What Is Promotional Pricing Strategy: Meaning, Examples, and Benefits

Choosing the right pricing strategy is one of the most fundamental aspects of business success. It can position you competitively in the market and enable you to attract new customers, boost sales, and enjoy better profit margins.

One of the frequently used pricing strategies today is the promotional pricing strategy.

In the following sections, we take a deep dive into this pricing model. We explore what it is, how it works, what its benefits and drawbacks are, and more. 

What Is Promotional Pricing?

Before we dig into the details, let’s start with a promotional pricing definition. 

Promotional pricing is a pricing method or marketing strategy where companies lower the price of a product or service to attract consumers or meet a specific marketing objective. The main objective of this pricing technique is to increase sales volumes, get rid of any extra inventory, and secure new and repeat customers. 

In most cases, promo pricing lasts for a very limited time in order to stimulate demand and create a sense of urgency in the minds of consumers. 

Promotional pricing refers to a range of different promotional tactics that we’ll look into later on in this article. 

Key Elements of Promotional Pricing

Promotional pricing creates a range of opportunities for businesses, no matter the industry they’re in or their size. 

However, in order to work, there are three core elements that need to be covered:

• Temporary discounts – no matter the type of promotional pricing strategy, prices are always reduced for a set promotional period.

• Sense or urgency – techniques like “flash sales” or “limited-time offers” are often used to trigger an immediate response and action from consumers.

• Targeted goals – promotional pricing strategies are always aimed at a specific goal – whether it’s increasing customer traffic, clearing inventory, or gaining market share. 

Combined, these elements help brands generate quick demand for products or services. As a result, they can benefit from better market positioning, more popularity, and ultimately – more revenue.

Types of Promotional Pricing Strategies

It’s important to note that not all promotional pricing strategies are created equal. There are plenty of different options to explore and choose from, based on your goals and objectives.

Below, we take a look at some of the most popular promotional pricing models.

Price Promotions 

Price promotions or price discounts, as the name suggests, is a promotional pricing strategy where brands offer discounted prices on products or services to increase demand from price-sensitive customers. 

There’s an unwritten rule that most businesses follow suggesting that price discounts are only used when the product is elastic. This means that setting a lower price will result in higher sales volumes. 

In addition, price discounts are normally successful during peak seasons, where more sales mean a higher stock turnover rate. 

Coupons

Coupons, on the other hand, are entirely concentrated on generating repeat sales. 

This technique can be used both across offline and online channels, either via physical coupons or online coupon codes. In most cases, they’re rewarded to consumers after making a purchase, encouraging them to come back and spend more with the brand in the future.

Flash Sales

Businesses utilising the promotional pricing approach can also explore flash sales – a strategy where prices of specific products or services are reduced dramatically over a very short period of time. 

For example, imagine a very popular tech product being reduced by 60% the weekend before Valentine’s Day. These promotions are usually isolated and marketed actively to create instant demand.  

Seasonal Sales

Seasonality is a powerful factor in business. 

From a promotional pricing perspective, seasonal sales can be considered a continuation of flash sales. Usually, they’re launched to offer a specific category of products during specific seasons.

These price reductions during holidays or seasonal transitions work incredibly well for some brands but don’t fit in with all niches. 

For example, in the clothing space, brands usually launch seasonal sales four times a year – during summer, fall, winter, and spring. 

Buy One, Get One (BOGO)

Another popular promotional pricing method is the Buy One, Get One or BOGO strategy. 

This technique encourages volume sales by offering a free or discounted second item along with the first product or service the customer purchases. Usually, BOGO deals are advertised via promotional materials like coupons or offer codes. They’re actively used across a wide range of industries and niches. 

Buy One, Get One promotions are associated with tremendous success, as they provide double value for consumers, making them more willing to spend with the brand.

Loyalty Discounts

Loyalty discounts usually go hand in hand with loyalty programs. 

This promotional pricing strategy aims to create brand loyalty by making special offers to repeat customers. 

This form of promotional pricing is a strategic way to keep customers coming back – one of the biggest challenges companies face due to the aggressive competition in the market. Given that customer acquisition is incredibly expensive, this pricing model is a cost-effective move to make a difference.

A well-structured POS loyalty program makes loyalty discounts more effective, helping businesses boost customer retention while keeping costs under control.

Benefits of Promotional Pricing

Promo pricing offers a diverse range of benefits for businesses that explore its potential. It can lead to more sales, new customers, clearing of inventory, stronger loyalty, and more.

Increased Sales Volume

One of the biggest perks of promotional pricing is that it generates more revenue and cash flow in the short term.

As noted above, this strategy can attract price-sensitive shoppers and, therefore, drive higher transaction numbers. This instant inflow of capital results in a sudden boost in sales as a result of the lower prices. 

Ultimately, this means that more product quantities are sold, leading to more revenue. 

Attract New Customers

Another unmissable potential of promotional pricing is its ability to attract more customers, and most importantly, new customers.

Shoppers who might not have otherwise considered your brand may be tempted by the low price point. One good example of this is when a new restaurant offers a 30% discount during its grand opening week. 

This can be an intelligent way to build your customer base and gain more market share. 

Clear Excess Inventory

As mentioned above, promotional pricing is also a strategic way to get rid of extra inventory and more unsold or seasonal stock. 

This can help you clear up valuable space and capital, enabling you to invest in and store more product lines. As a result, businesses can solve one of the most frequently seen issues – locked capital and limited storage. 

Build Customer Loyalty

Earlier, we noted that some promotional pricing techniques are specifically targeted at encouraging repeat business. 

