When faced with the choice of paying full price for an item or buying a similar item for a discount, most shoppers opt for the discount. According to a 2024 survey, nearly 70% of consumers would buy from a competitor if it offered lower prices.
To help your own business gain this kind of competitive advantage, you can offer discounted prices for a limited time to increase sales and encourage new customers to try your brand. Learn about the different types of discounts and tips for how to use them effectively, without undermining your profit margin.
What is promotional pricing?
Promotional pricing is a pricing strategy in which you offer a price reduction for a product or service during a specific period. Merchants implement promotional pricing strategies to create a sense of urgency and boost sales.
Offering discounted prices and special deals during the promotional period can drive sales from price-sensitive customers. These customers are more likely to make purchase decisions based on price and the perceived value of a limited-time offer.
Types of promotional pricing strategies
There are several promotional pricing strategies to consider for your business, including:
Flash sales
A flash sale is a promotional pricing strategy that involves temporarily reducing the price of a product or service. By offering a limited quantity of goods at a discount for only a short period, merchants can tap into consumers’ sense of FOMO (fear of missing out) and encourage impulse purchases.
You can use flash sales to increase sales volume and clear out excess stock, introduce a new product line, or increase your short-term cash flow. For example, Cocokind, a plant-based, sustainable skin care company, features weekend flash sales on its online store.
Loyalty programs
A loyalty program can encourage repeat purchases by rewarding loyal customers with discounts, store credits, and other benefits like free shipping or early access to new product lines. According to one survey, 70% of respondents said these programs were a leading factor in driving brand loyalty.
For example, Mirenesse, Australia's leading sustainable cosmetics brand, encourages customer loyalty with its Love Rewards program. The loyalty program features benefits such as points buyers can redeem for future purchases. Customers earn points by making purchases, referring a friend to the website, reviewing Mirenesse products, or posting about the brand on social media.
Buy one, get one free (BOGO)
Buy one, get one free (BOGO) pricing promotions encourage customers to purchase knowing they’ll receive another item for free. For the right types of products, a BOGO campaign can attract new customers and lead to larger orders.
For example, Kyloe In The Wild, which sells sunglasses made of recycled plastic, features a buy one, get one free call-to-action (CTA) button on the main landing page of its online store. You can implement your own BOGO program with the help of BOGO apps.
Seasonal sales
These price promotions are useful for companies like clothing brands changing their offerings every season. Seasonal promotional pricing can help increase sales during more specific periods as well, like Black Friday and Cyber Monday (BFCM).
For example, Blenders Eyewear used Shopify’s Launchpad tool to automatically change its website design to feature flash sales for Black Friday and Cyber Monday. The shift helped increase sales tenfold in during the sale period.
Coupons and promo codes
Another way to give customers a promotional price is coupons or promotional codes that are good for discounts or perks. Customers typically type in a coupon number or promo code at checkout to receive the discount.
Merchants can use coupons and promo codes to target specific customer segments, like repeat buyers or first-time customers. For example, the t-shirt and accessory company Out of Print features a $5 off promo code for new customers who subscribe to its email newsletter.
Is promotional pricing right for your business?
Promotional pricing campaigns can increase sales and temporarily stimulate demand for a particular product or service. However, they can decrease your profit margins and the perceived value of your brand if used incorrectly. Here are some of the pros and cons:
Advantages
- Increased sales. By creating a sense of urgency or the perception of a good deal, promotional pricing can increase your sales volume.
- Better inventory management. Promotional pricing can help you sell excess inventory that costs money to keep in a warehouse.
- Competitive advantage. Lower prices for your products or services can help your business stand out from the competition in a crowded market.
Disadvantages
- Lower profit margins. If you run frequent promotions, you risk eroding profit margins by selling your products or services for less than they’re worth or less than you need to yield a good profit margin.
- Decreased brand image. If your customers expect discounts for your offerings regularly, it can tarnish the perceived value of your brand by lowering the price customers are willing to pay.
- Hurt customer loyalty. Poorly timed promotional pricing strategies can erode customer loyalty among shoppers who bought your products at full price only to see a promotional price after they made their purchases.
Tips for implementing promotional pricing
- Prioritize existing customers
- Leverage promotional apps
- Monitor the results
- Consider the price elasticity of demand
There are a few best practices to consider when implementing your promotional pricing campaign, including:
Prioritize existing customers
To avoid making your customers feel devalued as your promotional pricing campaigns focus on new customer acquisition, reward your most loyal customers first. For example, instead of running a paid advertising campaign featuring promo codes for new customers, consider launching an email marketing campaign. A BOGO promotion targeted at customers who’ve already made purchases from your business could be more effective.
Leverage promotional apps
Use software tools and applications to facilitate your promotional pricing campaigns. For example, Shopify offers the Launchpad app, an ecommerce automation software tool to help merchants schedule and track promotional sales. Similarly, merchants can explore the various BOGO apps and discount apps with real-time analytics and automation features.
Monitor the results
Keep an eye on your key performance indicators (KPIs) to identify which promotional pricing campaigns are working, which need adjustment, and which are costing you more money than they’re worth. Some of the important KPIs to keep in mind when running a promotional pricing campaign include:
- Customer acquisition cost (CAC). Use CAC to determine how much money your company spent on a promotional pricing campaign to earn a new customer.
- Click-through rate (CTR). This metric measures how often potential customers click on a promotional pricing advertisement, pop-up, or CTA.
- Return on investment (ROI). You can calculate the ROI of your promotional pricing campaigns to determine if you earn enough to justify the cost of the campaign.
- Sales lift. Sales lift focuses on the increase in sales generated by a promotional pricing campaign.
Consider the price elasticity of demand
Price elasticity of demand (PED) refers to how much a product’s price change affects supply or demand for the product. If the price for the product you’re running a promotion for is elastic, the market demand for it will surge because more consumers will purchase from you instead of your competitors.
By contrast, if the price of your product is inelastic (as in the case of necessary products like prescription drugs or gasoline), then a price reduction will have little impact on sales volume. By calculating the price elasticity of your products, you can make more informed decisions about whether promotional pricing is useful or whether you should consider a different pricing strategy.
Promotional pricing FAQ
What are examples of promotional pricing?
Examples of promotional pricing strategies include flash sales, loyalty programs, seasonal sales, and buy one, get one free (BOGO) deals.
Is promotional pricing illegal?
No, promotional pricing is not illegal, as long as promotional pricing campaigns avoid any misleading information or false promises. However, it is potentially illegal to offer a discount but then tell consumers the price break isn’t available when they try to buy—a promotion commonly known as bait and switch.
What is the disadvantage of promotional pricing?
One of the disadvantages of promotional pricing is that it can lower the perceived value of your brand, products, or services—especially if you run promotional pricing campaigns too often.
