Following are some of the advantages of using … Bhasin, H. (2018). It can work well in a lot of situations but it can do more harm than good in some. 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. The advantages can be great. Here are the pros to consider before running a price promotion: Just to mention some examples, credit card interest, the automobile servicing, e-book purchase vs. e-reader deices, replacement parts and blades for razors. Why use promotional pricing?. Most people are familiar with cheaper prices for las minute tickets at airports and expensive resorts. There is no doubt that companies use different types of sales promotion very often to increase sales and beat competition. 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. With a promotional price, the consumer receives full access to a product or service at a price that is lower than what the regular or “normal” price happens to be. 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. At the beginning when introducing a specific product line, many companies will give a promotional pricing as a sales motivation. To be successful in this manner, it must be clearly communicated that your promotional pricing is for a limited time only. If you have 60-day terms for invoices, you might consider offering a two percent discount for payments received within 30 days. 20% off (1 months ago) (2 months ago) Advantages and Disadvantages of Sales Promotion . We've received widespread press coverage since 2003, Your UKEssays purchase is secure and we're rated 4.4/5 on reviews.co.uk. So many recurrent discounts on prices or a low quality free gif may reduce the brand value. Lifetime Value ……………………………………………………………13. Prices can be reduced by a percentage amount for a limited duration and an item is therefore deemed to be in a Sale. Customers do not like to be deceived with inflated price mark ups, they are knowable and that promotional price makes the buyer question the value of that specific item that when that item is not on sale any more, the buyer may not even consider it anymore. It is also very important that a company takes into consideration how sales will affect the company’s brand. Promotional Pricing Disadvantages Deal hunters: Promotional pricing can attract the types of customers who are only looking for deals. Profit spotter. 23rd Sep 2019 Often business use loyalty cards to give discounts and approve rewards, also offering discount coupons to whom is in the loyalty plan. Good sales promotions do not merely place a product on sale, and as a company’s owner, you do not want consumers to say, “if it was half price, I would buy it for sure”. Company Registration No: 4964706. Retrieved from. List of the Advantages of a Promotional Pricing Strategy. Disadvantages. 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. ", 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. There are several advantages to business that use promotional pricing and increases the sales of those products. Retrieved from, Business Jargons. 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. Promotional Pricing Strategy Advantages and Disadvantages. Promotional pricing is a way to generate consumer interest in specific products or services that individuals or companies offer. Promotional Pricing: Advantages and Disadvantages. Promotions create higher levels of consumer loyalty. Quora. LOCATION . 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. 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. Retrieved from, McCormick, M. (2016). 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. There are several main types of pricing, however in this paper I will concentrate in doing an introduction of promotional pricing. The primary reason why so many companies choose to use promotional products either on a regular basis or for specific events is that they work. Nagle, T. T., Hogan, J. E. & Zale, J. 11 different Types of pricing and when to use them. List of the Advantages of Psychological Pricing 1. Demand Creation for New Products. When considering the lifetime value of one’s business, promotions make financial sense. 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. The advantages and disadvantages of promotional pricing. 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. All work is written to order. A shirt that is always on sale for $20 becomes a shirt that is worth $20. Except buyer are aware of a specific brand and its merchandise, it is very difficult for a company to function successfully. For certain industries, that may create problems if the consumer receives an item that they feel was not properly described. Home » Pros and Cons » 13 Promotional Pricing Strategy Advantages and Disadvantages. E-MAIL . Let’s now say that there are three shirts of similar cut and style that the consumer is thinking about purchasing. Our academic experts are ready and waiting to assist with any writing project you may have. Therefore calculation have to be done to assess the possibility of giving a discount and for how long they can give this offer. It CAN happen, but not necessarily. This creates a race to the bottom where some businesses may be willing to take a loss just to generate a few revenues. Let’s take the example of a shirt. Also, a great number of buyers who would like to buy high price products as electronics will wait for the holiday sales season. If your consumers know that you’ll place items on sale, then they’ll wait for the sale price to make their purchase. 13 Promotional Pricing Strategy Advantages and Disadvantages. July 18, 2020 By Hitesh Bhasin Tagged With: Sales management articles. ………………………………………………………………………………………….