What is a potential disadvantage of using high-low pricing?

High-low pricing is a strategy where products are offered at both high regular prices and significantly lower promotional prices. While this can attract customers looking for bargains, it often leads to fluctuating profit margins for several reasons. When prices drop significantly during promotions, the profit margin on those sales is typically reduced, especially if the sales volume does not increase proportionately.

In contrast, during periods when products are sold at their higher prices, profit margins may improve, but the overall revenue flow may not be stable as it heavily relies on promotional events to generate sales. This fluctuation can lead to unpredictable financial outcomes, making it difficult for businesses to manage their finances effectively. Additionally, businesses may be challenged in forecasting profits and managing inventory due to these constant shifts in pricing and profit margins.

This strategy can create variability in profitability, making it a potential disadvantage for companies if they cannot balance their high and low pricing effectively.