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Promotional pricing definition  

Promotional pricing is a pricing  strategy in which a product or service is offered at a discounted price for a limited period of time. Promotional pricing strategy is used to stimulate demand, increase sales, and attract new customers.

Promotional pricing is an important strategy for businesses for several reasons: 

  • It can help businesses quickly boost sales and generate revenue, especially during slow periods or when introducing a new product
  • It can be used to clear out excess inventory, reducing carrying costs and improving cash flow
  • It can attract price-sensitive customers who may not have purchased the product at full price, thereby expanding the customer base
  • Promotional price can create a sense of urgency and encourage impulse buying, leading to increased sales and profitability. Overall, promotional pricing is a versatile strategy that can help businesses achieve various marketing and financial goals

Promo pricing in the form of discounts and attractive marketing deals, for example, are a popular method to increase sales and attract customers. But despite its popularity, the sales increase is rarely worth the cut in revenue, and there are several reasons why promotional prices aren’t as effective as they seem.

Price promotions has been a popular strategy among retailers for decades. Whether it is through "buy one, get one free" deals, or putting items on sale for a limited time, companies are willing to sacrifice a cut of their profit if it means giving customers incentive to buy.

According to promotional pricing definition, the reduction of prices to attract customers seems like a reasonable method. This increase should, in theory, make up for the decreased revenue, and more customers will be attracted to the promotional price in fear of missing out on a good deal.

But is promotional pricing policy really an effective marketing tool?

The truth is, 72% of price promotions don’t break even. Let’s talk about some of the reasons why promotional pricing campaigns are not as successful as retailers hope it will be, and what other more efficient pricing methods can be used to replace it.

Types of promotional pricing strategies

Now that you know promotional pricing definition, you should also be aware that promotional pricing strategies encompass a variety of price management approaches, each with its own benefits and drawbacks.

  • Loss Leaders: This strategy involves offering a product at a price below its cost to attract customers. While it can stimulate sales and drive traffic to the store, it can also erode profit margins if not carefully managed.
  • Price Bundling: Price bundling involves selling multiple products or services together at a lower price than if they were purchased separately. This marketing strategy can increase the perceived value of the offer and encourage customers to buy more, but it can also reduce the perceived value of individual items.
  • Volume Discounts: Offering discounts based on the quantity purchased incentivizes customers to buy more. While this can increase sales volume and customer loyalty, it can also reduce profit margins if the discounts are too steep.
  • Coupons: Coupons offer a discount on a specific product or service and can be an effective way to attract new customers and encourage repeat purchases. However, they can also train customers to only buy when there is a discount, potentially affecting regular pricing perception and undermining purchase-positive psychology.

Overall, each promotional pricing strategy has its own set of advantages and challenges, and the key is to carefully evaluate which strategy aligns best with the business objectives and target market.

When to use promotional pricing strategies

Retailers should consider using pricing and promotion campaigns during specific periods or circumstances to achieve their business goals. Let's look at the most common business circumstances in which promotional campaigns are used:   

1. Seasonal Sales: Retailers can use promotional prices during seasonal sales events such as Black Friday, Christmas, or back-to-school sales to drive traffic and boost sales volumes.

2. Product Launches: When introducing a new product, pricing and promotion can create buzz and encourage trial purchases, helping to establish a customer base and generate word-of-mouth publicity.

3. Clearance Sales: Promotional pricing can be used to clear out excess inventory or outdated products, freeing up space and capital for new merchandise.

4. Competitive Response: Retailers may use promotional pricing to respond to competitor pricing strategies, such as matching or undercutting prices to retain customers.

5. Customer Acquisition: Offering a discounts or promotional price can attract new customers who may be enticed by the lower prices to try a retailer's products or services.

Speaking of examples, large retailers, like Walmart and Tesco, traditionally use price promotion strategy during Black Friday sales events to drive foot traffic and boost sales. They offer deep discounts on popular products, creating a sense of urgency driven by consumer psychology. These promotions help business management to attract customers who may not typically shop at these stores, increasing overall sales and market share.

Measuring effectiveness of promotional pricing

Measuring the effectiveness of promotional pricing strategies is crucial for retailers to understand the impact of their efforts and make informed decisions for future promotions.

The importance of measuring effectiveness stems from the fact that it helps retailers determine if the promotional pricing strategy achieved its objectives, such as increasing sales, attracting new customers, or clearing out inventory. It also provides insights into customer behavior and preferences, allowing for more targeted and effective future promotions.

Sales data analysis, customer behavior surveys, market research, and pricing analytics may be helpful when it comes to promo effectiveness measurement. 

In particular, sales data analysis enables you to compare sales data before, during, and after the promotion which is necessary for accurate forecasting the impact on sales volume and revenue. 

You can use customer surveys to collect feedback from customers to understand their perception of the promotional price and its influence on their purchasing behavior.

By conducting market research, you can also assess the competitive landscape and determine if the promotion helped gain market share or improve brand perception.

