Promotional Pricing: A Peek into the pros and cons of PRICE PROMOTIONS

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Human mind works in mysterious ways. It is a myriad of emotions, yet embraces a plethora of practicality. It’s the mind which tells you to desire, yet the same which encourages you to prioritise your wants over it. The ones who strike a balance between the two by battling the labyrinths therein, come out as winners. Marketing and promotions are no different. Psychological pricing is a perfect example of that. Anyway, that’s for another time to discuss. This time, we are looking into another 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 the questions.

Let’s start with the basics. What is Price Promotion? 

To put it simply, price promotion is a marketing technique wherein 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 way of placing it in the market is by way of the (in)famous yet effective ‘Buy 1 Get 1’ offers. Two at the price of one, who wouldn’t relent, right? It’s a promotional strategy that hits the psyche of the a chunk of customers, the middle class, and has been quite successful in doing so. 

Promotional Pricing is a tactic of getting into the psyche of the customers and convincing them 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 sustain, or your customer base will either shift or fizzle. 

So now, the important question. Should you go for it or should you not?

Weigh both the pros and cons of it before deciding whether or not you want to for it. Let us help you by charting out both.

THE PROS

Here’s why you should swing towards promotional pricing as an effective marketing strategy:

  1. Promotional Pricing creates a situation of urgency, i.e. it urges the buyers to act in a now and never kind of a situation. Everyone wants the best product at the lowest price, and it does just that by selling the product effectively, and sealing the deal when it comes to the price.

  2. Another big advantage is creation of new customers. Often, when a product or service is launched, there is a section that gets influenced, and then there is one that is not. Out of the latter, there is a percentage which does not indulge owing to the price. As for those who don’t buy, a big, fat sign of sale is enough to attract their glance and register the brand in their mind. This is specially effective in case of new brands that are trying to create a foothold in the market. While other strategies may cost a bomb, this one is relatively cheaper, and tried and tested in the market. Thus, promotional pricing helps in bringing them in the arena of buyers.

  3. Pricing advantage amidst the competitors is yet another thing that the organisation practising promotional pricing can enjoy. Even if it is for a short-term, promotional pricing ensures that it almost eliminates competition for that period.

  4. Promotional pricing drives better revenue and cash flows for the short term. This is due to the increase in volume of sales due to price reduction. The low price of individual product leads to higher revenue in bulk as more quantities get sold.

  5. Liquidation of old inventory through sale is yet another advantage that promotional pricing offers. Often during sale periods you see bifurcation of percentages. The old inventory is a part of those highly-discounted categories and they fly off the shelves in no time, figuratively and metaphorically.

  6. A little-lesser known but nevertheless effective practice is that of upselling, wherein the sellers convince the buyers to purchase products that are over the latter’s budget. Cross-selling, wherein an add-on item is sold along with the original product is another effective promotional pricing practice. These sellers usually rely on the quality of their upscale products and offers, hoping the buyers would expand their customer base by spreading the word.

The CONS

Now, we know you are almost convinced. But, along with the advantages, come disadvantages too, and we’d put you at short if we don’t introduce you to those. So, after the awesome pros, here are a few cons that you need to be wary of, should you ever try the tactic of promotional pricing:

  1. Promotional pricing can greatly affect your customers’ price perceptions and loyalty. While it may not affect a new brand so much, it can hit hard if you are an existing brand hoping to revolutionise the market with your new product or service. Also, once the customers, especially the new ones, becomes well-versed with the discounted prices, they will feel betrayed once you bring the price tag to the usual one, because they have become so prone to the reduced one. This in turn can affect their loyalty towards the brand or the product.

  2. Demography confusion is yet another thing you will have to face. Every brand has a strategy, a part of which is finding its target audience, based on certain demographic factors. 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. Also, they would come to expect discounts all the time, something which is not good for a brand as it may make your customers apathetic towards your product’s quality, which is not something you’d like.

  3. Long-term success is seldom the result of promotional pricing. This is because the customers become so used to the low pricing, and are keeping that parameter above the quality of the product, that the moment another competitor puts this practice into effect, the customer would leave your pool and jump into theirs. Not a good position to be in.

  4. Promotional pricing can also hamper your relationships with your competitors. Yes, while they are your competitors, they aren’t your enemies. Given you have to run in the same circle and strike deals with each other, this strategy can alienate you from that group which is not good if you want to stay up to date with the nitty gritties of the industry.

Well, the disadvantages may be serious, but that certainly doesn’t mean that you shouldn’t go for promotional pricing. It is a strategy, treat it as such. Don’t go overboard with it and strike a balance in its frequency. Most importantly, wait for your customers to get used to the quality of the product before replicating the strategy. Remember, your main focus should be your product or service and not its price, because that’s what matters in the long run.



