Is it Time for Businesses to Raise Prices, or Cut Them?

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As holiday shopping season nears, retailers are thinking about their pricing strategy. Will it be a season of deep discounts, or of subtle price increases? Observers are of two minds.

Theory one: Deflation fears + rising commodity prices = rising prices. Prices have been stagnant for so long, some economists fear deflation -- the cycle of price declines that can imperil our whole standard of living. 

When companies can't get as much for their goods or services, it means those companies can't pay their workers as much, so they have less income to spend. This in turn drives more companies to lower prices to what customers can afford, and cut their salaries, and so on. Consumer prices have been flat for a long time, which makes some worry that they will start to spiral down.

Meanwhile, prices for some raw materials have been going up -- think gold, currently at historic highs. Or coffee. Add it all up and something's got to give.

Some big retailers are ready to take the plunge and raise prices a bit. Starbucks, Jones Apparel, Phillips-Van Heusen and Goodyear Tire & Rubber Co. are among the companies looking to raise prices a bit in the coming months, a recent Wall Street Journal article noted.

Theory two: Interminable crummy economy demands price cuts. In the other camp are trendwatchers who believe the persistent downturn has permanently changed America's consumer mindset, and now all many shoppers want are bargains. Consulting firm Kantar Retail recently told CNBC retailers will need to get their "promo mojo" working to succeed this holiday season. 

What's your pricing theory for the rest of 2010 -- can you raise prices now, or will your store have the big red "sale" signs out? Leave a comment and let us know.

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