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Does Price Promotion Really Pay-Off in the Long Run?

AMBA 28 Sep 2015 • 3 mins read

Often used to spur interest, boost brand recognition and bring in new consumers into the fold, price promotion is a common and effective sales tactic thanks to its irresistible ability to spike sales charts. However, business owners and marketers should stop for a second and consider price promotion’s long-term impact in their brand and marketing initiatives.

Everyone likes a bargain and it’s easy to see how price promotion can seem like a great way to differentiate a brand from others. What is  forgetten is that price is directly proportional to quality. As Warren Buffett himself has said, “Price is what you pay. Value is what you get.”

Memory determines what we notice. Your regular customers know how much you value your product/service, so repeated and drastic price changes are much more noticeable for them. If you’re regularly charging them $10 for a product, hinging on price promotion too much and charging $5 for that product gives the impression that your brand’s real value is only around that price point.

Frequent price promotions conditions the consumer to adjust their purchase cycle to buy your product/service at their perceived “real” value. Eventually, this can lead to the  commodification of the category and your brand.

Everyone likes a bargain and it’s easy to see how price promotion can seem like a great way to differentiate a brand from others.

Promotional prices are counterintuitive in the sense that it they rarely boost sales by gaining trial from  new consumers to try your product/service. The evidence of this is clear to see -- sales spike during the promotional period and immediately return to the previous level once the promotion ends. If you were really gaining new buyers, you would expect to see a sustained and ongoing lift. Rarely does that happen.

So how do you do price promotion while staying true to g your brand strategy?

  • Avoid massive discounts. Slashing a chunk off your price tag devalues consumer’s perception of your brands. What starts off as a pricing contest between you and your competitor could degenerate into a race to the bottom and the commodification of your brands.
  • Consider reducing the frequency and avoid following a pattern that is obvious to your consumers.
  • Instead of focusing on just the price promotion side of the deal, consider other strategies such as adding off-locations in other parts of a retail store. That way, you reach out to more audience and become one step closer to influencing their buying behavior.

While Price Promotions do deliver a short-term lift in volume, they also deliver a hit to margins. Instead of hinging too much on price promotion, focus on being distinctive in your branding strategies. Choose to genuinely form connections by creating memories about your brand in your audience. Long term, drawing in consumers through deeper market penetration works better than temporary price drops and discounts. 

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