Promotional Pricing: Definition, Advantages & Types

Promotional pricing involves temporarily reducing a product’s price to attract new customers. This pricing strategy increases the customer’s urgency to purchase with a limited-offer deal. Many companies use promotional pricing to revitalize declining sales figures, increase brand awareness, and foster customer retention.

This article explains the concept of promotional pricing, its types and how it works.

What is Promotional Pricing?

Promotional pricing is a strategy companies use to incentivize buyers to purchase an item at a price lower than its regular value, usually for a short period. The pricing strategy is used to attract new customers and to entice existing customers to buy more products.

The experience of shopping for promotional pricing offers a sense of urgency while providing a lower price. When you use promotional pricing, it’s best to target a product or service that customers are already buying at a high rate. Otherwise, turning your customers’ attention to you won’t be easy.

In lowering the prices of products for a short period, brands create a sense of scarcity, thereby increasing the value of products or services. Promotional pricing leads to customer acquisition, revenue increment, improved customer loyalty, and improvement of short-term cash flow. This pricing method can also be helpful for hard-to-find items.

Why Is Promotional Pricing Used?

Photo by Artem Beliaikin on Unsplash

The promotional pricing offer can be a discounted price for a limited time or a deal with additional incentives such as a discount on a future purchase. Typically, pricing is reduced to increase a product or service’s popularity and awareness. However, many other situations could warrant using a promotional pricing model. For example, short product cycles, trial periods, and timed promotions can give a new product or service an initial buzz.

Promotional pricing has been known to generate revenue but is not guaranteed. The pricing strategy is used by manufacturers of products or services to jump-start or maintains a market or user base.

Some of the common reasons brands use promotional pricing are to:

  • Increase customer loyalty to the brand.
  • Improve short-term cash flow
  • Reward loyal customers.
  • Acquire new customers.
  • Unload excess inventory.
  • Create a buzz to launch a new product or service.

Advantages of Promotional Pricing

The price of a product or service is increasingly being used as a marketing tactic to attract more customers and retain current customers.

The advantages of promotional pricing are as follows:

1. It attracts new buyers

Promotional pricing is one of the easiest ways to attract new customers to your business. Consumers are most likely to try out a new store that offers a better price than their competitors.

2. It encourages existing customers to buy more.

The best way to improve sales in any business audience is to encourage repeat purchases. And one way to facilitate repeat purchases is through promotional pricing. Placing an incentive on products that tend to run out will make your existing customers return.

3. It can get a new product off the ground.

A great way to create awareness about a new product is to sell it at a discounted price for a limited time. Consumers will then decide if your product is worth their investment or not. So, offering the best quality when using promotional pricing to launch a new product is best.

Disadvantages of Promotional Strategy

Some of the disadvantages of promotional pricing are as follows:

1. It does not retain new customers.

While promotional pricing can bring new customers, there’s no guarantee that you’ll be able to keep them. Remember, they were drawn to your brand because of the promo, so it is likely that they’ll withdraw once the price returns to normal.

2. It can hurt brand image.

An overuse of promotional pricing devalues a brand. Consumers will naturally consider cheap products as low-quality ones, even if they are made with the best raw materials. It might also pass the impression that you’re only trying to unload excess stock or poorly-made products. This is why you should use the promotional pricing strategy cautiously and for a minimal time.

Types of Promotional Pricing

Promotional pricing is crucial in today’s marketplace to compete with other businesses and to remain on the leading edge of customer service. The types of promotional pricing include:

1. Coupons

A coupon is a promotional pricing type aimed at stimulating buying, sometimes to compensate for a temporary deficiency of the product in question. A couple entitles the receiver to a discount for a particular item. The goal of the coupon is to give the customer an incentive to make a purchase. It can be a one-time-use coupon or one that can be used multiple times.

2. Flash Sales

Flash sales are another type of promotional pricing where the business offer its customers limited time to buy something at a discounted price. Brands slash the prices of products to acquire new customers or unload excess inventory. Flash sales usually last for a short time, sometimes few hours.

3. Buy One, Get One Free

The ‘Buy One, Get One Free’ strategy is a way businesses entice new customers and separate themselves from the competition. It involves offering a one-off special deal, whereby a customer purchases an item and gets another for free. If done well, this can significantly increase the company’s brand recognition.

4. Loyalty Programs. 

A loyalty program is a marketing technique that encourages repeat purchases or consumer loyalty. Brands offer incentives and benefits that encourage existing customers to purchase more frequently. Since it is easier to retain existing customers than to acquire new ones, loyalty programs are a popular type of promotional pricing.

To Wrap Up

Promotional pricing can be beneficial for many reasons. It allows companies to attract, retain, or encourage customers to buy more. It is also used to launch a product on a previously untapped market. However, it can hurt companies by creating a poor image for the brand.

To properly execute the promotional pricing strategy, companies must evaluate their promotional goals and carefully define them.

Abir is a data analyst and researcher. Among her interests are artificial intelligence, machine learning, and natural language processing. As a humanitarian and educator, she actively supports women in tech and promotes diversity.

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