Promotional pricing can be an extremely effective way to boost sales and attract new customers. But this pricing strategy also comes with some risks. In this comprehensive guide, we’ll dig into the key pros and cons of using promotional pricing for your business.
What is Promotional Pricing?
First let’s quickly define what we mean by promotional pricing. This refers to temporarily lowering prices on products and services as part of a promotion or sales campaign.
Common examples include:
- Offering a 25% off sale for a limited time
- Running a buy-one-get-one (BOGO) deal
- Giving new customers 20% off their first purchase
- Having seasonal sales around major holidays
The goal is to create a sense of urgency and increase demand during the promotional period. Once the promotion ends, prices go back to their original levels.
Now let’s look at the potential upsides and downsides of using this strategy.
The Pros of Promotional Pricing
1. Spikes Sales Volume
The most obvious benefit of running promotions is that they lead to spikes in sales during the discounted period. Customers are motivated by the feeling that they’re getting a good deal.
Promotional pricing takes advantage of the human tendency to value scarcity Shoppers worry about missing out on the lower price before the promotion expires This fear of missing out drives more purchases,
2. Attracts New Customers
In addition to driving sales from existing customers, promotional pricing brings in new buyers. The lower price provides an incentive for first-time customers to give your business a shot.
Occasional customers may be convinced to make repeat purchases if they see a good deal. Promotions also introduce your brand to entirely new segments who find your regular prices too high.
3. Moves Excess Inventory
Another benefit of promotions is clearing out old or excess inventory. Rather than selling products at a loss, you can offer discounts to sell leftover items quickly and efficiently.
Seasonal sales are great for moving inventory from the previous season that didn’t sell at full price. BOGO deals help sell overstocked products that are close to expiration. This frees up warehouse space for new inventory.
4. Gains Market Share
Running strategic promotions allows you to flex your pricing muscle and steal market share from competitors. You can use loss leader pricing or deep discounts to undercut competitor prices on hot-selling items.
This forces rivals to match your promotional prices or risk losing sales. Aggressive promotional pricing makes you look like the category price leader.
5. Introduces New Products
Promotional pricing provides a smart way to launch new products and gain exposure. Rather than debuting items at full price, offer introductory sales or coupons.
This encourages customers to try new products at lower risk. A promotion generates buzz and word-of-mouth around new offerings.
The Cons of Promotional Pricing
1. Erodes Brand Value
The number one risk with promotions is that they can cheapen your brand image. Customers get used to periodic discounts and resist paying full price.
If you run too many promotions, buyers waiting for the next sale rather than paying today’s prices. This conditioning results in brand commoditization over time.
2. Expectation of Discounts
Related to brand erosion, promotional pricing sets the expectation that discounts will always be available. Customers postpone purchases while waiting for the next sale.
After one promotion ends, they hold out for the next one. This makes it very difficult to sell at full price in between promotional periods.
3. Short Term Thinking
A reliance on promotions encourages short term thinking around immediate sales spikes rather than long term brand building. Promotions provide a quick sales injection but hinder sustainable growth.
And constantly ramping up promotion levels leads to a vicious cycle. Brand loyalty declines as customers only buy when items are deeply discounted.
4. Price Wars
Aggressive promotional pricing can kick off price wars between competitors. If you push discounts too far, rivals will respond with even lower prices to protect share.
This dynamic devalues the whole category and compresses profit margins across the industry. Companies get stuck competing mainly on price rather than quality or service.
5. Cheapens Perceived Value
Steep discounts have a psychological impact on consumers. A 50% off promotion makes shoppers question why they should pay full price again.
Large price drops signal that an item has little underlying value. Customers will balk at paying regular prices after deep discounts are offered.
6. Costs May Exceed Incremental Sales
Promotions compress margins due to lower sales prices. The incremental sales volume may not fully offset reduced margins. Or worse, competitors match your prices so you gain no advantage.
If additional sales don’t cover the incremental discount costs, promotions actually destroy profitability. Do the math before running loss leader promotions.
