Temporary price reduction, known throughout retail as TPR, is a marketing method that individuals and businesses have used since someone first thought to sell an item to another person. Coupons, free shipping and limited-time offers are all examples of TPR that consumers see everyday. TPR is often used to revitalize stagnant sales volumes.
TPR is a marketing tool intended to drive sales for the short-term to increase traffic and new customers. It occurs in both the business-to-consumer and the business-to-business supply chains. For example, if a company typically has a profit margin of 50 percent, but believes lowering their profit margin to 25 percent for a special Memorial Day sale will increase its customer traffic enough to boost overall revenue, it will temporarily reduce prices for the holiday.
Nearly any company that sells products can use TPR to benefit its business. Clothing chains, department stores, retailers of electronics, car dealerships and grocery stores all temporarily reduce prices on certain items to push sales. For example, Proctor & Gamble, the maker of Tide clothing detergent, may ask all its retailers to reduce prices temporarily on its Tide products for a market-wide sales push. To accomplish this, Proctor & Gamble will lower the price that retailers pay for wholesale Tide shipments. The retailers lower the shelf price accordingly and maintain their same profit margin on Tide products, while Proctor & Gamble sacrifices profit for marketing purposes.
The potential advantages of TPR are the increase in customer traffic and brand awareness for the item. Customer traffic increases are explained with price elasticity models. If the price of an item is lowered, sales volume generally increases. At some point on the price elasticity scale, however, this is no longer profitable for the company. Brand awareness is also increased due to the power of the sale. When a customer sees a significant price reduction on an item, that customer is more inclined to try that item. Another advantage is that if the sale is successful, product inventories are reduced at a faster than normal pace.
TPR has two primary disadvantages. The first disadvantage is the toll that TPR takes on company profits. Even though a company may sell more product to customers, the profit margin for each unit is reduced, meaning that overall revenue may increase only a small amount, if at all. The second disadvantage is the possible effects TPR can have on brand loyalty. This disadvantage occurs primarily with luxury goods and premium products. For example, if a car manufacturer temporarily reduces the price of its flagship luxury car from $80,000 to $50,000, customers might perceive this as a sacrifice of quality. Additionally, because the product is available to a wider customer base, the exclusivity or "snob appeal" of the brand is reduced.