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Promotional Pricing: Pros, Cons & How to Implement

By Priceva
on August 8, 2022
Out of many marketing strategies, one never fails to attract customers — promotional pricing. People love great deals, especially when they can buy their favorite brands’ products at a fraction of the cost. However, promotional pricing is more complex than it seems. In this article, we discuss how it differs from discounts, how this strategy works, the ways it can be implemented, its advantages and drawbacks, and pro tips for executing it successfully.

What is Promotional Pricing?

Promotional pricing is a way of generating buyer interest and sales by offering discounts for certain goods. Customers can access a product or a service below its usual price, which stimulates urgency of purchase decision. Everyone wants to take advantage of promo pricing and buy products on sale because that allows them to save money.

This pricing method has been used for decades with retailers offering promo deals for bulk purchases, as part of a seasonal sale, or for the purpose of selling out their excess inventory. The most common types of promotional pricing are ‘buy 1 get 2’, discounts, and coupons used by e-commerce stores.

Promotional pricing is an efficient way of temporary repricing that attracts a large share of your audience and boosts sales volume.

Penetration Pricing vs. Promotional Pricing

Promotional pricing is typically used by established companies for existing products in order to increase their sales volume. Penetration pricing, on the other hand, is usually applied by startups or when a new seller enters the market.

Both of these approaches are aimed at generating hype around a company’s products and improving sales. However, promotional pricing gravitates towards revenue growth and attracting customers, while penetration pricing’s major goal is to introduce a product, win a market share and create a client base.

Promotional pricing is recommended for companies that have already succeeded in selling certain products. In this case, users already know the brand’s goods and don’t hesitate about making a purchase when they see discounts.

Promotional pricing can also serve to penetrate the market when a company introduces a new product. In this case, promotional pricing serves as a specific type of penetration pricing strategy.

How Does a Promotional Pricing Strategy Work?

Promotional pricing increases the product’s value in customers’ eyes thanks to a temporarily lowered price: potential buyers are motivated to benefit from a great deal while it is on sale. There are two factors contributing to the sales boost: the limited sales period and the scarcity of supply. Scarce products are psychologically perceived as more valuable than abundant ones.

By offering a lower price, the seller targets cost-sensitive customers and gets a bigger market share. While it is usually applied to existing products that buyers already know and like, promotional pricing can also be used by established brands for introducing a new item to the market.


Types of Promotions

A company can set promotional prices in different ways, though all of them boil down to offering a lower-than-regular price. It can be a direct discount or other programs. Let us observe the most widespread mechanics of promo pricing.

Price Discount

The seller deducts a percentage from the original price — this raises the demand among price-sensitive consumers. As a rule, retailers use this approach when the product is elastic, i.e. a lower price triggers a high number of sales. Also, discounts work well during the peak season: a higher sales volume results in a higher stock turnover rate. This allows the company to save on warehouse services and compensate for lower profit margins caused by discounted prices.

Loyalty Cards

Loyalty programs allow devoted consumers to get a discount after showing their card, or can be applied automatically for current web store users. This sort of promotion encourages visitors to shop more because every purchase grants them bonuses. The more points buyers get, the more they save or increase their chances of getting a prize. This strategy is commonly used in retail stores.

Buy One, Get One Free

There might be different variations of this approach, for example, clothing stores have deals like ‘1 + 1 = 3’. The major idea behind this approach is to motivate customers to purchase two or more products at once. This is a mutually beneficial deal because the buyer saves a fair sum of money, and the retailer generates more sales. Also, companies use this sort of promotion to attract new customers and increase their market share.

Coupons

In offline retail, coupons are printed in magazines and newspapers, while e-commerce projects partner with other websites like USA Coupons to spread promo codes instead. Also, coupons and promo codes can be granted to customers after making purchases to encourage repeat sales. These deals can be used to promote sales of particular products or categories.

Seasonal Sales

Seasonal deals can be viewed as an extended version of flash sales: they are usually introduced to sell a certain assortment of goods at specific times of the year. For example, clothing stores organize seasonal sales four times a year before each season — summer, fall, winter and spring. A lot of retailers run Christmas and New Year sales, offering presents and warm clothes with a discount.

Mind that the promoted products should be related to the season. Customers will be confused if they see discounted sunglasses in December, or winter coats on sale in July.


The majority of market segments exhibit more reactions to seasonal offers, so this sort of promotion is very effective when a store needs to attract a large chunk of customers and boost sales of certain items.

Advantages of Promotional Pricing

Promotional pricing can enhance a marketing strategy because it is very efficient for attracting loyal customers and acquiring new ones. Below, we will describe how this is possible.

It Raises the Sense of Urgency

Promotional pricing forces customers to act as soon as possible: with product scarcity conditioned by a time-limited offer, they strive to make a purchase before the store runs out of inventory. Everyone wants to buy a product at the best price, which is why promotional pricing attracts customers right from the start of the campaign. You can enhance the results by emphasizing the scarcity of supply and pre-sale marketing.

It Attracts New Customers

The loyal buyers who are already familiar with the product will be glad to buy more of it when it is on sale. For new customers, the product itself has no value yet, but a discounted price can motivate them to try it. A sale is sufficient to catch their attention and imprint the brand in their memory.

It Can Kickstart Sales of a New Product

If you have just launched a new item in your catalogue, promotional pricing can be a great part of your launch plan. It allows the audience to test the new product and even if people don’t like it, they won’t regret buying it because they did not overpay. Without a promo period, a new service or product might stay in the shadow of your existing assortment, so use discounts to get exposure.

