It should not be treated as authoritative or accurate when considering investments or other financial products. Some examples of promotion types are: The table below depicts types of promotions in a more simple way. To attract customer footfall expecting that they will buy more merchandise due to the deals that businesses frequently offer store-wide as promotional events in the hopes that buyers will become regular clients. This creates a race to the bottom where some businesses may be willing to take a loss just to generate a few revenues. Every product that sells has a Manufacturer’s Suggested Retail Price (MSRP). ………………………………………………………………………………………….5, Promotional Pricing Strategy……………………………………………………………………..5, Brand Awareness …………………………………………………………………………………7, The advantages of using promotional pricing ……………………………………………………8, The disadvantages of using promotional pricing ………………………………………………..9, Promotion Types ……………………………………………………………………………….11, Promotion Cost vs. What it does not do is create a foundation for long-term success. Having well defined objective will assist you to know what sales promotion strategies would work better for your company and how they suit better the company’s marketing responsibilities like advertising. The sales price generates a new margin for ordinary sales of that item, even though the item retail price remains the same. Because specialty advertising items are generally distributed directly to target customers, the medium offers a high degree of selectivity. CODES (6 days ago) Promotional Pricing: Advantages and Disadvantages. This sets a dangerous precedent. 13 Promotional Pricing Strategy Advantages and Disadvantages. If successful, these customers may refer others to your company, where there may be more interest in the full-price item later on. Related: 18 Major Advantages and Disadvantages of Supermarkets. The advantages and disadvantages of promotional pricing. This is due to the increase in volume of sales due to price reduction. If a company needs some fast cash to cover an immediate or short-term expense, then this strategy can get the job done. In order to acquire a loyal customer who may make later purchases that will produce a high margin, it is worth incurring the cost, meaning lower margin. is a short term pricing strategy. Promotional pricing. Often during sale periods you see bifurcation of percentages. Do you have a 2:1 degree or higher? CODES (6 days ago) It may take the form of a buy one, get one promotion, a coupon that is clipped from a mailed flyer, or a promo code that a website offers for a specific discount on certain items or services. Dynamic pricing (also called real-time pricing, surge pricing, or time-based pricing) is a technique that focuses on setting the price of the product taking into account different factors such as demand & supply, inventory, competition, locality, and other market conditions but in … Dropping your prices can lead to a price war. Let’s firs understand that Promotional Pricing is a sales promotion strategy in which the company brings down the price of an item considerably for a very small period of time. Advantages & Opportunities. The costs of carrying that inventory over may be greater than if you sold some of those items at a steep discount. When customers go shopping, they are balancing the need they have for specific items with the cost of obtaining that item. Many techniques of sales promotion motivate prospects to test new products. Low prices provide an attractive incentive for customers to buy, especially those who are budget conscious. Any information contained within this essay is intended for educational purposes only. This technique provides really great benefits when companies use it efficiently, while using to many sales promotions and discounts may cause a price orientation in buyers. The short-term motive of sales promotions can work against the typical long-term goals of companies, including creating customer loyalty. Although some businesses frequently use promotional pricing as a system to keep continuing purchases from price sensitive shoppers, promotional pricings should mainly be used in a short time technique. 2. Business will maintain consistent and steady revenue growth by also using promotional pricing to keep owners, analysts and shareholders appease. The psychological pricing advantages and disadvantages recognize the brain’s desire to save money and feel satisfied emotionally. Copyright © 2003 - 2021 - UKEssays is a trading name of All Answers Ltd, a company registered in England and Wales. For a small business, advanced marketing techniques to bring in new customers may be too expensive to include with their outreach plan. Offering discount pricing is a great way to give your buyers an incentive to pay you early. Then there’s a third shirt that is priced at $20 as well, but it is on the returns rack because someone didn’t like the shirt and brought it back. This type of strategy increases a consumer’s value perception. CALL US +61 2 9199 4523 . Retention and loyalty – In order to reward loyal customers for recurrent purchases and also to motivate their future buys, business use promotional pricing tactics that will assist them to maintain customer loyalty. Spot ways to grow profits. Excessive price discounting trains buyers to focus on the low price as the source of value with a particular business or good. Finance Although this hurts their bottom line, it is a more affordable way to market on a tight budget. 