Pricing strategies are more than just financial tools. They can send messages about your product and your company, and they can give customers a reason to buy. Promotional pricing lowers consumer costs to encourage sales. It is a tricky strategy because lower prices earn you less revenue, but used effectively, it can help build brand awareness and attract clientele who stay loyal even after your prices return to normal.
Promotional Pricing Advantages
- Building brand awareness: Customers who are unfamiliar with your brand may be more willing to try your products if you drop your prices, even if this decrease is only temporary. Once they become familiar with these products, you can often secure their ongoing business by continuing to provide products or services that they enjoy.
- Newsworthiness: A promotional sale is an event worth shouting out to your customer base. It gives you material for social media posts and newsletters, and if the deal you offer is extra special, your loyal clientele may even do some of your promotion for you by sharing the good news.
- Inventory turnover: A promotional pricing event can move old product out the door quickly, making space for new stock that you can sell at more advantageous prices. In this case, the real benefits of conducting a price promotion lie not necessarily in the revenue you generate from the sale itself but rather from the more profitable sales you make possible by turning over your inventory.
- Cross marketing: Promotional pricing may earn you less on the items that are actually on sale, but it may encourage customers to purchase additional items on which you earn a higher profit. Some promotional pricing examples illustrate this phenomenon: If you own a fabric store, you can run a promotional sale on scissors to encourage customers to buy fabric, and if you run a grocery store, you may run a sale on roasting pans to boost your sale of turkeys.
Promotional Pricing Disadvantages
- Deal hunters: Promotional pricing can attract the types of customers who are only looking for deals. They may buy your product when the price is reduced, but these shoppers are unlikely to spend money on your products and services when you go back to offering them for full price.
- Reduced revenue: When you sell your offerings at reduced prices, you do not earn as much from these sales. You may even incur losses from the sale of items that are priced for promotion. Aside from the intangible and longer-term benefits of encouraging potential customers to try your products, you are unlikely to earn any real profit from promotional pricing.
- Perception of lower quality: Some customers may see your products as being of lower quality if they are always able to buy these items on sale. Even if they like the product, they may get used to paying less, and this convenience can affect perceptions of what your offerings are actually worth.
Promotional Pricing Best Practices
The difference between the advantages and disadvantages of pricing as a promotion strategy will most likely come down to how effectively you use this tactic. Promotional pricing should never be a long-term approach. Instead, it should be employed judiciously at times when it can bring you real benefit, such as when you have a glut of inventory you need to move out of your warehouse or when you have a new offering that you want to encourage customers to try.
Combine your price promotion with effectively-targeted marketing so your message will reach the right customers and choose your timing carefully to reach your audience when they are most likely to buy.
Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.