Finally, utilizing retail pricing analytics software enables you to effectively track and gain insights into key performance indicators (KPIs) such as return on investment (ROI), customer acquisition cost (CAC), and customer lifetime value (CLV). It also means a better sales and demand forecasting. 

Best practices for promotional pricing

Best practices for promotional pricing can help retailers maximize the effectiveness of their strategies while avoiding common pitfalls:

  • Set Clear Objectives: Define specific goals for the promotion, such as increasing sales, clearing inventory, or attracting new customers.
  • Understand Customer Behavior: Use customer data research and analysis to determine the best timing, duration, and type of promotion to appeal to target customers.
  • Avoid Over-discounting: While discounts can drive sales, excessive discounting can erode profit margins and devalue the brand. Offer discounts strategically and consider alternative promotions like bundling or loyalty rewards.
  • Communicate Effectively: Clearly communicate the promotion details to customers through multiple channels, such as email, social media, and in-store signage.
  • Monitor and Measure: Continuously monitor the performance of the promotion against established KPIs and adjust strategies as needed.
  • Maintain Profitability: Ensure that promotional pricing does not significantly impact profitability by carefully conductiung costs analysis and setting appropriate pricing levels.

By following these best practices, businesses can effectively implement promotional pricing strategies that drive sales, enhance customer loyalty, and maintain profitability.

Forever on sale

Retail consumer is not stupid, and according to recent studies, people are getting smarter in regards to promotional pricing policy. A consumer becomes accustomed to regular sales events like Black Friday and Cyber Monday. This oversaturation and regularity of promotional events means that the fear of missing out that retailers hope customers will have simply doesn’t exist—instead, these sales are expected, and customers assume items will be discounted in the future.

Additionally, other companies are paying attention to any promotions a retailer makes. Competing companies are likely to mimic each other’s prices, so if one retailer decides to make a promotional campaign, management of others players will soon follow suit. This means the competitive deal is no longer that competitive, and the only way to make the price more appealing is to increase the discount. The continuous decreasing of prices can lead to brutal price wars between retailers, and as we have seen a few years ago in the UK with companies like Tesco and Sainsbury’s, it is a war in which every competitor loses.


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Last-minute purchases are not lasting

Remember that price promotion strategy encourages customers to buy products, though. In fact, it can encourage customers to be more impulsive, making last-minute purchases because the deal is such a bargain. The problem is, customers who purchase these discounted items impulsively are also much more likely to return the product for a refund in the future. This increased likelihood of returning items can put an even bigger dent in revenue for the retailer, who has already decreased their profit margins to make the promotion in the first place.

Cheaper products create a cheaper reputation

Lastly, a retailer who uses promotional pricing often is likely damaging their brand in the process. The heavy and regular discounting of products can tarnish a company’s reputation among consumers, making them look cheap and therefore less fashionable. In a survey, a quarter of shoppers said they would be less likely to shop at a store that regularly had items on sale. Moreover, 38% said that constant discounts makes a brand look less appealing.

Retailers who use promotional pricing are negatively impacted by all of these consequences. They typically never meet their end goal of increasing sales without losing too much revenue in the process, and they will probably damage their brand image along the way. Knowing this, what are retailers supposed to do if they want to attract customers, stay competitive and increase revenue?


Better pricing for better results

The truth of the matter is, lower prices aren’t always the most optimal prices. Many successful retailers are ditching pricing and promotion and turning to price optimization software to help them increase their sales in a way that doesn’t sacrifice their revenue.

Thanks to artificial intelligence algorithms, years of dynamic sales data can be analyzed to find patterns and relationships in products and purchases to determine prices that are near-guaranteed to bring results. Pricing optimization software can go a step beyond pricing individual products as well—a retailer’s entire portfolio can be analyzed, and price recommendations given by the software consider all products offered to avoid price cannibalization and other negative sales relationships within a company’s assortment. The dynamic pricing software can be fine-tuned to the ebbs and flows of a business’s sales patterns, and can be used to meet the unique objectives of any retailer whether they are online or brick-and-mortar.

Price optimization algorithms are not just for pioneers within the retail industry anymore, either. It has been utilized for sales forecasting by several companies for years now, and has the numbers behind it to prove its effectiveness. A retailer using our dynamic pricing optimization software, for example, saw an 8% boost in revenue despite their market being squeezed by promotional pressure from other companies.


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Figures revolving around the topic of promotional pricing don’t lie; the fact of the matter is, retailers are better off avoiding making promotions altogether, and are likely to see more revenue and success when they ditch promotional pricing for good. Using proven methods such as price optimization to increase sales and attract customers is a better way for retailers to stay competitive, even if their market is oversaturated with discount offers. In this high-tech and consumer oriented era of retail, consistency is key, and price optimization algorithms are proving to be a vital tool in maintaining the right prices at all times.



What are the advantages of promotional pricing?

Promotional pricing is a good strategy when it comes to running markdown campaigns. It also helps to gain a quick sales boost.
What is a promotional discount?

Promotional discount is a price reduction offered by a seller to increase the price attractiveness and boost sales.

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