Price Promotion

Posted in Marketing and Strategy Terms, Total Reads: 429
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Definition: Price Promotion

Price promotion is a strategy of promoting a product or service leveraging its relatively low price or recent price reduction. Although promotional pricing is usually short-term, some retailers may continue to use such a strategy to target the price-sensitive users. In advertising, one of the most commonly used advertising appeals is favorable price advertising appeal. E.g. McDonald’s Happy Price Menu. Such promotions, as the name suggests, focus entirely on the price of the product/service. Promotional pricing practices do not just have cognitive effects but also carry psychological weight.


Price promotion is often used by companies for immediate results- especially for better top line. Price reductions often lead to increase in immediate sales because of stockpiling, brand switching, and new product trials. Current brand users may buy ahead of their anticipated needs leading to stockpiling that leads to increased consumption of the brand since it is readily available. Users of competing brands may also switch because of the price reduction and non-product category buyers may also buy the brand because of the perceived value.


Before making price promotion decisions, the following questions have to be considered:

1. How large a price discount should be used?

2. Should comparison or reference prices be used?

3. What verbal statements should accompany the price information?


It’s important that the consumers perceive the price promotion favourably and not as a compromise for quality. Comparison price increases the perceived savings significantly. A reference price is a price with which other prices are compared.


For example, Olay’s Natural White Fairness Day Cream’s 20g pack priced at Rs99/- was launched with an introductory price of Rs69/- to drive product trial and eventually develop a favourable price image. Rs99 is the reference price here. It again offered a price promotion with the 20g pack being priced at Rs79.

 

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