Distress price

Distress price,

Definition of Distress price:

  1. A company will sometimes choose to mark down an item's price rather than discontinue operations completely because even at a distressed price, those revenues will help with covering some of the fixed costs associated with running the business. However, if the item cannot be sold at a price greater than its variable cost of production, discontinuing the item is usually in the firm's best interests. Companies that employ distress pricing cannot afford to use the pricing strategy as a business strategy. Distress pricing is meant to be a temporary measure while it shifts production, changes its operations or while waiting for market conditions to improve.

  2. A distress price is when a firm chooses to mark down the price of an item or service instead of discontinuing the product or service altogether. A distress price usually comes about during difficult market conditions when the sale of a particular product or service has slowed down dramatically, and the company is unable to sell enough of it to cover the fixed costs associated with doing business. Utilizing a distress price for a product of service is meant to spur sales to generate enough cash flow to at least cover a company's operating costs.

  3. A markdown in the price of an item instead of ceasing its production. Even though sales have slowed, continuing the production of the item is preferable as it covers some of the fixed costs of the product. The distress price is usually the variable cost of the product plus a minimum mark-up.

Meaning of Distress price & Distress price Definition