Promotional Pricing: Definition, Pros & Cons, Brands That Nailed It

Estimated reading time: 9 minutes

What is Promotional Pricing?

Promotional pricing is a method of generating customer interest in specific items or services that individuals or businesses provide to the public. 

How this is done is through a promotional price tag, whereby a consumer is provided full access to a product or service at a price that is lower than its usual price.

It is common to think of yourself as taking advantage of promotional pricing when you purchase an item that is “on-sale”.

This method has been used in marketing campaigns for countless years, with merchants and vendors offering promotional deals to the public for bulk purchases, end-of-season sales, and much more in a way to entice or even clear inventory in an efficient manner.

Common forms of promotional pricing include buy-one-get-one-free offers, two for the price of one, and discount codes available through various online ecommerce stores.

This is an effective way of temporarily repricing products and attracting a large portion of your audience to make a purchase.

What is the difference between Promotional Pricing and Penetration Pricing?

Promotional pricing is often used to increase sales of already-available products. Penetration pricing, on the other hand, is often used for products entering new markets or an entirely new product in a pre-existing market.

Both of these strategies hope to generate more interest in the company’s products by promoting them. However, the purpose of penetration pricing is to increase the number of customers and market share. 

Meanwhile, the promotion price boosts sales volume, and the company already has a strong position in the market thanks to its previous success (not a new product).

Furthermore, in order to get traction in the market, the corporation may provide promotional pricing.  Alternatively, businesses employ them when launching new items. In this sense, promotional pricing is a sort of penetration price that is distinct from the others.

What are the Advantages of Promotional Pricing?

There are a number of advantages which has made promotional pricing such a stalwart of any commerce strategy, with some of these being:

Creates a sense of urgency within your Target Audience

Pricing that is promotional in nature produces a sense of urgency in the purchasers, i.e., it encourages them to act in a now or never situation. 

Everyone wants the best product at the lowest possible price, and it accomplishes this by marketing the product successfully and sealing the deal when it comes to the pricing structure.

There are a number of methods which can be used to encourage this sense of urgency, with a 2016 study noting that under perceived scarcity conditions consumers exhibit urgency to buy.

An effective means of gaining new Customers

When a new product or service is initially introduced, there is usually a segment of customers who are quickly influenced and another portion of customers who are not impacted. 

There is a percentage of the latter group that does not indulge because of the cost of doing so. For those who do not make a purchase, a large, prominent sale sign is sufficient to catch their attention and imprint the brand in their minds. 

The use of this pricing strategy is particularly beneficial in the case of new brands that are trying to establish a presence in the market. 

While other tactics may be prohibitively expensive, this one is not only less expensive, but it has also been tried and tested in the market. As a result, promotional pricing can assist in bringing clients into the buying arena.

Pricing advantages can be gained through various promotions

Another advantage that the organisation that uses promotional pricing can benefit from is a pricing advantage over its competitors. Even if it is only for a limited period of time, promotional pricing assures that it almost eliminates similar competition during the duration of the offer.

Generates more revenue and cash flow in the short-term

This influx of capital is a result of the sudden rise in sales volume that has occurred as a result of the price drop. 

Due to the lowered price of individual products, more quantities of products are sold, resulting in increased revenue in the aggregate.

Allows businesses to liquidate their older inventory for efficiently

One of the most common promotional pricing instances is when older products and services are highlighted as available for a short time before expiration…giving a reason for potential dramatic prices cuts.

The old inventory is included in those heavily discounted categories, and they are flying off the shelves in no time, both figuratively and metaphorically speaking.

What are the Disadvantages of Promotional Pricing?

Whilst promotional offers, when used correctly, can be an invaluable business tool for any company, it is important to acknowledge that there are disadvantages to this pricing strategy. 

Here are a few drawbacks to consider if you decide to use promotional pricing in the future, after considering the positive aspects of doing so:

Not a sustainable approach for long-term business growth

This is due to the fact that customers become so accustomed to low pricing and maintain that parameter above the quality of the product that the instant another rival implements this approach, the client may abandon your pool and enter the competitors. 

This is not the ideal situation for any business to be in and is a major reason why promotional pricing should be conducted as part of a well-thought-out strategy rather than as a simple way to boost sales.