CUSTOMER EMOTIONS IN ONLINE RETAIL

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The primary objective of this research was to investigate website design imperatives that were vital from a customer perspective. Customer journeys were constructed at the core of this investigation. Customer journey mapping itself is a linear, time-based, depiction of the main stages that a customer goes through while interacting with the retailer

What we did

Participants were required to select their current emotion from a table of emotions. Thereafter they were provided with a task list to complete on one of two websites. The participants' interactions with the website along with a video of their face were also recorded during the experiment using web usability software. They could check out one piece of their choice at the end of the experiment. Further, the participant was required to describe their emotions at each stage of the journey by selecting from a set of emotions. The set of emotions employed in the study were taken from Steenkamp and Laros (2003) hierarchy of consumer emotions.

What we Found

Through an analysis of customer emotions at the five stages of the customer journey (site entering, browsing products, assessing products, managing cart and checkout) specific trends emerged related to consumer emotions. All participants exhibited positive emotions during the first three stages of their online customer journey, i.e., website entering, browsing products and assessing products. However, during the final stages of their online customer journey, i.e., managing cart and checkout, many of the participants exhibited negative emotions such as worry, helplessness and frustration. Positive emotions were consistent in the first two stages. The main website features that contributed to positive emotions were features such as the ability to filter products by size and view by price based on personal requirements. These findings are explicitly outlined in the thesis. Additionally, product variety also contributed to happiness and positive emotions. There were other features such as the trends sections (sections on the website showing products in use) which further captivated the participants, leading to positive emotions. Some participants during the stage of assessing products did exhibit negative emotions of worry and helplessness. The cause of negative emotions was primarily due to the lack of enough product images and product information. Besides some items, the participants wanted were out of stock resulting in negative emotions.

Respondents did not purchase an item if there wasn't enough product information and images. Literature conceptualised this concept as perceived product risk. Product information and presentation helps eliminate the uncertainty associated with online shopping. Finally, as participants progressed in their online shopping journey towards the checkout stage, more participants exhibited negative emotions of helplessness and worry. The participants that displayed negative emotions indicated they were concerned about the delivery time, not receiving similar items and about making the right purchase choice. Additionally, at checkout, respondents indicated that retailers asked them to provide information they did not require making them worried. On average, a participant spent 5.21 minutes checking out their items, going through several pages of forms and completing twenty-four fields of information before their order was completed. The volume of information and time associated with checkout resulted in negative emotions.

Online consumers seek connivence and often want economise on time. The level of complication associated with the checkout process determines whether the customer will complete their order. The number of forms required, the amount of personal and financial information required factor in completing an order.

Clothing Rental:The Commercial, Economic and Environmental Solution 

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enviornmental impact

A monstrous 235 million items of unwanted clothing were dumped in UK Landfill 2017 (World Economic Forum, 2018). Overconsumption in the economy is posing a serious issue from both a commercial and environmental perspective.


Overconsumption

Moreover, as consumers reach their saturation point of consumption they are increasingly becoming more aware of their purchase patterns. In general, the economy has seen a slow down in consumption.


Wear and Return

Further many retailers are also seeing an increase in consumers wearing items and returning them. This problem of wear and return poses serious supply chain issues for retailers.

 

Given the commercial, environmental and economic challenges associated with online retail does clothing rental offer a method to disrupt clothing retail and create a more sustainable business model for retailers. As Urban Outfitters sets to disrupt the affordable clothing sector by renting clothes to its customers. Urban outfitters is launching Nuuly, the clothing rental subscription service, Customers will be able to rent six items of clothing per month at $88.

Retailers looking to adopt a similar approach to tackle the freeriding associated with online shopping should consider the following.

THE SUBSCRIPTION ECONOMY

According to Royal Mail, the subscription box market is forecast to grow to £1 billion by 2022. In 2017, the subscription box market was valued at an estimate £583 billion. 6/10 business in the UK are looking to diversify their offering to offer subscription services (Retail Times). Currently, 24% consumers are signed up to a subscription service, with popular subscriptions including beauty and grooming products.

  • Clothing Rental is set to be worth $1,856 Million globally by 2023 (Allied Market Research)

  • Global Online Clothing Rental Market to Surpass US$ 3,299.6 Million by 2026 (CAGR)

 

The operational And commercial issues of diversifying into clothing rentaL

While there is already an established practice of offering clothing rental among high end brands, achieving economies is likely to be more difficult for affordable brands.