Discounting is damaging UK firms, research says
Operators that offered "downturn discounting" may have collectively dented their profits by more than £20 billion and succeeded only in pricing themselves into a corner, new research suggests.
KPMG's Paying the Price for Recession report, which spoke to 200 UK business leaders, reveals that more than half of businesses reduced prices across the board, with 49 per cent starting price wars with rivals.
Close to two-thirds of surveyed firms said discounting only served to reduce their profits.
Conversely, businesses said that more effective pricing models could have increased their profits by eleven per cent.
The report also shows that discounting has changed the mindset of consumers in terms of their buying habits and expectations.
"Slashing prices may have helped the consumer during austere times but businesses have picked up the true cost," the report said.
Firms are struggling to see a way out, too, the study shows. Although 69 per cent of business leaders acknowledge that current price levels are not sustainable, they are all too aware that downturn discounting has "re-set the price baseline" for consumers.
Martin Scott, partner at KPMG Performance & Technology, said: "Firms have priced themselves into a corner and it will take time to return to pre-recession profitability."
"There is an art to pricing in an austere UK that is very different to pricing during the boom years."
According to research from UBS, food prices in the UK are rising by more than is justified. Commodity inflation would justify a rise in prices of between three and 3.5 per cent - but supermarkets have hiked their prices by between six per cent and 6.5 per cent.