9. Businesses expect that customers will continue on coming back once the promotional discounts have been eliminated. Study for free with our range of university lectures! Increases value perception – There is a heavy psychological influence in the value-oriented market that promotional pricing strategy has. *You can also browse our support articles here >, https://www.marketing91.com/types-of-pricing/, ttps://www.quora.com/What-are-the-advantages-and-disadvantages-of-p, https://smallbusiness.chron.com/disadvantages-marketing-promotional-strategies-. Promotional Pricing is a sales promotion strategy in which the company brings down the price of an item considerably for a very small period of time. Home » Pros and Cons » 13 Promotional Pricing Strategy Advantages and Disadvantages. This generates demand for the product. The major focus should be in obtaining the correct price level during the price planning process where the sales and profits can be increase to the maximum, which will be up to your own marketing goals and objectives. This approach encourages customer to make more purchases so that they can earn more point. Registered office: Venture House, Cross Street, Arnold, Nottingham, Nottinghamshire, NG5 7PJ. team@taylorwells.com.au . If you need assistance with writing your essay, our professional essay writing service is here to help! This article aims to explore some of the advantages and disadvantages of sales promotion. Toggle menu. If someone cheaper comes along, they’ll abandon you for the better price. When your items are always priced at promotional rates, then the customers who come by will be looking for cheap products or services. Companies charge high prices because they add more value to the product. Retrieved from https://blog.blackcurve.com/why-use-promotional-pricing, Murphy, D. (2018). According to Gray, Thomas (2012), “They introduce it for a narrow slice of the market or products, publicize it, track the additional sales, and assess whether any profit improvement resulted from the discount. With the promotional pricing strategy, your shirt becomes the most tempting target because it has a low cost and wasn’t previously rejected by someone else. In order to bring in more customers, numerous companies apply sales promotions and this can be a problem because once the promotions are over with, the customers are gone too. Promotional Pricing: Advantages and Disadvantages. Let’s start with the pros first. The Advantages of Promotional Products. To create attention for their product, offering it at a discounted price can draw attention to the business and products being sold. Many promotional pricing strategies include stipulations that require consumers to purchase items “as is” or without the ability to make a return. According to Bhasin (2018), “Brand awareness is actually making the consumer acquainted about a particular brand or product. Often business use loyalty cards to give discounts and approve rewards, also offering discount coupons to whom is in the loyalty plan. To most, the downside of offering a discount is obvious: you make less money per unit sold. Companies continually test their promotion pricing in order to answer this key question. If you’re offering a discount on items that other businesses sell at full price, then you’re undermining their marketing efforts to benefit from short-term sales. Prices can be reduced by a percentage amount for a limited duration and an item is therefore deemed to be in a Sale. VAT Registration No: 842417633. The reality is that is discounted price is perceived as a good value, it will bring is more sales, which would allow for a good profit margin. It CAN happen, but not necessarily. Advantages and Disadvantages of Traditional Marketing ... as they don’t need any explanation about the promotional material. According to a credit card company, it is eight years the average customer life. This gives your buyer a meaningful financial advantage and improves your revenue management by accelerating payments. explains various pricing strategies whereas the next section discusses advantages and disadvantages of various pricing strategies. If prices are set to low, the risk may be not return on the investment and extremely low margins. One thing to remember is that initiating a promotion takes some time, capital investment and energy. 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 … That’s why these key points are important to recognize with this sales strategy. Quora. It is a deliberate attempt at the cost of its loss of profit at the onset. This strategy has been included with marketing campaigns for about as long as businesses have been selling goods and services. So many recurrent discounts on prices or a low quality free gif may reduce the brand value. It may turn out to be too costly … With a promotional pricing strategy that takes 50% off that cost, making it $20, the value perception of the consumer is increased. At the beginning when introducing a specific product line, many companies will give a promotional pricing as a sales motivation. If not, it may seem as if the company’s promotional pricing strategy is been successful, when in reality in not creating the desired results. One of the disadvantages of discounts is that price reductions actually devalue your brand image. In order to obtain new clients where costs of the promotion is less than the entire margins they make from those new clients, this credit card