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. That makes it more tempting to go through with the purchase. Your sales price then creates a new margin for your normal sales, which means you’ll lose people when you return the item to its “normal” price. When considering the lifetime value of one’s business, promotions make financial sense. 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. Nevertheless, promotional and differentiated prices posed the same question: is the extra sales valued more than the cut-price margin per sale? When customers go shopping, they are balancing the need they have for specific items with the cost of obtaining that item. Looking for a flexible role? Promotional pricing creates short-term revenues that can be used to take care of specific debts or events. 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. As with other pricing, this strategy has some advantages and disadvantages. In 2012, JCPenney went with a program that they called “fair and square” pricing. When used sparingly as a way to liquidate old inventory or introduce consumers to your products or services, it can be effective. Do you have a 2:1 degree or higher? 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. 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. At the beginning when introducing a specific product line, many companies will give a promotional pricing as a sales motivation. Liquidation of old inventory through sale is yet another advantage that promotional pricing offers. The bottom line is this: if a customer finds a great deal, then they’ll come back to look for more great deals. Just like those big name brands, your pricing should be aspirational. One thing to remember is that promotions are short term, therefore promotion pricing is intended to offer a temporary increase in the company’s sales by presenting more appealing terms than the regular list prices. That makes it possible for consumers to ignore your products when they aren’t on sale. 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. When your items are always priced at promotional rates, then the customers who come by will be looking for cheap products or services. Advantages and disadvantages of premium pricing. One of them retails for $30 and is placed on the regular rack of clothes. 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. 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. 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. 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. BLACKCURVE. 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. If someone cheaper comes along, they’ll abandon you for the better price. team@taylorwells.com.au . For a small business, advanced marketing techniques to bring in new customers may be too expensive to include with their outreach plan. Here are the advantages and disadvantages of a promotional pricing strategy to consider. A company that sells its products at premium prices is required to invest high in marketing to create awareness about the product. Following are some of the advantages of using promotional pricing. 13 Promotional Pricing Strategy Advantages and Disadvantages. 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. 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. When it goes back to its $40 pricing, consumer sentiment will be that it isn’t worth that price. Increase unit sales; useful when production cost is a small % of total cost, Attract new buyers to the product line; sell more high margin accessories or tie-ins, Attract more buyers now who will return later and/or buy accessories or tie-ins, Sell for list price but offer discount via cash back, Maintain list price; offer appearance of a deal; reduce cost of discount by % of buyers who do not pursue the rebate procedure, Maintain list price; attract more buyers via lower monthly payment; Seller pays part of interest cost, Longer payment terms or no payments until (delayed start), Maintain list price; attract more buyers via lower monthly payment; seller may borrow working capital to replace delayed cash flow, Maintain list price; attract more buyers by reducing their perceived risk; useful when most warranty issues occur early in the life of the product, Free component (free razor; pay for blades), Attract more buyers; useful when most margins result from sale of consumable accessory (blades). 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. What it does not do is create a foundation for long-term success. 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. Advantages of Psychology Pricing The first and foremost advantage of psychology pricing is that it helps company in generating more sales because a product which is priced at $100 will result in lower sales as compared to that product which is priced at $99.99 because in the minds of the customer this 1 cent convert the product from 3 figure priced product to 2 figure priced product. This sets a dangerous precedent. The Disadvantages of Marketing & Promotional Strategies. How long does your average customer buy from you? A good number of customers perceive that an item is cheaper than they could buy somewhere else by business placing a red sales tag on an item, which is certainly less than the original price they were asking for. Lifetime Value. Discover how bookings for cruise ships were not deterred despite the pandemic. This type of strategy increases a consumer’s value perception. 