Promotional Pricing – Examples and Case Studies

What is Promotional Pricing?

Promotional pricing is when a brand lowers the price of its product temporarily as a strategy to attract more buyers and prospects. The brand creates a false sense of scarcity which in turn increases the value of the product or service among the customers.

All of this is easily achieved by the brand just by lowering the price of its product or service. Promotional pricing helps brand acquire customers by targeting and encouraging price-conscious customers.

It helps in increasing income, gain and maintain customer loyalty, and increase short-term cash flow. Most companies use promotional pricing by giving discounts and allowances for early payment, for bulk purchases and during off-season buying.

Techniques of Promotional Pricing

1. Special Event Pricing

Sellers attract more customers by reducing their prices or giving discounts during specific events or seasons.

2. Special Customer Pricing

A particular exclusive group of customers are offered reduced or discounted prices by the brand.

Example – Amazon Prime Day

Amazon Prime Day, a sale event held by Amazon annually, is specifically only for Prime members. It gives discounts on thousands of products across all categories for two successive days. A forecast released said that Amazon’s 2020 Prime Day would bring in around $10 billion worth of sales and will top last year’s, i.e. 2019’s sale.

eMarketer released its first-ever Prime Day forecast. It says that customers will eagerly look for deals ahead of the 2020 holiday season. Customers spending massively on e-commerce will benefit the sales event significantly. Ecommerce estimates that out of the total $9.91 billion, U.S customers will generate

This is more than what Prime Day has managed to achieve in its past sales. $6.93 billion was generated in sales during the 2019 sales event of Amazon.

3. Cash Rebates

The purchase of manufacturers’ products within a specific time period is encouraged through cash rebates offered by Auto companies and other consumer-goods firms.

Rebates prevent the cutting of stated list price and help clear inventories at the same time.

4. Low-Interest Financing

Companies offer low-interest financing instead of cutting the cost of their products. This strategy has been used by Automakers to acquire more customers in the past.

5. Longer Payment Terms

Generally, in the case of mortgage banks and auto companies, customers worry less about interest rates and more about the cost and affordability of monthly payments. This strategy offers customers loans with lower monthly payments over a more extended period of time.

Example – Skoda Cars

Skoda cars in India can be bought with the help of special finance schemes and other benefits. The carmaker announced a variety of finance scheme for its cars and accessories. This was announced to make the cars more accessible to the customers.

Along with loyalty bonus and corporate benefits, Skoda offers its customers funding of up to ex-showroom prices on all vehicles at an 8.99% interest rate. In the ‘EMI Holiday’ scheme introduced by Skoda for its Rapid TSI, customers can start paying their EMI instalments by the time of Diwali holidays. This eases the pressure on customers to start paying their monthly instalments immediately after buying a car.

Skoda also provides versatile exchange offers with the Rapid series. A 57% buyback value in three years after buying a car is offered by Skoda while buying the Superb Facelift sedan along with low EMI. A loyalty bonus is also offered by Skoda on all its cars.

6. Psychological Discounting

In this strategy, high prices are set on products. Then, substantial savings are offered on the same products.

Example – Brands get rid of excess inventory by slicing their products for a short time, even hours. This either helps attract customers or increase profits. Xiaomi sold 2.11 million phones in 24 hours and set the Guinness World Record in 2015.

The previous record was held by Alibaba Tmall. On the singles day in November, it sold 1.89 million handsets in a span of 24 hours. Xiaomi, on the other hand, made sales worth $335 million through handsets and accessories. A coupon gives a customer discounts on certain products.

Example – The Whopper Reply

Burger King has been McDonald’s rival for a long time. Burger King spotted an opportunity and jumped into the conversation on Facebook when McDonald’s didn’t respond to its customers in Denmark. A lot of McDonald’s burger fans woke up to a witty, funny and helpful reply from Burger King after months of inactivity by McDonald’s.

Along, with the comment, Burger King also offered a free flame-grilled Whooper to the customer to compensate for the lack of attention by McDonald’s.

Burger King found that customers from Denmark had been leaving messages that were unattended for days, weeks, months and in some cases, even years. A PR company in Denmark called Agency Uncle Grey came up with this stunt called “The Whopper Reply.”

With this, the customer service agents of Burger King targeted the fans of McDonald’s by leaving hilarious and witty answers to the fan’s previous comments along with a link that helped redeem a Whooper for free. Burger King promoted its own customer service’s interest in satisfying its customers through this campaign.

The fast food chain also guaranteed its customers a reply to their queries on Facebook in 48 hours.

7. Loyalty Schemes

Rewards are based on customer engagement and purchases. More a customer spends on purchases of products, higher the value of rewards collected by the customer. Occasionally, reward schemes are personalised for individual customers. High price-point businesses like hospitality, insurance companies and airlines profit the most from tiered loyalty schemes.

Example

During the pandemic, Starbucks – a brand that stands on top in the restaurant business – has reported in a rise in revenue generation through its loyalty program.

According to a regulatory filing, 48% of sales were generated from the Starbucks Rewards members in the last week of May and 44% in the yearly quarter ending on March 29th all over the United States. As of March 29th, over 19.4 million people were a part of the program all through the U.S.