Tips for Effective Promotional Pricing
Now that we’ve covered both pros and cons, here are some best practices for deploying promotions successfully:
- Clearly communicate end dates so customers don’t only buy during sales
- Gradually wean customers off discounts over time
- Use promotions to strategically move excess inventory
- Introduce new products with limited-time discounts
- Monitor competitor pricing reactions to avoid price wars
- Calculate the incremental margin impact of promotions
- Limit the frequency and depth of discounts
- Have strict rules around promo approval to protect margins
The bottom line is that promotions must be used judiciously and strategically. Carefully weigh the risks vs. potential gains before launching discount pricing. Monitor results closely and adjust tactics over time.
With the right approach, promotional pricing allows you to accomplish goals like moving excess stock, stealing share, launching new products or hitting volume targets. Just be cautious of overusing discounts at the expense of long term brand equity and margin erosion.
Promotional pricing can be a high-risk, high-reward strategy. The temporary sales and price reductions stimulate an urgent buyer response and lead to spikes in sales volume. But overly frequent discounts condition customers to only buy on sale. This devalues the brand, reduces loyalty and compresses margins.
Weigh all the pros and cons before using promotional pricing for your business. Be strategic with discount levels and frequency. Closely track results and competitor reactions. And remember that sustainable growth comes from delighting customers, not solely from promotions.
What’s your take on promotional pricing? Do you find it helps or hurts your business? Share your thoughts and experiences in the comments below!
Let’s start with the basics. What is a Price Promotion?
To put it simply, price promotion is a marketing technique where the price of a product is kept reduced for a short period to build customer loyalty and swell sales volume, and then increased later on. Another popular price promotion in the market is by way of the (in)famous yet effective ‘Buy 1 Get 1 Free’ offers. Two for the price of one, who wouldn’t relent, right? It’s a promotional strategy that hits the psyches of a chunk of customers. Promotional Pricing is the tactic of attracting customers, first with the low figures on the price tag, and then layering it up with good quality. The latter part is extremely important because while a low price tag may help you infiltrate the market, only good quality can help you maintain that, otherwise your customer base will either shift or fizzle out.
So now, the important question. Should you go for it or should you not?
Weigh both the pros and cons before deciding. Let us help you by charting out both.
Promotional Pricing: A Peek into the pros and cons of PRICE PROMOTIONS
The human mind works in mysterious ways. It is a myriad of emotions, yet it embraces a plethora of practicality. It’s the mind that tells you to desire, yet it also encourages you to prioritise your necessities. The ones who strike a balance between the two by battling with the accompanying labyrinths, come out as winners. Marketing and promotions are no different. Psychological pricing is a perfect example of that but that’s for another discussion. This time, we are looking into a different psychology, that of price promotions. What is it? Does it actually work? What about the trust factor? Well, you can stop fretting for we have got the answers to all these questions.
What is Promotional Pricing? (Strategy Pros, Cons & Examples)
What are the pros and cons of promotional pricing?
Promo pricing will attract new buyers to your brand. According to Statista, 62% of consumers try a new store or online retailer during the holidays because of better prices, and 44% try a new store because of coupons or discounts. One of the biggest pros of promotional pricing is that it can and will attract new customers to your business.
How can promotional pricing improve sales?
When companies want to rejuvenate sales for a product, they often implement promotional pricing. This strategy involves selling a product for less than its normal cost via discounts, coupons or loyalty cards. Implementing this strategy effectively can help you increase sales and customer loyalty without affecting long-term profits.
Why is frequent sales & Promotional pricing a problem?
Frequent sales and promotional pricing creates a lot of confusion in that aspect, because customers will solely come for the low prices rather than the product itself.
What is promotional pricing?
Promotional pricing is an advertising strategy that sells a product for less than its normal cost. The “normal” cost might be the company’s usual price for the product or the average price among competitors. Regardless, the affordability encourages consumers to buy the product and makes them feel like they are getting a good deal.
