Perception of value – What do drastic price cuts mean?

There are times when, as a consumer, I can care less why the price of a product is drastically cut.  I don’t care if it fell off the truck, if it’s about to become obsolete or what.  I’m just excited to be the lucky recipient of this delicious discount that has seemed to fall out of the sky and into my lap.

However there are certain situations in which I’m suspicious when I see a price cut that is a little deeper than normal.   What’s wrong with the product?  Am I still getting the same quality?  Why was it so high to begin with?  Did something change?  My perception of the value of the product is called into question.  And that’s where I’m at after hearing that Microsoft has chopped the price of their hosted software by 50% in some cases.  It leaves a girl wondering….WHY?

This isn’t a rhetorical question. I don’t know the answer.  I do, however, have some random thoughts:

• The competition for MS Exchange continues to grow and quite honestly, most offer mail servers at a fraction of what Exchange costs – could this be a driving factor behind their price cuts?  They say no.  According to an article on cnet.com, MS VP Chris Capossela says the move has less to do with competitive pressure than that “it’s the price that customers are really excited to buy our suite at.”  They seem very similar to me or at the very least, one is a result of the other.  So I’m still wondering why…
• And how will the consumer view the new price model?  According to a study from The Futures Company, decreasing prices can have a negative effect on brand perceptions.  For example, “when asked what they assume when a brand lowers its prices during tough economic times, 70% of consumers say, “The brand is normally overpriced.”  Was it overpriced?  Or has something in the business model significantly changed to make a cut like this possible?

I don’t know.  But I do know that all we really have as a brand is our perceived value to the consumer.  And I gotta say…if I were a consumer of MS Exchange, this one would leave me scratching my head, not necessarily thanking my lucky stars.