company uses promotion pricing through the next seven years. Bringing new buyers is the main advantage of promotional pricing, additionally, it aids in growing the cash flow of the business and also assist to increase the demand of the merchandise; promotional pricing is a very effective strategy. After tax profit at most companies tends to fall between 10% and 17%, so a 15% savings offer leaves thin margins. Following we will see some examples of these disadvantages. Let’s take the example of a shirt. To export a reference to this article please select a referencing stye below: If you are the original writer of this essay and no longer wish to have your work published on UKEssays.com then please: Our academic writing and marking services can help you! Competitive Advantage. Instead of offering a promotional pricing strategy, the retailer offered prices that were based on “everyday” pricing. More likely, when a customer goes shopping at the market place, the customer may see different brands for a specific item but the customer may definitely buy the item, she/he is more customary with and more recognizable item. Predatory pricing is defined as a strategy where a product or even a service is set at such a low price that it drives most of the competitors out of the race. The availability and existence of a specific brand in the minds of people is very important as we live in a world where people have a tendency to lean towards branded products. Disadvantage: Changes Customers' Price Perceptions. Lifetime Value. Instead of offering a free product trial, a discounted price is a way to introduce a new product or service to your customer demographics if there is uncertainty in their interest. Those who would have eventually purchased an item anyway at the regular price, and promotion publicity costs, are included in lost margin of the cost. 23rd Sep 2019 The advantages can be great. (2011). Except buyer are aware of a specific brand and its merchandise, it is very difficult for a company to function successfully. That makes it more tempting to go through with the purchase. Looking for a flexible role? Customers will expect cheaper items if you’re putting them on sale frequently. Promotional pricing strategies can also be used to take care of debt commitments, achieve steady revenue growth, and appease shareholders to generate long-term profitability. If it is priced at $40, that might be more than they’re willing to spend (or can afford) for that item, so they’ll pass on it, even though they need it. Price skimming covers the costs of innovation and provides money for product development. This helps to increase the demand for the product from price sensitive consumers. Similarly, special event pricing fails if consumers take advantage of the sales price but don’t become regular customers or buy other items. This type of strategy increases a consumer’s value perception. If you carry inventory with your business, then having it carry over to the next tax year could have a negative impact on your company tax responsibilities. There is no doubt that companies use different types of sales promotion very often to increase sales and beat competition. If this marketing strategy is always used, however, then the only customers who will stop by are the ones that will leave you as soon as a better deal comes along. One of the direct benefits of a promotional pricing strategy is that it will immediately drive better cashflows and revenue in short-term evaluation periods. Many sales offer discounts on limited products as well, which enhances the feelings of scarcity for the consumer. LOCATION . Selectivity. Businesses regularly look into promotional discounts if they need a boost of cash in order to cover short term expenses or debt obligations. That’s why you’ll see this marketing strategy used near the end of the year with retailers. Here are the pros to consider before running a price promotion: In 2012, JCPenney went with a program that they called “fair and square” pricing. Instead of bolstering confidence in your business, you’re inviting customers to have a lack of confidence in your offerings. For certain industries, that may create problems if the consumer receives an item that they feel was not properly described. Among the advantages of premium pricing are: First is the profit margin is thicker. So, if the MSRP price is for instance $89.99 for a pair of boots that the buyers see they are always on sale for $29.99, the buyers will question if the boots are truly worth $89.99. Digital marketing is not a cup of tea for older customers. A shirt that is always on sale for $20 becomes a shirt that is worth $20. The bottom line is this: if a customer finds a great deal, then they’ll come back to look for more great deals. Like any other advertising medium, promotional products marketing offers the marketer both advantages and disadvantages. You’ll be able to offset some of your costs because consumers will be paying something to gain access to what you offer. This helps to increase the demand for the product from price sensitive consumers”. Once a sales promotion worked for one item, it is not difficult for a business to fall into the trick and want to do it again. From Disabled and $500k in Debt to a Pro Blogger with 5 Million Monthly Visitors, 13 Promotional Pricing Strategy Advantages and Disadvantages, 13 Dynamic Pricing Advantages and Disadvantages, 15 Psychological Pricing Advantages and Disadvantages, 11 Dual Pricing Advantages and Disadvantages, 10 Price Leadership Advantages and Disadvantages, "From Disabled and $500k in Debt to a Pro Blogger with 5 Million Monthly Visitors. Currently there exist so many kinds of promotions, since companies create promotions in accordance with market demand and merchandise profitability, in which their only limitation is their own creativity. How promotions catch the attention of customers and at the same time how to maintain the attention for the long term success of the company, is something that companies’ leadership need to really look into. One of them retails for $30 and is placed on the regular rack of clothes. Profit spotter. 