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.
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.
Here’s why you should use promotional pricing as an effective marketing strategy:
1. Promotional Pricing creates a feeling of urgency, i.e. it urges the buyers to act in a now or 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 the creation of new customers. Often, when a product or service is launched, there is a section of customers that gets influenced and there is one that does not. 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 sale sign is enough to attract their glance and register the brand in their mind. This is especially effective in the case of new brands that are trying to create a foothold in the market. While other strategies may cost a fortune, this one is relatively cheaper, and is also tried and tested in the market. Thus, promotional pricing helps to bring customers into the arena of buyers.
3. Pricing advantage among competitors is yet another thing that the organisation practising promotional pricing can enjoy. Even if it is short-term, promotional pricing ensures that it almost eliminates competition for that period.
4. Promotional pricing drives better revenue and cash flow for the short-term. This is because of the increase in sales volume due to price reduction. The low price of individual products leads to higher revenue in bulk as larger 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 nonetheless effective practice is that of upselling, where the sellers convince the buyers to purchase products that are over the latter’s budget. Cross-selling, where 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 will expand their customer base by spreading the word.
Now, we know you are almost convinced. But, along with the advantages, come disadvantages too, and we’d do you a disservice if we didn’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 customers, especially new ones, become well-versed with the discounted prices, they will feel betrayed when you bring the price tag back to the usual level, because they have become so used 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 may come to expect discounts all the time, something which is not good for a brand as it could 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 customers become so used to the low pricing, and keep that parameter above the quality of the product, that the moment another competitor puts this practice into effect, the customer could 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 operate 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 fundamentals 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, so 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 your product before replicating this strategy. Remember, your main focus should be your product or service and not its price, because that’s what matters in the long run.