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The Problem with Price Cutting |
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Weitzel and Jonsson note that when companies engage in price cutting without making serious improvements to their production processes, or other factors of their cost structure, the effect can be very debilitating. What tends to happen is that increased demand puts more and more wear and tear on a company's equipment and staff, while there is less and less revenue to pay for equipment maintenance, overtime pay or hiring. In essence, the company ends-up "feeding off of itself" in order to satisfy increased demand (from customers who focus on price instead of quality), which is an inherently limited and self-defeating strategy.
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Weitzel, William., Jonsson, Ellen. "Decline in Organizations: A literature integration and extension." in Administrative Science Quarterly. Graduate School of Business and Public Administration, Cornell University. Ithaca: NY. March, 1989.
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