What is a Distress Price?

A distress price is the rate at which a product is sold as an alternative to discontinuing the product. This price is typically used when the demand for a product has fallen dramatically. This situation can arise when customer tastes have shifted or competing products have entered the market. A company may choose to employ distress pricing rather than stopping production when it can still set a price point that covers the variable cost of production, plus enough of a margin to pay for some of the entity's fixed costs. Continuing to sell with distress pricing also allows a business to avoid shutdown costs, such as paying severance to employees. A further advantage of distress pricing is that it allows a business to maintain market share and in-house expertise on the product in question, which may be useful if competing products are withdrawn from the market; the firm then has a presence in a market in which it has a dominant competitive position.