40% off Offer Details: Promotion Cost vs. When customers go shopping, they are balancing the need they have for specific items with the cost of obtaining that item. Some examples of promotion types are: The table below depicts types of promotions in a more simple way. Before stablishing a price, there are some factors that have to be taken into consideration and current market supply and demand, political and economic impacts and also competition levels guide those factors. The Advantages of Promotional Products. Offering discount pricing is a great way to give your buyers an incentive to pay you early. The costs of carrying that inventory over may be greater than if you sold some of those items at a steep discount. These promotional pricing strategy advantages and disadvantages let us see how short-term gains can be beneficial to an organization. In just one year, the company experienced a 13% drop in consumer traffic and saw sales plunge by 25%. 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”. Promotional pricing. 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! When customers go shopping, they are balancing the need they have for specific items with the cost of obtaining that item. Like any other advertising medium, promotional products marketing offers the marketer both advantages and disadvantages. 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. The short-term motive of sales promotions can work against the typical long-term goals of companies, including creating customer loyalty. Optional Product Pricing: Meaning, Advantages, and Disadvantages September 14, 2019 By Hitesh Bhasin Tagged With: Sales management articles Optional Product Pricing is a method to determine product costs where a business sets a low cost for its most basic product and then profits from selling more costly accessories. From simple essay plans, through to full dissertations, you can guarantee we have a service perfectly matched to your needs. Promotional Pricing. CODES (6 days ago) Promotional Pricing: Advantages and Disadvantages. 13 Promotional Pricing Strategy Advantages and Disadvantages. Advantages and Disadvantages of Traditional Marketing ... as they don’t need any explanation about the promotional material. If successful, these customers may refer others to your company, where there may be more interest in the full-price item later on. This helps to increase the demand for the product from price sensitive consumers”. Reference this, Introduction ………………………………………………………………………………………4, Why use promotional pricing? Giving a price discount should be an informed decision by a company on a specific items or brands. It should not be treated as authoritative or accurate when considering investments or other financial products. Advantages and disadvantages of promotional techniques Mix Element Advantages Disadvantages Advertising The Internet's vast reach can allow advertisers to One disadvantage of advertising on the Internet reach significantly more people than traditional is that your marketing materials are advertising media at a fraction of the cost. Ineffective Long-Term Success – In reality promotional pricing are only effective as short-term strategies due to the risk that sales promotions could tarnish the brand and also create price sensitivity among consumers. Free resources to assist you with your university studies! VAT Registration No: 842417633. Key Words: Pricing Strategies, Marketing Mix, Cost Plus Pricing, Demand Oriented Pricing. Nevertheless, in the marketing mix after the product, the second most important factor is the kind of price that is being used. What are the advantages and disadvantages of promotional pricing?. To earn greater margins in one out of two possible ways is the goal of differentiated pricing. CODES (3 days ago) Here are the advantages and disadvantages of a promotional pricing strategy to consider. The greater the brand awareness, the more the buyer will desire to buy that specific item. Spot ways to grow profits. Advantages 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. Advantages and disadvantages of sales promotion . But the truth is that the promotion given was only slightly less the original price, which in reality was higher than other competitors. Let’s start with the pros first. Consumers may look at your promotional pricing and decide to purchase because they understand that the lower price is only available for a limited time. Although this hurts their bottom line, it is a more affordable way to market on a tight budget. Increases value perception – There is a heavy psychological influence in the value-oriented market that promotional pricing strategy has. Let’s examine some of the psychological pricing strategy advantages and disadvantages. We're here to answer any questions you have about our services. Promotional pricing. This type of strategy increases a consumer’s value perception. Let’s take the example of a shirt. Retrieved from h, Leonard, K. (2018). If prices are set to low, the risk may be not return on the investment and extremely low margins. 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 … Because specialty advertising items are generally distributed directly to target customers, the medium offers a high degree of selectivity. 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. To create attention for their product, offering it at a discounted price can draw attention to the business and products being sold. However, like all other marketing techniques, sales promotion has its own disadvantages too. Very well-known brands make larger sales amounts compare to ordinary brands selling the same product a cheaper price. Retrieved from https://blog.blackcurve.com/why-use-promotional-pricing, Murphy, D. (2018). The old … There are several advantages to business that use promotional pricing and increases the sales of those products. Short-Term evaluation periods traffic – to draw the budget-conscious customer, augments on their.! Financial sense the disadvantages of sales promotion techniques stimulate the desire in to... 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