How To Use Promotional Pricing Strategy (Pros, Cons  + Examples)

We’ve all been there…

We see a product on promotion and we see an opportunity.

Maybe you’ve been thinking of this product for a while or maybe it’s new to you.

Either way, the discount and perceived value pulls you in.

It’s an easy decision… Look at what the value is and look at what I can get it for. It’s a no-brainer.

And just like that, you’re pulling out your credit card and making that buying decision.

But why is promotional pricing so effective and how and when should and shouldn’t you use this strategy?

That’s exactly what you’ll learn in this article (along with some top examples of course). 

We’ve all been there…

We see a product on promotion and we see an opportunity.

Maybe you’ve been thinking of this product for a while or maybe it’s new to you.

Either way, the discount and perceived value pulls you in.

It’s an easy decision… Look at what the value is and look at what I can get it for. It’s a no-brainer.

And just like that, you’re pulling out your credit card and making that buying decision.

But why is promotional pricing so effective and how and when should and shouldn’t you use this strategy?

That’s exactly what you’ll learn in this article (along with some top examples of course). 

What is Promotional Pricing? (Strategy Pros, Cons & Examples)

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What is Promotional Pricing?

Let’s start with the definition of Promotional Pricing.

Promotional pricing is a pricing strategy used by brands that want to drive sales in the short-term. They do this by temporarily reducing the price of products or services to entice customers to buy before the offer expires, often through integrated marketing campaigns.

Without a doubt promotional pricing is one of the most effective strategies for driving short-term sales.

Brands that leverage it effectively, can expect to see spikes in sales and revenue for the period of the promotion.

Although promotions tend to be associated with retailers, they are also used frequently by restaurants, gyms, airlines and service providers to name a few.

Essentially any brand that wants to drive more sales in the short-term, can leverage the promotional pricing strategy.

The Promotional Pricing Goal

The goal of promotional pricing is to drive more sales and revenue in the short-term to boost the immediate revenue and the bottom line for the quarter or year.

Often this approach is used as part of a longer-term strategy and not as a standalone approach to pricing products and services.

Promotional pricing is without a doubt, a highly effective strategy for driving more sales, however, it’s effectiveness over time depreciates.

Brands that use promotional pricing, need to be aware of the pros and cons which we’ll cover a little later. 

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Promotional Pricing Pros & Cons

Every tactic in every strategy from branding to football, needs consideration.

If you we’re to make a strategic decision on promotional pricing in a silo, it would be easy to assume that if it’s effective and it drives sales, then it’s a no-brainer, but there are bigger implications at play.

Let’s take a closer look at some of the advantages and disadvantages of Promotional Pricing.

Advantages Of Promotional Pricing

Here are some of the most compelling reasons to use promotional pricing as part of your pricing strategy.

Increase In Sales & Revenue

The most obvious advantage of running price promotions is the injection of sales and ultimately cash into the business.

Whether the additional revenue is helping to pay the bills or boosting the profits on an already impressive year, revenue & profits are the lifeblood of any successful business.

Urgency Drives Action

The law of scarcity detailed by Robert Chialdini in his ground-breaking book “Influence: The Psychology Of Persuasion”, is the fear of missing out. 

The nature of price promotions is that they’re time-bound so they are inherently scarce. 

A promotion pricing strategy that’s not timebound won’t have anywhere near the impact of one that is.

Driven by the fear of missing out, buyers are driven to take action now, to lock in the value on offer before it’s gone.

Value Perception Favours The Buyer

When we go shopping for something, consciously or subconsciously, we want to see some value.

This is why discounted buys on higher volumes work well even though the price is higher. It lowers the average cost per item increasing the value to the buyer.

Even wealthy shoppers with no restraints looking towards the top shelves, don’t want to be taken over the coals. 

In other words, in one way or another we’re all drawn to value and promotional pricing leans value in favour of the buyer increasing the willingness to purchase.

Advantage Over Competition

When it comes to products in direct competition with each other, pricing promotions offer the discounted products a competitive advantage.

All things being equal, we’re more likely to buy an identical product that’s discounted, than one at full price.

Even if this competitive advantage is short-lived, it can impact the sales and revenue of the brand on promotion, and it’s competitors.

Greater Volumes, Greater Buying Power

Brands that understand their price promotion strategy in great detail through extensive research can predict with a certain degree of accuracy, the likely impact on sales volumes.

This puts more power into the hands of the business, allowing them to source materials in higher volumes and lower prices, ultimately reducing their cost of production per unit.

Of course this is off-set with the reduction in price-per unit though the life-time value of a new customer may make this a valuable trade-off to the business.

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