What Is Promotional Pricing? A Guide to Boost Sales & Engagement

Buy One Get One Free!’ Such BOGO offers evoke a sense of excitement within you, don't they? You start picturing shops crowded with customers willing to grab such deals. This kind of promotional pricing works wonders to attract customers. 

Most pricing strategies are driven by consumer psychology. For instance, charm pricing, a strategy where you set prices at 99, can increase sales by 24 percent (Source: Oracle NetSuite). Besides this, such promotional pricing strategies help businesses clear surplus inventory and build customer trust. 

This article examines the concept of promotional pricing, focusing on various techniques and strategies, their importance, examples, and the different types of promotional pricing.

What is Promotional Pricing?

Promotional pricing is a practice of reducing product prices temporarily to stimulate demand. Achieved through various mediums such as coupons, discounts, bundle offers, or BOGO offers, this marketing strategy allows businesses to attract customers, boost sales, increase brand awareness, and encourage repeat purchases.

This simple yet effective strategy can encourage customers to make a purchase instantly, helping businesses improve customer acquisition, increase cash flow, and build a loyal customer base.

However, overuse of promotional pricing can lead to product or brand devaluation. Promotional pricing strategies are best implemented during the launch of new offers, customer reward initiatives, seasonal sales, or when clearing excess inventory.

Importance of Promotional Pricing

The promotional pricing strategy can help brands gain higher exposure vis-a-vis their competitors. However, overreliance on promotional pricing can prove counterproductive. Brands may risk jeopardizing their reputation, or customers may become accustomed to lower pricing.

Promotional pricing is an essential strategy for companies to implement as it can:

• Help businesses boost sales and increase revenue during sluggish seasons.
• Reduce carrying costs and improve cash flow by clearing out excess inventory.
• Boost customer reach by attracting cost-sensitive customers who avoid buying products at full price.
• Increase sales by creating a sense of urgency through limited-time offers, encouraging customers to make impulsive purchases. 

A strong promotional pricing strategy can help companies clear out inventory while making customers feel valued. It enhances a brand’s visibility, increases foot traffic and improves customer retention. 

Who Needs Promotional Pricing?

A well-crafted promotional pricing strategy enables brands to attract more customers. Listed below are the different types of industries and entities that can benefit from this approach:

• Retailers: Retailers leverage promotional pricing to attract customers and improve foot traffic. For instance, flash sales or clearance sales can help retailers eliminate excess inventory and facilitate new product promotion.  
• Online Businesses: E-commerce entities regularly adopt promotional pricing to outwit their competitors. Offers such as ‘BOGO’ or seasonal sales such as Black Friday and Cyber Monday are effective ways to increase your customer base.
• Seasonal Businesses: Sales are lowest during off-peak times, and managing excess inventory can be frustrating. Companies experiencing fluctuations in demand can significantly benefit from promotional pricing.
• Manufacturers: Promotional pricing can help manufacturers boost product sales via retailers. This approach is particularly useful when launching a new product or arresting sluggish sales.
• Startups: Up-and-coming businesses can leverage promotional pricing to develop a stronger customer base and increase brand awareness. 

The concept of promotional pricing is simple: encourage customers to purchase products before the offer expires. Businesses must craft messages that urge customers to purchase during the promotional season. 

Promotional pricing can be impactful if implemented correctly, encouraging customers to return for better offers. Nonetheless, businesses must consider the risks and drawbacks of using it to avoid brand devaluation.

Types of Promotional Pricing

Each business has its own objectives, and various types of promotional pricing strategies can be implemented to meet these unique needs. For example, promotional pricing techniques such as limited-time bundles and deals or BOGO offers are known to boost sales. 