Has the potential to negatively impact your customers’ price perceptions and loyalty

This point does not affect more newly established businesses; however, it can cause a noticeable effect on existing brands who are attempting to transform the market with a new product or service.

Furthermore, if customers, particularly new ones, become accustomed to discounted rates, they will feel misled if you raise the price tag back to its original level because they have grown accustomed to the lower one. This, in turn, can have an impact on their level of loyalty to the brand or the product.

Demographic confusion can also be another side effect to this approach

Every commerce business should have a strategy, and one of the components of that plan is identifying its target audience based on specific demographic variables. 

Customers will come purely for the low costs rather than for the quality of the product as a result of frequent sales and promotional pricing, which causes a great deal of uncertainty in that area. 

Additionally, people may start to expect discounts all of the time, which is not ideal for a business because it may cause your clients to become apathetic towards the quality of your product, which is something you do not want to happen.

Irresponsible promotional pricing can damage the market

Erratic promotions can cause fluctuations in market perceptions and may distort what is seen as the normal price. This will damage both your business and your competitors – leaving a negative impact on your business connections with your competitors. 

Despite the fact that they are your competitors, they are not your adversaries. Due to the fact that you must operate inside the same circle and make transactions with one another, this technique may cause you to become estranged from your peers, which is detrimental if you want to stay abreast of the fundamentals of your sector.

Check out Some Brand Names Who Smashed Promotional Pricing

Gamification Promotional Pricing

Many marketers struggle from time to time to establish meaningful connections with their target audiences through meaningful interactions. 

A more innovative and recent solution to this problem is gamified promotions, which essentially entails providing users with entertaining tasks and challenges in order to persuade them to participate.

Creating challenges, tournaments, or questions that allow successful players to receive prize codes or mystery coupons, for example, could be an effective strategy. 

It is critical to adapt and personalize your gamified promotions based on your customer’s data and tastes in order to achieve maximum involvement.

This type of offer can increase your client engagement and retention rates, resulting in an increase of 17% in conversions for your business. Nike is a prime example of gamification promotional pricing:

Example 1: Nike

Nike has mastered the art of providing the best possible customer experience, which extends beyond its diverse product offers. 

Customers get access to resources that will help them run and train more effectively with the Nike+ Run Club application. 

Users can create bespoke weekly or monthly challenges and collaborate with other members of the community to achieve their objectives. 

They will be able to interact with Nike’s products and offers on a consistent basis as a result of this encounter.

Limited Time Discount Promotion Pricing

Limited-time deals are usually only available for a limited amount of time, causing customers to act quickly before the time period expires completely. However, the question is: “How can you get them in front of as many people as possible?”

They are a terrific method to convert visitors quickly — especially those who are frightened of missing out on something exciting. Vinomofo applied this concept to their own shipping and the effects were staggering:

Example 2: Vinomofo

When customers completed a successful purchase at Vinomofo, the company offered limited-time free shipping offers. Keep in mind that when buyers are offered free shipping options, they are up to 93% more likely to make a purchase.

The Vinomofo brand uses personalized subject lines to increase the open rate of email messages. Customers were presented with a flash sale promotion that included free delivery, which they could only qualify for if they made a purchase within the time frame specified in the email.

They currently still run a softened version of this with free shipping available for orders of 3+ cases:

Multi-Stage Validation Promotional Pricing

Multi-stage validation is a promotional method that allows your consumers to qualify for discounts or promo codes when they purchase a product bundle or a second related product after they have completed the first. 

This method is helpful in raising the sales of slow-moving products while also increasing the value of a customer’s basket.

It enables you to make more sales when your visitors’ attention is focused on you. 

When selling specific things, you must demonstrate to your customers that they are getting a better deal or greater value than they would otherwise. This is a tactic that brands like Tarte are employing in order to increase their sales figures.

Example 3: Tarte Tarte

Tarte Tarte has a multi-stage validation technique to persuade customers to purchase additional products from the company. 

Shoppers were encouraged to purchase two complementary beauty goods by using the subject line “1 + 1 = Free shipping” in one email campaign from the company. 

In this instance, clients are eligible for free shipping if they purchase two products that are related to one another. Another example is their ‘pick 5 for 50% off’ promotion, which is depicted in the image below.