Promotional pricing is very popular with retailers, and can be a very successful strategy when the aim is attracting new customers, according to research conducted for "Marketing Science" magazine. There are many appropriate times and reasons for promotional pricing, such as new product launches, competitive factors and protecting current market share. Promotional pricing can be divided into several types of programs, and each one has its own benefits.
Current Purchase Discount
The current purchase discount typically offers customers money off the purchase price. This is a commonly-used technique that is easy to implement, because prospective customers understand and respond to it. Some of the benefits of this strategy include immediate and measurable results. It is also easily modifiable to match marketing segment needs and can be adjusted to meet customer demands.
Future Purchase Discount
The future purchase discount is a promotional-pricing technique similar to the current purchase discount, but offers the discount at the customer's next purchase. The benefits of this type of strategy also include easy-to-measure results and familiarity to customers. Other advantages are that it encourages long-term customer loyalty and repeat business.
Cashback promotional pricing requires the customer to pay full price at the time of purchase, but gives them cash or check rebates. The benefits to this pricing strategy are numerous. The retailer has several rebate options, including the choice of offering cash or products. Customers respond to this type of pricing and may purchase items out of their original price range because of the rebate.
Volume promotions usually offer more products at the same price. An example of this promotion is "buy two 12-packs of soda for £6, or pay £4 for one." They encourage customers to buy more than they originally intended, and offer them more value for their money. These types of promotions also may encourage brand switching. Another benefit of this type of strategy is that competitors typically cannot imitate them quickly.
Multiple Products Promotion
The multiple products promotion is one of the most recognised strategies on the retail market. It is the "buy one, get one free" strategy. This promotional pricing technique offers the same benefits as the volume promotion, but without the expensive packaging requirements. Customers usually respond well to this type of pricing, and it can differentiate the retailer from its competitors.