40% off Offer Details: Promotion Cost vs. If it is priced at $40, that might be … If during the promotion the margins on products are considerably reduce and the promotion has not been incorporated in the long-term sales strategy, the long term business goals fail because of the promotions. The margin on the promotion sale form those who would not have bought from us, and the margin form all their following buys for  as long as they continue to buy from us, are included in the profit. Prices can be reduced by a percentage amount for a limited duration and an item is therefore deemed to be in a Sale. Promotional Pricing Disadvantages Deal hunters: Promotional pricing can attract the types of customers who are only looking for deals. Another disadvantage of premium pricing is the high cost of marketing. We're here to answer any questions you have about our services. You can even get customers to look at, or even purchase, items that are not on sale because they came to look at your discounted products. Here are the advantages and disadvantages of a promotional pricing strategy to consider. Nagle, T. T., Hogan, J. E. & Zale, J. In the marketing mix after the product, the second most important factor is the kind of price that is being used. But the truth is that the promotion given was only slightly less the original price, which in reality was higher than other competitors. Money off offers with coupons and customized discounts on products that are especially for specific customer, augments on their loyalty cards. Brand awareness is very important with in promotional pricing strategy because consumer decision about buying a product or not, may very well have to do with the customer’s awareness about that specific brand. It may generate interest, but it will never product long-term results that keep you in business. Marketing can help you to create a positive image of your company in the market. 1. Retrieved from, Business Jargons. 1. But company leaders should consider using different promotion types and strategies and know how to combine them so that they can keep the overall profit margins on products. They will accept the flier or pamphlet distributed, and will read it whenever they get time and in no time, the old people would understand that it is an advertisement for any brand or a product. CODES (3 days ago) Here are the advantages and disadvantages of a promotional pricing strategy to consider. Giving a price discount should be an informed decision by a company on a specific items or brands. Why use promotional pricing?. Bringing new buyers is the main advantage of promotional pricing, additionally, it aids in growing the cash flow of the business and also assist to increase the demand of the merchandise; promotional pricing is a very effective strategy. When considering the lifetime value of one’s business, promotions make financial sense. Prices are reduced for a period of time through discounts, special offers or the use of vouchers. If you purchase an item that is “on sale,” then you have taken advantage of a promotional pricing strategy. A company that sells its products at premium prices is required to invest high in marketing to create awareness about the product. As with other pricing, this strategy has some advantages and disadvantages. Once the price goes back to the usual, consumers become sensitive to the cost, and this apply to product like televisions to cereal. Just to mention some examples, credit card interest, the automobile servicing, e-book purchase vs. e-reader deices, replacement parts and blades for razors. Promotional pricing strategies have risks. To buy one product and get a new kind of product for free is what this kind of pricing concentrates on. There are several advantages to business that use promotional pricing and increases the sales of those products. As with anything in life, psychological pricing also has its pros and cons. 13 Promotional Pricing Strategy Advantages and Disadvantages. This is because the distribution and the promotion mix can be modified by the kind of pricing being used. Advantages and Disadvantages of Psychological Pricing . Following are some of the advantages of using promotional pricing. Promotional pricing creates short-term revenues that can be used to take care of specific debts or events. 