastes, and the effect is seen every time we walk through a mall and see 70%-off sale signs in front of every door.

Clearly, if the economy was in a healthy position, these price cuts would be a huge bargain, but even such drastic sacrifices on the part of businesses have failed to prove to the consumer that the value of their product is even worth 30% of what it used to be. Many families who would have come running to buy these products at 10%, 20%, and 30%-off find they can scarcely afford them even now. By dropping prices, companies figure that a loss on a small amount of sales the only alternative to a large loss on no sales at all. The overall effect of this fiasco is dangerous—consumers have adapted, and acclimatized to a new, lower price level. While most people would not regard lower costs as a particularly unpleasant effect, a sustained dip in prices leads to deflation, which can be detrimental to businesses that have expanded on the assumption that their products are worth an established and secure amount of revenue.

Many analysts and reporters have been discussing America’s unsustainable standard of living; the idea that lavish spending far beyond one’s means has become habitual, leading to the demise of economic progress as we know it. Certainly, luxury markets have boomed, selling ordinary products by associating an impressive brand name to add value, and many feel that the existence of any demand for such products epitomizes the exorbitant splurging we have seen in recent years. On the other hand, some companies, such as Apple, have continued to see strong sales despite maintaining premium prices, in which case market demand is powered by the actual value of the product, or the idea that a purchased $300 iPod carries with it $300 of value and function. Saks Inc. recently made news when it became the first luxury brand retailer to cut prices; a violation of unspoken luxury designer code, and a downgrade from an opulent product to yet another brand indicating a lack of immunity from working-class financial issues. Where should a consumer look for value when prices and worth are exhibiting such variation after such a long period of stability?

I, personally, have become completely accustomed to this reduced scope of prices. When I see price tags cut in half, the value I associate with these same products is contemporaneously reduced. Though they clearly had very little choice, businesses and retailers have fallen into a pit, and the path to recovery will be extremely challenging to maneuver. Consumers have accepted these low prices as the new base level, and if asked to pay what many of these non-selling goods used to be worth a mere two years ago, it would seem nothing short of highway robbery. Now that customers have latched on, companies are stuck keeping price tags artificially low for quite some time, as any rise in price will trigger a massive loss of any remaining customers. With no other options after having participated in the price plunge initially, businesses must weather the spending downturn and hope their products will generate revenues rivaling times before the crisis, albeit certainly not in the near future.