What is a promotional pricing strategy?
Promotional pricing definition: Promotional pricing strategy is one of the smartest pricing techniques used by retailers and manufacturers. In this strategy, retailers and manufacturers reduce the prices of products to attract buyers and customers.
Price-conscious buyers who would have otherwise not purchased a particular product or service, due to high prices, would buy the same product when the price is reduced.
How does promotional pricing strategy work?
Promotional pricing strategy aims towards increasing brand awareness and attracting customers by offering massive discounts and deals. The market strategy creates a perception of time-based scarcity in the minds of the consumers. And, it is human nature to apprehend scarce things as more valuable than the one available in abundance.
Advantages of promotional pricing
Let us understand how the promotional pricing strategy is perfect for business promotion.
1. Increased customer traffic
Budget-conscious customers are hard to please! But, with the promotional pricing strategy, this isn’t the case. The biggest of the brands worldwide offer attractive deals, discounts, and coupons to attract the buyers’ footfall.
It builds a long-term relationship between customers and brands. And, if the consumers are satisfied with the product/services, then it converts into a long-term relationship that continues even beyond the promotional period.
2. Growth of revenue
The strategy improves the business and increases the cash flow in a short period. Also, the approach promises long-term benefits, and this is how?
Businesses attract new customers and convert the old ones into loyal customers by providing attractive price deals. The sudden increase in sales helps cover short-term expenses and get relief from debts.
Time-to–time discount periods promise steady revenue growth. And, a profitable business further attracts shareholders, analysts, and owners.
3. Liquidates the older inventory
Sometimes it becomes hard for retailers to sell off their stock, and the reasons could be endless. Carrying the old inventory for the next year could negatively impact the tax responsibilities. On top of that, older inventory is tough to liquidate.
So, this is why retailers and manufacturers use a promotional pricing strategy by the end of every year to clear their stock, so that with the new year, they can offer new products to the consumers.
Disadvantages of promotional pricing
This strategy isn’t necessarily useful for every business and should therefore be used with consideration.
1. Drastic fall in prices makes consumers question the quality of products
Imagine drastically reducing the rates of products/services. The quality of a product becomes questionable. Although the old customers familiar with the brand would continue being loyal customers.
Also, when you increase the prices of the products, consumers would not consider the product worth the investment.
2. Creates price sensitivity
Once your customers know that you are going to put products on sale after a limited period, then they would wait for the sale period. The budget-conscious customers heavily rely on the sale period and ignore the products that are fresh and do not offer any discount.
3. Undermines business
It is not the best solution for creating long-term revenues. Yes, the promotional pricing strategy does work on creating a foundation for creating short term revenues. The approach tempts buyers towards your brand because of the temporary deals and not because they like the brand.
And, just in case someone else offers a better discount, then they will move towards the other brand. So, you will not always gain customer loyalty and trust.
Time to step into the 21st century and start monitoring prices?
How can Sniffie help?
- We collect the crucial must-have web-data. You only have to get ready to onboard your team to our software and takeover the ecommerce market.
- In our powerful data hub you’ll get vital internal and external data set up exactly the way you want to view it. You get to choose what specific information you want, and you will be provided with everything, including the competitor data.
- The software will give you a closer look at the competitor pricing and how the market lives. Our software will help you understand the performance of a strategy on which you can then improve your pricing decisions.
- After conducting thorough market research, decide the price, and push the save button. Wasn’t the process swift?
- Sit back, follow the progress and hone your pricing to perfection.
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