Here are the different types of promotional pricing that businesses can use to attract more customers:

• Flash Sales: Flash sales are limited-time offers that facilitate a sense of urgency and drive sales in a short amount of time. Flash sales can trigger psychological effects in buyers, such as Fear of Missing Out (FOMO), where customers worry about missing a great deal.
• Buy One Get One (BOGO): This is the most commonly used strategy, especially among retailers. Under this strategy, brands offer an additional item either for free or at a discount. This approach persuades customers to purchase in bulk and may even introduce them to unexplored products.
• Loyalty Programs: Exclusive deals and discounts make customers feel valued. This method is cost-effective in the long run, as it helps retain existing customers and acquire new ones.
• Seasonal Promotions: Seasonal campaigns resonate with customers. For instance, Sweden-based fashion retailer H&M offers warm clothing and accessories during the winter and lighter options in the summer, often featuring discounts or limited-time offers. This approach is not only topical but ensures that shoppers are attracted to these seasonal promotions (Source: The Brand Hopper).
• Targeted Promotions: Businesses can improve their marketing strategies by creating customer-specific campaigns such as those specific to students and senior citizens. This personalized approach is likely to boost conversion rates as the messages are crafted based on the segmented customers’ unique needs.
• Promo Codes and Coupons: Customers like surprises such as promo codes and coupons. Promo codes or coupons are applied during customer checkout. This little surprise can augment sales. Typically, promo codes are targeted to specific customers, such as new customers, frequent buyers, or customers who have purchased until a certain threshold.

Promotional pricing has its own benefits and risks that might affect a company’s reputation and profit margins. Strategic planning is essential for implementing campaigns that achieve the desired outcome.

Benefits of Promotional Pricing

Promotional pricing can drive customer purchases, and when done effectively, it often leads to a noticeable increase in sales as customers seek the best deals. 

Here are some reasons why businesses need to implement a promotional pricing strategy:

• Convinces Customers to Purchase: Customers constantly seek good deals, and discounts can encourage them to make a purchase. Businesses are increasingly focusing on seasonal promotions such as Black Friday and Cyber Monday, as sales on these days increase significantly.
• Gives a Competitive Edge: Businesses can differentiate from competitors by providing offers and promotions. A product encourages old and new customers to make a purchase when it is available at an affordable price, generating higher traffic and short-term sales.
• Increases Customer Loyalty: Every business’ end goal is to establish strong relationships with its customers. Promotional pricing boosts customer loyalty, as shoppers usually prefer inexpensive products.
• Optimized Product Marketing: Companies can attract customers without significant marketing investment, as low or discounted prices are often enough. It is a win-win situation for both customers and companies, as shoppers may also buy other products that are not available at discounted pricing.
• Creates Excitement: Companies may find that one or more of their products do not sell well. Promotional pricing can help create excitement among customers. This approach can also be adopted for new product launches.
• Liquidates Inventory: Businesses can liquidate their inventory by selling items quickly and reducing tax liabilities. Less items means more space for companies to expand their product line.
• Customizable Options: Promotional pricing can be customized based on a company’s or customer’s preferences. For example, a brand may choose the BOGO method, while another may urge shoppers to sign up for VIP programs or exclusive memberships. 

Promotional pricing helps achieve two objectives: a short-time spike in revenue and lasting brand loyalty. These benefits also indicate that promotional pricing is a versatile strategy that can be leveraged to achieve different marketing and financial objectives. 

Challenges Associated with Promotional Pricing

Promotional pricing techniques yield results; however, companies may face challenges such as low-profit margins or customers becoming reliant on discounts. 

Below are key challenges associated with the implementation of promotional pricing:

• Change of Price Perception: Overusing promotions can lead customers to believe the product's actual price is lower or encourage them to wait for the next promotion, ultimately resulting in reduced profit margins.
• Decreased Brand Loyalty: Businesses must strike the right balance in promotions; too much of it can decrease a brand’s value, while too little of it may result in loss of customers. Promotional pricing is legal; however, using it to compel buyers to purchase a product is illegal. This can lead to a business facing legal action (Source: Federal Trade Commission).
• Lack of Alignment with Business Goals: Lack of robust framework or strategies may deter a brand from its goals. Businesses must understand market trends and establish well-defined objectives before implementing the promotional pricing strategy.
• The dearth of Interaction with Suppliers: Businesses rely on suppliers for promotional offers. Lack of interaction with them can lead to issues in order placement, delays in packaging or delivery, and potential disruption in operations.
• Inefficient Coordination: Businesses are sometimes unable to promote their offers on various platforms. Lack of coordination can lead to inconsistent messaging and challenges in managing promotions across channels with different point-of-sale (POS) systems.
• Competitor Differentiation: It can become challenging to determine and establish pricing that is relevant, distinct, and compelling from your competitors. Adopting the same promotional pricing as competitors and the lack of a unique value proposition (UVP) are common issues that customers face.
• Lack of Adaptability: Market trends evolve regularly. Companies that are able to adapt to these changes may easily optimize operations, improve promotions based on customer needs and behaviors, and enhance customer experience. 

Businesses must use advanced tools that leverage analytics and automation, thereby streamlining their promotional strategies and allowing stakeholders to make informed decisions. 

Tredence offers advanced solutions driven by Artificial Intelligence (AI) and Machine Learning (ML). Its AI-powered Revenue Growth Management (RGM) platform offers customizable accelerators for performance review, channel strategy, product assortment, and pricing.

You can not only create flexible pricing but also identify gaps and compare with competitors in real time. This versatility ensures your promotional pricing effectively adapts to dynamic market conditions. Additionally, Tredence’s Trade Promotion Management (TPM) solutions allow you to evaluate trade promotions and determine their effectiveness. 

Examples of Promotional Pricing

Early-bird discounts, percentage or dollar-off discounts, bulk discounts, flash sales, and freebies and incentives are some examples of promotional pricing. 

Here are some examples of how companies have used promotional pricing to their advantage:

• Southwest Airlines: Southwest Airlines, one of the major airlines in the U.S., allows passengers to change their flights without incurring additional fees or cancel them at no cost. It also offers early-bird check-ins, free baggage check-ins, and various upgrades for a reasonable price (Source: Flipkart Commerce Cloud).
• AT&T: The American telecommunications company offers bundle values to consumers along with premium options and wireless services. New customers receive a 20 percent discount on their monthly internet service while existing customers can save on their internet plan and may qualify for rewards when upgrading or bundling services. Additionally, the company provides targeted discounts for senior citizens, military, and first responders (Source: Forbes).
• Amazon: The popular e-commerce company uses competitive pricing to attract shoppers. It offers competitive yet lucrative pricing to maximize sales. Amazon also uses penetration pricing by offering new products at attractive prices, as well as charm pricing, where items are priced at $9.99 or $99.95 instead of $10 or $100 (Source: Influencer MarketingHub).

These examples demonstrate how promotional pricing can be customized to target specific customers. This can lead to higher revenue, controlled inventory, and customer loyalty while maintaining the brand’s value. 

Promotional Pricing Implementation Process

A successful promotional pricing strategy is implemented by identifying market trends, understanding target customers, and researching pricing techniques that suit your business needs.

Businesses can develop an impactful promotional offer through the following steps:

• Identify Market Value: Determine the market value or retail price of your product or service before strategy planning. This will help you set a price that has worked well with other companies or industries. For instance, a BOGO deal for electronic devices may be possible, but it is often unfeasible. Instead, offering flash sales, seasonal discounts, or promo codes would be more effective.
• Analyze Your Competitors: Analyzing competitors in your specific industry can help you understand what works best for your customers. A competitor's previous and current promotional campaign can help you gain insights on the effectiveness of those campaigns.
• Advertise Your Promotion: Advertise promotions either in-store, on the website, or on social media channels. Retailers such as Amazon, Macy’s, and Best Buy advertise pre-Black Friday sales to attract more customers until the actual promotional period starts (Source: BlackFriday.com).
• Maintain Quality Standards: Oversee quality standards once you have conducted your promotional sale. Maintaining storefronts, customer service policies, and even website functionalities helps ensure the seamless performance of your sale. A calm and controlled promotion can increase both sales and customer satisfaction. 
• Collect and Review Feedback: Gaining insight into the pros and cons from a customer’s perspective can help refine your promotional pricing strategy. Feedback can be collected through surveys, emails, or right after a purchase. Analyzing this data will help you identify what worked well and pinpoint areas for improvement. 