20% off Offer Details: One of the biggest aims and advantages of sales promotion is that it helps boost the sales of a company.During the sale promotional period, there is always an increase in the level of sales. When considering the lifetime value of one’s business, promotions make financial sense. According to McCormick (2016), “promotional pricing is one of the most powerful sales strategies there is. Let’s now say that there are three shirts of similar cut and style that the consumer is thinking about purchasing. The disadvantages of using promotional pricing. Chron. Revenue Growth – To drive more revenue and to increase cash flow in little time into a company, promotional pricing is frequently used. When used sparingly as a way to liquidate old inventory or introduce consumers to your products or services, it can be effective. As we have already learned, promotional pricings are incentives that are generally meant to bring in buyers, to turn over stock and to drive revenue and cash flow. The strategy and tactics of pricing: A guide to growing more profitably. Revenue growth. There are circumstances where it may be necessary to work with other business leaders to create sales that do not conflict with other marketing opportunities, so that everyone can get a win. The thought is to entice buyers to continue on coming back for more through reward programs that motivates more purchasing to obtain future perks, promotional gifts and/or discounts. Another disadvantage is that the promotional pricing may ‘steal’ sales from the future, which might even have been full price sales. It is also very important that a company takes into consideration how sales will affect the company’s brand. If consumers come in with the idea of buying a low-cost product and realize that it’s not on sale, they may leave and come back when there is another sale. Reference this, Introduction ………………………………………………………………………………………4, Why use promotional pricing? This is because buyers are more incline to buy from reputed branded products although their products are priced a little higher, The awareness that has been generated in the buyer’s mind about the brand, it’s the reason why. It has become vital that most people have at least heard about the brand and recognize it as it can prove to be an asset for the company”. It can be an enormous job to set up the correct price for products and services while establishing a new company and it could be equally for a company that has year of existence on the market. ", 14 Japan Semiconductor Industry Statistics, Trends & Analysis, 23 Headphone Industry Statistics and Trends, Spotify SWOT Analysis for 2021: 26 Strengths and Weaknesses, Uber SWOT Analysis for 2021: 23 Major Strengths and Weaknesses, Netflix SWOT Analysis (2021): 23 Biggest Strengths and Weaknesses, Tesla SWOT Analysis (2021): 33 Biggest Strengths and Weaknesses, 14 Core Values of Amazon: Its Mission and Vision Statement, Is AliExpress Legit and Safe: 15 Tips for Buyers, How Does Zoom Make Money: Business Model Explained, A Look at Southwest Airlines Mission Statement: 10 Key Takeaways, Apple’s Mission Statement and Vision Statement Explained, How Does WhatsApp Make Money: Business Model & Revenue Explained. Liquidation of old inventory through sale is yet another advantage that promotional pricing offers. The good thing is that promotional prices are open to all customers, unless there is a feasible exemption due to a credit check for an offer requiring better credit status. When testing, the same cautions apply: be sure to publicize the promotion; be sure to track it fully, and try to determine whether the customer would have bought anyway at the original price”. One has to estimate the cost and the gains in order to do the math. There are several main types of pricing, however in this paper I will concentrate in doing an introduction of promotional pricing, why to use promotional pricing?, promotional pricing strategy, brand awareness, The advantages of using promotional pricing, Promotion Types and Promotion Cost vs. Pros and Cons of Discount Pricing. This may lead you to think you will make a lower profit with discount pricing. It can offer a business a high return on their investments. Retrieved from h, Leonard, K. (2018). We've received widespread press coverage since 2003, Your UKEssays purchase is secure and we're rated 4.4/5 on reviews.co.uk. The main disadvantage is that promotional pricing tends to produce cash flow but not profit. Promotional pricing is similar to bundling price, however, here the merchandise are put together so as to make the client use the bundled merchandise for the first time. Nevertheless, in the marketing mix after the product, the second most important factor is the kind of price that is being used. Following are some of the advantages of using … However, on the other side a well thought out loyalty plan would both boost the company’s image and supply you with data on your customers purchasing behavior that may be useful for the company. Key Words: Pricing Strategies, Marketing Mix, Cost Plus Pricing, Demand Oriented Pricing. It may take the form of a buy one, get one promotion, a coupon that is clipped from a mailed flyer, or a promo code that a website offers for a specific discount on certain items or services. The low price of individual product leads to higher revenue in bulk as more quantities get sold. BLACKCURVE. Early-adopters naturally become the word of mouth marketing channels. CODES (3 days ago) It may take the form of a buy one, get one promotion, a coupon that is clipped from a mailed flyer, or a promo code that a website offers for a specific discount on certain items or services. The advantages of psychological pricing are too good to ignore – from more sales, to safeguarding purchases that might’ve otherwise gone to a competitor, to building customer loyalty. Moving old supply as well as to increase brand awareness is something that promotional pricing can also be used for.