Are price cuts at Target, Walmart & other retailers a sign of generosity or price gouging?

Each has abruptly slashed prices on thousands of household necessities – namely, groceries – with Target executives noting that one in three Americans are maxing out their credit cards.

The trend has sparked a contentious debate, with some lauding the price cuts as a relief for cash-strapped consumers, and others questioning the underlying motivations of the retailers.

President Biden entered the discourse by asserting on social media that Target’s grocery price reductions are a testament to his administration’s long-running corporate pressure campaign.

President Biden called on grocery chains making record profits to lower prices for consumers – and they’re answering the call. @POTUS is calling on other big corporations to join these leaders and lower grocery prices to give families more breathing room. https://t.co/SyjAJ7YMzJ

— The White House (@WhiteHouse) May 20, 2024

However, soome consumers have taken to social media to argue that the development is evidence of “greedflation,” a theory that suggests companies often intentionally keep prices artificially high to boost profits and, potentially, fuel inflation. “The fact they can just decrease prices proves they were gouging everyone and still are,” reads one scathing post on popular meme page @ight.

Industry experts unpack the economic, marketing and corporate drivers behind these price cuts.

A post-pandemic recoup?

There‘s, of course, a broader backdrop to the story.

At the macroeconomic level, pandemic-induced supply chain disruptions initially drove up costs of raw materials – a shift that incentivized retailers to pass price increases onto consumers in 2021 and 2022.

While costs stabilized in 2023, retail prices remained high as manufacturers held onto elevated prices. This led to consumers seeking refuge in discount retailers like Aldi, Lidl and SaveMart.

All of this has led to the current situation – where larger companies are cutting prices to regain their market share. “You are seeing branded manufacturers investing in promotional intensity to try and drive volume growth within the categories they serve,” says Alasdair James, chief commercial officer at retail technology company Swiftly. “This is allowing retailers to reduce prices on a temporary basis, and in a few instances, reduce prices more permanently.”

Reilly Newman, brand strategist and founder of branding studio Motif Brands, concurs. In his view, the price cuts represent a “very interesting ‘marketing campaign’” by these brands. He adds: “The ‘price cutting’ campaign has also garnered quite the PR, as it has reached many headlines and most likely driven increased web and foot traffic.”

Newman emphasizes that even small discounts ranging between five and ten percent can wield significant influence, capitalizing on consumer psychology akin to the allure of Target’s renowned $5 section or Costco’s exhilarating “treasure hunts.”

Or empathy-driven marketing?

Some experts, however, see good intentions where others see ‘greedwashing.‘

Price cuts, some argue, don‘t evidence shallow PR plays, but empathetic gestures aimed at forging enduring connections with consumers.

“The power of marketing in this scenario is smart,” says Sunny Bonnell, founder and chief executive of brand transformation company Motto. “It’s not about announcing lower prices; it’s about weaving a strategic and story-driven narrative that highlights empathy and consumer-centric values. Effective marketing can transform these price cuts into a powerful statement of solidarity with consumers.”

Bonnell, for her part, is optimistic about where the trend could lead. She suggests that the industry could witness a kind of ripple effect, where an industry-wide adoption of such strategies benefits both consumers and the economy at large.

“If other companies follow suit, we could see a significant impact on market dynamics and potentially ease inflationary pressures. This could mark the beginning of a new era in competitive pricing and value offerings, driving a broader movement that benefits consumers and stabilizes the economy.”

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