What is Promotional Pricing?
Promotional pricing is a powerful sales tool, used to increase the demand for a product, particularly among price-sensitive consumers. This marketing strategy involves reducing prices by a certain percentage for a limited period, hence, positioning an item as on sale. This tactic is often employed when launching a new product line as a way to incentivise sales. Today, we'll explore promotional pricing in detail and take a closer look at its forms, benefits, and drawbacks.
Any decision to offer price discounts on certain products or brands should be well-calculated. It is crucial to analyse the feasibility of the discount, considering factors like profitability, impact on brand image, and the expected increase in sales volume. The strategy banks on the idea that the initial loss incurred due to the price reduction will eventually be offset by an increase in sales and customer acquisition.
Different Flavors of Promotional Pricing
Buy One Get One Free (BOGOF)
BOGOF is an extensively used strategy designed to attract customers to a specific product, brand, or store. It encourages customers to make purchases by offering perceived value. However, one potential pitfall of this technique is that consumers may stockpile the product during the promotional period, which could adversely impact future sales and brand value.
Coupon-based discounts have been the linchpin of price promotions for a long time. These are particularly effective in cultivating loyalty towards a brand, as only those customers who present the coupon can avail of the discount. This method can also help in reaching out to potential new customers.
This direct method involves offering a price reduction directly at the point of sale. This approach communicates the value proposition effectively by emphasizing the reduced price.
These programs are designed to reward customers based on the frequency and volume of their purchases. Loyalty schemes cultivate a sense of belonging among customers, encouraging them to make repeat purchases and establish a long-term relationship with the brand.
These are typically targeted at the B2B market, where businesses offer price promotions to other businesses. This category includes strategies such as percentage-off promotions, volume deals, and other incentives tied to the quantity of purchase.
Other Promotional Strategies
Other creative forms of promotional pricing strategies include offering free financing, competitions, free gifts, and partnerships with other products or social causes.
The Impact of Promotional Pricing: Pros and Cons
- Increased Customer Traffic: By enticing budget-conscious customers, promotional pricing can significantly amplify in-store or online traffic. The primary aim is to convert this temporary increase in footfall or web traffic into a permanent customer base.
- Increased Value Perception: The psychology of pricing reveals that reduced prices make customers perceive that they're getting a better deal, thereby encouraging them to make purchases even if the discount is marginal.
- Revenue Growth: Promotional pricing can stimulate a short-term increase in revenue, particularly useful when businesses need an immediate influx of cash to cover expenses or debt.
- Retention and Loyalty: Promotional pricing can effectively foster customer loyalty. Strategies like loyalty schemes and targeted rewards encourage repeat purchases, leading to higher customer retention rates.
- Reduced Profit Margins: While discounts can lead to increased sales, they can also result in reduced profit margins.
- Price Expectations: Constant discounts can create an expectation of lower prices among customers, making it challenging to revert to regular pricing.
- Brand Perception: Over-reliance on promotional pricing can raise doubts about product quality, affecting the overall brand value.
- Short-Term Focus: Focusing heavily on promotional pricing can overlook the importance of building long-term customer relationships, potentially leading to a less sustainable business model.
- Price Integrity: If not executed strategically, promotional pricing can erode the perceived value of a product or service, compromising price integrity.
Strategising Promotional Pricing for Maximum Benefit
Promotional pricing is a powerful tool, but if overused or implemented poorly, it can lead to a price orientation among customers, thereby diminishing the perceived value of your brand. Thus, it's critical to have clear objectives when implementing promotional pricing, considering how these promotions fit into your broader marketing strategy.
It's essential to consider how promotional pricing affects your brand. Too frequent price discounting can devalue your brand, while poorly chosen free gifts can do more harm than good. On the other hand, a carefully planned loyalty scheme can strengthen your brand image while providing valuable data about your customers' purchasing behavior.
Promotional pricing is a multifaceted tool that can drive sales, foster customer loyalty, and provide a competitive edge when used judiciously. However, it's crucial to remember that promotional pricing is just one component of a comprehensive pricing strategy. It should complement other aspects of your marketing strategy, taking into account product value, customer preferences, market trends, and overarching business objectives. Businesses should continuously assess and adapt their promotional pricing strategies in response to market dynamics and customer behavior.
In the end, promotional pricing isn't about constant discounts or endless sales. Instead, it's about strategically creating opportunities for customers to explore the true value of your products and services, building a solid foundation for lasting relationships, and driving sustainable growth for your business.
Remember, the goal isn't just to sell a product at a lower price; it's to create an impression of value that lasts beyond the promotional period, encouraging customers to come back even when the price returns to normal.
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- Pricing Strategy: how to price a product, Bill McFarlane 2012.
- Pricing Strategy: setting price levels, managing price discounts and establishing price structures, Tim Smith 2011.
- Pricing with Confidence: 10 ways to stop leaving money on the table, Reed K. Holden and Mark Burton 2014.
- Pricing Strategy: tactics and strategies for pricing with confidence, Warren D. Hamilton 2014.