Promotional Pricing is a marketing approach to pricing that is often used to clear excess stocks, to generate high-volume sales during a limited period by selling to cost-sensitive customers, and to push sales during the launch of new product lines.
It refers to an instance where pricing is the key element of the Marketing Mix.
Price Adaptation Strategies
Many firms don't set one single price for a product; rather they rely on dynamic pricing strategies ("Price Adaptation Strategies"). While price discounts and allowances are used as a "push strategy" to facilitate the movement of goods through the distribution channel (excluding the customer), promotional pricing is used only to lure the customer via a "pull strategy".
LOSS-LEADER PRICING: Retailers often drop the prices of products of well-known brands to increase the store traffic. This tactic can pay off only if the additional sales due to price reduction make up the loss in margin due to price reduction. Manufacturers typically dislike this method as it dilutes their brand image and brand equity.
SPECIAL EVENT PRICING: Sellers establish special prices in order to boost sales during specific seasons or occasions. For example, Black Friday sales.
SPECIAL CUSTOMER PRICING: Special prices are offered to exclusive customers (e.g., Gold or Platinum credit card holders), repetitive customers or high-volume customers.
CASH REBATES: Consumers are offered a cash rebate to encourage making a purchase within some specific time period.
LOW-INTEREST FINANCING: Customers are offered low-interest financing of their purchases.
LONGER PAYMENT TERMS: Finance companies allow certain (reliable, high-volume) customers an extended payment period.
WARRANTIES AND SERVICE CONTRACTS: Firms increase sales by adding warranties or service contracts for free (or at reduced cost). Or for an extended period.
PSYCHOLOGICAL DISCOUNTING: The price of the product is initially inflated to a higher than normal value and then a discount is offered over it. The customers are deceived to take up the deal, while the seller manages to sustain the profit without actually dropping the price.
Issues with Promotional Pricing. Disadvantages
If the strategy works, competitors may copy them and the firm loses the competitive edge.
If the strategy fails, the firm loses the money it invested, which could have otherwise been put into other marketing techniques such as advertising or product improvement through R&D.
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