The debate goes on with two sets of retailers and owners supporting and not supporting this pricing strategy. Promotional pricing is one of the most helpful yet disruptive strategies for retail companies. While both sides have proven records of gaining success or failing to do so, in this post, let us get into it to offer an objective picture of what’s going on in the realm of retail promotional pricing.
Just in case you are still wondering what promotional pricing is, we’ll explain it to you in detail. Some retailers, to make more sales in a shorter period, bump down the prices. They reduce it so much that there comes a sudden rush of customers as a response to the slashed costs. What’s more, they also offer the same discount depth for all the promoted products — which is not the best strategy since, ideally, every product should have its discount based on its demand and a variety of other factors.
Now, this is what promotional pricing is all about. It’s referred to as “promotional” because the company gives early promotions to create hype and takes advantage of it in terms of increased traffic.
But, again, is it flawless as a pricing strategy? Does it necessarily translate into growing profits and revenue? Unfortunately, ‘no’ is what you get to read, and the ‘why’ comes below.
Do You Think Last-Minute Purchases Are Deal Breakers?
As a retailer, when you promote your reduced-cost products, a huge number of buyers buckle up. From the very moment the sale starts, they rush in and check out with favorite items. These things might seem reasonable to you, but what about the last-minute rush? From a retailer’s perspective, it might look very appealing to you. It is, however, not that much in reality, though. Know that the people who rush at the last minute have higher tendencies to ask for a refund soon. This will harm your revenue goals.
Customer’s Expectations Can Hit Your Growth Today
The online markets of today are no less than calling overcrowded. Overcrowded, not just because of having many competitors, but more because of having more promotional sales. People are so familiar with the number of yearly promotional sales that they do not seem to bother about it anymore.
Have DIY stuff, reach for ten random buyers and ask them to mention the super sale dates of the month. Yes, they know about it all, and even if they miss a sale, they know they are doing it for good. Maybe, they are expecting that the Smartphone they want to buy will go down further by price in the next sale. Won’t this practice hurt you, retailers?
Competitors Make the Market Oversaturated
Oh, did you forget that you are not alone with the idea of promotional pricing and sales? Your competitors are probably watching you and are keen to snatch the ball from your court. That is pretty normal but not good news for your business. Soon, there will be more blockbuster sale alerts through promotions, and guess what, the market will get overcrowded. Is that going to be a problem, well surely it is. Not for the buyers, but brands like yours, will surely face a backlash. And will have to get sucked into deadly price wars, which usually have no winners in the end.
Oversaturated Markets Cannot Produce Loyalty
What this point is trying to say is when buyers have enough choices, they do not become loyal. Such buyers are called butterfly customers. As you know, there is a certain mass of buyers, which every company can boast about. These buyers are the loyal ones who have had a good experience with the products of the company. They look forward to sticking with the brand and continue providing them business.
As for overcrowded markets, loyal buyers do not exist at all. This is probably because nearly all companies give more or fewer discounts and offer periodically. Without loyal customers, companies cannot predict their growth in absolute numbers.
Not Everyone Loves Promotional Pricings
According to Competera, promotional pricing might attract a large mass of people, but not everyone loves it. Reports based on surveys say that around 60% of buyers like to get significant discounts. The rest of the buyers cannot stand up to the fact. Having a 500 bucks gadget for half or even lower the price seems suspicious to them. While this does not seem to be an issue to you, this does matter negatively.
Constant Discounted Pricings Can Have Adverse Effects
If you make it a habit of bringing in random discounts and reduced costs, the craze will no more be there. With the end of craze, your sales will end too. Even your regular customers might stop buying from you in the long run. Well, these things will not make you happy, will they?
Constant Discounts Rupture Reputation
Yes, continually putting promotions regarding upcoming discounted sales is going to ruin your own game. Gradually, customers will take your company as a cheap retail store. Your brand will lose reputation and start losing customers as well. This will surely be a hard blow to your brand, as well as your sales and profits.
Concluding, yes, promotions are a traffic-magnet for price-sensitive and cherry-picking buyers. They do help retailers boost sales enormously for a short period. But they also put retail companies into the vicious circle of constant promotions which eat into their margins.
In a nutshell, constant promotions:
- harm your brand reputation;
- detrimental to customer loyalty;
- provoke a massive wave of returns;
- decrease margins significantly;
- get retailers sucked into endless price wars.
So, the piece of advice for retailers would be to launch promotional campaigns wisely, know the best discount depth for every promoted item to save margins, and do not tap into promotional activities too often not to make customers accustomed to constant discounts.