By following these simple yet effective steps, businesses can execute promotional pricing methods that stimulate demand and help achieve their goals without risking long-term profitability. 

Best Practices and Techniques to Implement Promotional Pricing 

Knowledge of market fluctuations, data analytics, and planning is the key to making your promotional pricing strategy a success. Below are some promotional pricing techniques and best practices you can follow to ensure that your promotions are effective:

• Have a Clear Objective: Businesses must have a clear goal of what outcome they wish to achieve through promotions. Not all brands have the same objective. Ask yourself the following questions: “Will promotional pricing influence my brand value?” and, “Do I have the resources to execute my strategy?”
• Have a Strong Strategy: Businesses must decide what products they wish to promote: new or old,or local or international. Next, they need to plan which channels to use to advertise promotions: online, in-store, or both? And lastly, they need to decide upon what kind of promotional pricing to use.
• Choose the Right Audience: Understand your target audience and the promotions they prefer, considering their behavior and regional differences.
• Select the Right Time: Timing is vital in promotional pricing. Festive seasons and holidays are often considered the best time for businesses to offer promotions. Avoid launching your campaigns too late or too early in order to maximize their effectiveness.
• Decide on a Budget: Costs can differ depending on the type of promotional pricing you want to implement. Typically, these costs include advertising and marketing, inventory-related expenses such as stocking up or clearing excess stock, advanced tools and software, packaging, labeling, customer service, and logistics. Having a clear budget can help you allocate resources strategically. 

These techniques can save businesses time and resources, allowing them to develop an effective promotional pricing strategy. This not only improves customer loyalty, but also drives sales and increases profit margins.

Driving Sales and Improving Brand Perception With Tredence

Promotional pricing is a game-changer as it attracts customers, boosts revenue, and improves a company’s reputation. Techniques such as loyalty programs, flash sales, discounts, and targeted promotions enable businesses to clear out inventory, build up urgency, and develop long-lasting relationships with their customers. 

Nonetheless, for promotional pricing to succeed, businesses need a clear strategy that balances short-term profits with long-term brand value.

Tredence provides cutting-edge solutions to expedite and improve a company’s promotional pricing initiatives. Its AI-driven platforms, such as Revenue Growth Management (RGM) and Trade Promotion Management (TPM) enable businesses to personalize pricing strategies, identify the effectiveness of their promotions, and evolve with the ever-changing markets in real time. 

By using advanced tools along with data-driven insights, Tredence enables organizations to achieve their goals and drive growth. Are you ready to revolutionize your promotional pricing strategy and transform your business? Contact Tredence today!

FAQs:

What’s the difference between promotional pricing and discount pricing?

Under promotional pricing, businesses strategically use temporary price reductions or discounts to entice customers, boost sales, and generate interest in their products or services. On the other hand, discount pricing is a promotional strategy where the initial cost of a product or service is reduced to drive sales, clear inventory, and attract more customers.

Can promotional pricing impact customer loyalty in the long run?

Promotional pricing can boost sales in the short term. However, excessive dependence on discounts may adversely affect brand value and customer loyalty. Therefore, it is vital to balance promotional pricing with exceptional service and unique offerings for long-term success.

How can companies avoid devaluing their brand with frequent promotions?

Companies create value by offering quality products, exceptional customer service, and personalized experiences. They can use promotions selectively to maintain exclusivity, highlight special events, and reward loyal customers, ensuring that discounts do not become the primary driver of sales. In effect, companies can avoid devaluing their brand by formulating a clear strategy to balance short-term gains with long-term brand value.

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Editorial Team
Tredence