Price promotions, also known as promotional pricing, are strategies that have been used in marketing campaigns for as long as businesses have been selling goods and services. They’re obviously a popular method of increasing sales and attracting customers, but, despite their popularity, they often sacrifice profits by lowering your sales revenue.
In the past, when there was less competition in the market, price promotions were sporadically used by retailers to offload accumulated stock, for example. The current reality is different. With the number of competitors in the market and the existence of increasingly demanding consumers, it makes sense for many businesses to use large promotional discounts to stand out from the crowd. But is this constant barrage of sales necessary?
Here we’re going to lay out some of the reasons why promotional pricing often may not be as successful as retailers expect it to be or may even negatively affect your company’s image.
Increased price sensitivity
Consumers are increasingly astute and understand the marketing techniques that companies like to use. The bombardment of promotions that we mentioned earlier has left users more and more accustomed to waiting for deals. Because of this, unlike in the past, consumers no longer wait for the sales periods in July and January as if they were a godsend since they know that there will be another deal sooner or later. Beyond this, the majority of consumers don’t want to pay full price for an item unless it’s absolutely necessary because they know that a discount is waiting just around the corner. As a consequence, in addition to constant price wars, this also affects consumer price sensitivity.
Your reputation could be called into question
A retailer who often uses price promotions can be damaging their own image in the process. If a pair of shoes is sold at $30 with constant promotions, those shoes have a value of $30 in the eyes of the consumers. This means that when you want to return to the normal price, “X”, the consumer will resist. Even worse, they might think that the new price isn’t real, that it’s an inflated price that simply allows you to offer the “promotional price”. In short, this damages your reputation.
A weak foundation for long-term success
Price promotions generate short-term income but don’t provide a foundation for long-term success. When your products are constantly priced at promotional rates, the customers that you attract will be those that are always looking for cheap products or services, who will also abandon you for a better price. This is a race to the bottom where some businesses may be willing to do absolutely anything to generate some income.
Price promotions can be effective when used in moderation as a tool to sell off inventory or to introduce your products to consumers.
The truth is that opting for a pricing strategy involving constant low prices isn’t always a smart tactic. More and more retailers are opting to use price optimization software to help them increase their sales without sacrificing profits.