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. 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. 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. By reducing their inventory, they’re reducing their tax liabilities, and that means consumers win because they get products they want at a discounted cost. Following we will see some examples of these disadvantages. Bhasin, H. (2018). Companies continually test their promotion pricing in order to answer this key question. 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. Increases customer traffic – To draw the budget-conscious customer, promotional pricing is used as a strong incentive. It should not be treated as authoritative or accurate when considering investments or other financial products. 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. This article aims to explore some of the advantages and disadvantages of sales promotion. Advantages and Disadvantages of Traditional Marketing ... as they don’t need any explanation about the promotional material. Company Registration No: 4964706. Advantages Copyright © 2003 - 2021 - UKEssays is a trading name of All Answers Ltd, a company registered in England and Wales. 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. This sets a dangerous precedent. The advantages of promotional pricing are: Increase sales volume in the short term. 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. explains various pricing strategies whereas the next section discusses advantages and disadvantages of various pricing strategies. Marketing91. As with almost every business and e-commerce pricing strategies, competitive pricing strategy contains some advantages and disadvantages. In such a circumstance, a business is 99% guaranteed to receive negative feedback from the transaction because the consumer is stuck with something that they feel was misrepresented. At the beginning when introducing a specific product line, many companies will give a promotional pricing as a sales motivation. We're here to answer any questions you have about our services. 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. What it does not do is create a foundation for long-term success. Following are some of the advantages of using … E-MAIL . Yours is priced at $20 (which is 50% off) and is placed on a sales rack which advertises this fact. Businesses regularly look into promotional discounts if they need a boost of cash in order to cover short term expenses or debt obligations. Disclaimer: This is an example of a student written essay.Click here for sample essays written by our professional writers. A shirt that is always on sale for $20 becomes a shirt that is worth $20. Often business use loyalty cards to give discounts and approve rewards, also offering discount coupons to whom is in the loyalty plan. Money off offers with coupons and customized discounts on products that are especially for specific customer, augments on their loyalty cards. 13 Promotional Pricing Strategy Advantages and Disadvantages. Retrieved from, Business Jargons. Let’s examine some of the psychological pricing strategy advantages and disadvantages. Our academic experts are ready and waiting to assist with any writing project you may have. CODES (1 days ago) List of the Advantages of a Promotional Pricing Strategy 1. Let’s now say that there are three shirts of similar cut and style that the consumer is thinking about purchasing. Many techniques of sales promotion motivate prospects to test new products. One of them retails for $30 and is placed on the regular rack of clothes. 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. When it goes back to its $40 pricing, consumer sentiment will be that it isn’t worth that price. This type of strategy increases a consumer’s value perception. In just one year, the company experienced a 13% drop in consumer traffic and saw sales plunge by 25%. One has to estimate the cost and the gains in order to do the math. 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. Giving a price discount should be an informed decision by a company on a specific items or brands. However, like all other marketing techniques, sales promotion has its own disadvantages too. Promotional pricing creates short-term revenues that can be used to take care of specific debts or events. 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. Profit spotter. List of the Advantages of Psychological Pricing 1. This may lead you to think you will make a lower profit with discount pricing. 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. 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. In 2012, JCPenney went with a program that they called “fair and square” pricing. 8. 13 Promotional Pricing Strategy Advantages and Disadvantages. It may generate interest, but it will never product long-term results that keep you in business. Here are the advantages and disadvantages of a promotional pricing strategy to consider. The bottom line is this: if a customer finds a great deal, then they’ll come back to look for more great deals. 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”. 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. Study for free with our range of university lectures! Nagle, T. T., Hogan, J. E. & Zale, J. To create attention for their product, offering it at a discounted price can draw attention to the business and products being sold. There are many ways in which promotional items can be helpful based on what item you choose, how you brand them and the methods you choose for distribution. Retrieved from https://blog.blackcurve.com/why-use-promotional-pricing, Murphy, D. (2018). 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. Following are some of the advantages of using promotional pricing. Also, a great number of buyers who would like to buy high price products as electronics will wait for the holiday sales season. Related: 18 Major Advantages and Disadvantages of Supermarkets. 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. Organisations design new methods … 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). Lifetime Value. This gives your buyer a meaningful financial advantage and improves your revenue management by accelerating payments. Promotional Pricing Strategy Advantages and Disadvantages. To most, the downside of offering a discount is obvious: you make less money per unit sold. There are several main types of pricing, however in this paper I will concentrate in doing an introduction of promotional pricing. This type of strategy increases a consumer’s value perception. Every product that sells has a Manufacturer’s Suggested Retail Price (MSRP). Instead of bolstering confidence in your business, you’re inviting customers to have a lack of confidence in your offerings. 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. Pros and Cons of Discount Pricing. The greater the brand awareness, the more the buyer will desire to buy that specific item. This may help you “win” a purchase when your products or services would have been ignored otherwise. If successful, these customers may refer others to your company, where there may be more interest in the full-price item later on. There is no doubt that companies use different types of sales promotion very often to increase sales and beat competition. From simple essay plans, through to full dissertations, you can guarantee we have a service perfectly matched to your needs. If it is priced at $40, that might be … 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. 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. 20% off (1 months ago) (2 months ago) Advantages and Disadvantages of Sales Promotion . Predatory Pricing: Effects, Advantages, Disadvantages and Examples. Offering discount pricing is a great way to give your buyers an incentive to pay you early. Advantages. 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 advantages and disadvantages of 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! 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. This approach encourages customer to make more purchases so that they can earn more point. 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. *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-. Toggle menu. Dropping your prices can lead to a price war. As with anything in life, psychological pricing also has its pros and cons. The advantages can be great. Prices can be reduced by a percentage amount for a limited duration and an item is therefore deemed to be in a Sale. That makes it possible for consumers to ignore your products when they aren’t on sale. 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. 1. With a promotional pricing strategy that takes 50% off that cost, making it $20, the value perception of the consumer is increased. 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. That makes it more tempting to go through with the purchase. 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”. 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. Low prices provide an attractive incentive for customers to buy, especially those who are budget conscious. 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