It Allows To Get Rid Of Old Stock

Companies are interested in selling off the old stock in order to declutter shelves in their stores and save on warehousing fees. With promotional pricing, older items are easier to get rid off without losing much profit. Grocery supermarkets often launch promotions on products that are close to their expiration date. Clothing stores also offer discounts on previous collections when the peak season is over.

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Disadvantages of Promotional Pricing

While promotional marketing helps businesses attract more customers and increase sales volume, this pricing strategy comes with a few drawbacks that should be taken into consideration.

It Might Hinder Long-Term Business Growth

Bear in mind that promotional pricing is only a temporary measure for advancing your product’s popularity and attracting an audience. It is not suitable for sustainable long-term business growth. Once you leverage discounts, your competitors may follow your lead and come up with even better deals, which may trigger customer outflow.

For this reason, promotional pricing should be implemented as a part of a well-thought-through strategy rather than a simple attempt to increase sales.

It Can Spoil Brand Image

Bear in mind that promotional pricing is only a temporary measure for advancing your product’s popularity and attracting an audience. It is not suitable for sustainable long-term business growth. Once you leverage discounts, your competitors may follow your lead and come up with even better deals, which may trigger customer outflow.

For this reason, promotional pricing should be implemented as a part of a well-thought-through strategy rather than a simple attempt to increase sales.

Chaotic Promotions Affect the Market

When a retailer makes incongruous discounts that are not part of a well-thought-through marketing strategy, the balance of supply and demand on the market gets shattered, and the normal price is distorted. That may disrupt your business connections with other market players.

Although they are your competitors, you are not enemies. All in all, you operate in the same niche and are interested in keeping prices fair to make enough profit. Too aggressive discounting policies can lead to price wars and spoil your relationships with peers, which can hinder your development on the market.

Can Affect Price Perception And Customer Loyalty

This point is mostly applicable to established companies that have already built an image. Low pricing helps to attract new customers, but they get accustomed to discounts. When the price is raised back to its original level, sales volume drops because new customers do not want or cannot afford to make a purchase. As for the loyal buyers, discounts can spoil the brand’s image and value in their eyes.

Best Practices for a Promotional Pricing Strategy

In order to run a successful promotional campaign, you should consider a few aspects that will help you define the right timing and pricing.

Consider Your Budget

Even though promotional pricing attracts more buyers, it does not necessarily increase revenue. In order to boost your profit margin, you need to set clear business goals and calculate the price so that the entire campaign will be financially worth the effort. Make sure your business can stand the risk posed by lowering the prices.

Find the Perfect Timing

People love buying discounted products, but a good deal should be offered at the right moment — that will multiply the efficiency of your discounts. Find out when a promotion will make the most sense for your audience. For example, you can offer 50% off winter coats in November or December, or cut the price of electronics on Christmas Eve.

Instead of setting random discounted prices, consider the context of your promotional campaign: it can be a season peak, Black Friday, new product launch, or even some media event.

Use Software to Track Prices

In order to implement promotional pricing successfully, you need meticulous planning and accurate pricing calculation. Before and after you launch your campaign, you need to track prices and analyze a number of financial metrics, including the supply and demand curve. Pricing software can automate market analysis and help you maintain control over your pricing policies.

The price intelligence tool by Priceva enables users to receive relevant information about pricing across local and global markets. Companies can analyze the cost of certain goods and product categories, compare competitors’ rates, and obtain information about rivals’ promotional activities, market price positioning, and MAP monitoring. All this data is delivered in the form of comprehensive charts in an easy-to-navigate interface. This way, you can save time and focus on business development.

Conclusion

Being one of the most commonly used marketing practices, promotional pricing allows brands to achieve multiple goals in one go: attract new customers, retain loyal ones, and improve revenue metrics. However, you need to figure out the right timing for running a promotional campaign and make sure to set optimal prices that will not compromise your revenue.

With the best practices and price tracking software in place, you raise your chances of implementing a successful promo pricing strategy. Thorough market research (product, customers, competitors) will help you craft a well-rounded marketing campaign that benefits both buyers and your company.

FAQ

What is promotional pricing in marketing?

This is a pricing strategy that implies setting lower-than-regular prices for specific products for a certain period of time. Discounting is used as part of a promotional campaign that aims at fulfilling certain business goals, such as boosting sales volume, selling excessive inventory, attracting new customers, or increasing the loyalty of devoted buyers.

What are the advantages of promotional pricing?

It allows a business to increase the number of buyers because people are tempted by good deals, which can lead to revenue growth. New customers can try a product without overpaying, while loyal ones will be glad to refill the stock of their favorite discounted items. Also, promotional pricing can be used for introducing new goods and helping them get exposure to the market.

What are the biggest promotional pricing risks?

First, a business risks lowering its profit margin when products are sold discounted, and even the growing number of sales does not recoup the losses. Secondly, promotional pricing can take a negative toll on brand image because people can either regard cheap products as low-quality ones, or get accustomed to low prices and refuse to buy the item at its full cost.

What's the difference between a discount and a promotional price?

While a discount simply refers to a price reduction, promotions can be far more complex. A promotional price can be implemented via different mechanics: loyalty programs, “Buy 1 get 2” offers, and so on. Besides that, promotions can serve to achieve a wider number of goals — they are a part of a bigger marketing strategy rather than just a pricing approach.

How much should you discount your product?

It should be calculated individually for each product, but remember that the bigger a discount you give, the bigger the churn rate will be. Also, too-generous discounts can affect the perceived value of goods. You should always weigh all the pros and cons before launching a promotional campaign. A 10-20% price reduction puts you in manageable risk, while 50% discounts or “2 for 1” offers may cause a very serious impact on your revenue.
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