By offering attractive coupons or other promotions, companies can help strengthen their relationships with existing customers, inspiring them to come back and spend more with the brand. 

An example of this is when loyalty members receive exclusive, early access to promotional sales. 

Gain Competitive Advantage

Promotional pricing can help brands create differentiation in aggressive industries and niches by offering perceived value. 

For instance, think of eCommerce platforms providing limited-time discounts during peak shopping seasons. Naturally, more consumers are bound to be lured in by this opportunity, neglecting other competitors that don’t offer this perk. 

Challenges of Promotional Pricing

As beneficial as promotional pricing campaigns may be, there are also a set of drawbacks that need to be addressed.

Here are the biggest promotional pricing risks that you should be aware of.

Profit Margin Reduction

Although lower prices can attract more customers and drive more sales, they can also be damaging to your profit margins.

If not carefully planned, price reductions can eat away your margins, meaning less profits in the long term. 

To avoid this, use data to set discount levels that balance sales volumes and profitability. 

Price Wars

Another harmful effect of promotional pricing is the rise of potential price wars.

Competitors are highly likely to respond to your pricing strategy by implementing a similar approach and, sometimes, even offering deeper discounts. This can create an overall reduced profitability in the market, resulting in the survival of the strongest, least financially vulnerable businesses. 

One way to escape this scenario is to focus on value-added promotions, such as bundles or loyalty perks, rather than just price cuts.

Customer Expectations of Discounts

Promotional pricing can also lead to undesired habits among consumers – mainly the expectations of constant discounts and promotions.

Without a doubt, frequent promotions may train customers to wait for sales, reducing full-price sales. This can make it much harder to attract shoppers with quality rather than a price tag. To prevent this from happening, you can limit the frequency and duration of promotions to maintain perceived value.

Impact on Brand Image

Finally, it’s important to consider the effects promotional pricing can have on your brand reputation. 

As mentioned above, excessive discounts may devalue the brand or create a perception of lower quality, pushing away shoppers. Even if a consumer is willing to pay the discounted price, with a poor brand image, attracting customers with a full price will be mission impossible. 

Steps to Implement Promotional Pricing

Let’s say you want to enhance customer loyalty and encourage repeat purchases with a promotional pricing model. 

What can you do to implement this sales strategy and influence purchasing behaviour?

For starters, it’s crucial to understand the importance of market research for this pricing method. You’ll need to invest resources and time into becoming fully aware of the market you’re in, your target audience, its spending patterns and behaviours, and more. 

Make sure that you set clear objectives for the strategy and determine what it aims to achieve – boost sales volumes, get new customers, clear inventory, or others.

Next, segment your target audience based on spending behaviour, product or service preferences, demographics, and other characteristics. This will help you personalise your promotions, making them even more appealing. 

Don’t forget to set an optimal timing and duration for the promotional campaign. Take into account factors like seasonality, events, and holidays. The ideal scenario is to offer the promotion long enough to build awareness and attract attention but not too long to risk creating assumptions of poor quality. 

Choose the channels that you’ll use to advertise your campaign. These could be email, social media, website, or physical marketing. No matter the channel you rely on, it’s key to create a sense of urgency. You can do this by using phrases like “limited time only” or “while supplies last”. 

Once your promotional campaign is live, monitor and track its performance with the help of metrics. This will help you stay informed about the achieved results and make improvements where necessary. 

Metrics to Measure Success

You can track the performance of your promotional pricing campaigns by using several Key Performance Indicators (KPIs):

• Sales volume – Demonstrates the increase in units sold during the promotional period.

• Customer acquisition – Shows the number of new customers gained through the promotion.

• Revenue growth – Gives an overview of the additional revenue generated compared to the baseline.

• Inventory turnover – Monitors the reduction in excess stock levels during the time of the promotion.

• Customer retention – Gives insights into the percentage of promotional buyers who make repeat purchases.

By keeping an eye on these KPIs, you can ensure that your promotional pricing strategy is always on point, delivering the results you’re after.

Is Promotional Pricing Right for Your Business?

In most cases, this pricing model is best for retailers with seasonal or excess inventory. It’s also ideal for eCommerce businesses looking to boost traffic. 

Service providers who seek ways to acquire new customers or encourage loyalty can also greatly benefit from this pricing strategy. 

If you decide that this technique is right for you, make sure that the promotional period aligns with your business goals. Also, it’s fundamental to balance discounts with maintaining a sustainable profit margin.

Conclusion

Overall, promotional pricing is an effective strategy to drive sales, attract customers, and eliminate excess inventory. It can help businesses build their customer base and enjoy more popularity in their niche.

However, to achieve the desired results, you’ll need to make sure that you’re setting optimal prices to protect your profit margins. 

We hope that this article will give you the foundation you need to get started with promotional pricing. 

Frequently Asked Questions

When should you use promotional pricing strategies?

You should use promotional pricing strategies during seasonal sales, product launches to encourage trial purchases, clearance of excess inventory, responses to competitors’ pricing strategies, or efforts to attract new customers with lower prices.

What’s the difference between promotional pricing and price skimming?

Promotional pricing temporarily reduces prices to boost short-term sales. In contrast, price skimming starts with high prices and gradually lowers them to maximize profits from early adopters.

What are some examples of promotional pricing in action?

Promotional pricing examples can be seen across a range of areas, like the retail industry, the eCommerce space, and others. Some real-life examples are Black Friday deals, winter clearances, daily deals, and more.