Successful price promotions: What to do to ensure that you get the desired results

Successful price promotions: What to do to ensure that you get the desired results.
By Michael Hurwich President of SPMG

COMPANIES typically use price promotions to attract new customers to products in their introductory and growth stages. In mature markets, price promotions are designed to maintain volume and profitability. Price promotions can be effective at both the distributor and end-user level and can take many forms. Off-invoice trade deals, sampling and trial pricing, co-op advertising, display allowances, consumer rebates, feature pricing and coupons are typical promotional devices. While promotional pricing can be effective in meeting objectives, there is the risk of triggering unwanted customer behavior patterns.

Here are three considerations to keep in mind to ensure your customers respond positively, over the long term.


1. Keep the ceiling up

Customers do not think in terms of “promotional price” versus “regular price”. Instead, they form opinions over time of what is a “good” price and what is a “bad” price. Aggressive promotions cause buyers to expect a lower and lower price to consider it “good”. As a result, companies can expect lower volume at regular prices since customers will increasingly see them as unfair or “bad”. As a result, the price ceiling will fall. In addition, customers generally remember the lowest price they have paid for a product or service with the result that even a limited time special offer can change customer expectations over the long-term.

What to do:
Avoid excessively deep price promotions. If building volume is the objective, use a smaller discount and run the promotion longer or more frequently. While you may not experience the same uplift as a deep discount, you will protect the integrity of your regular prices over the long term.


2. Encourage long-term customer loyalty

Many companies view price promotions as a means to build a perception of brand value. In some cases, however, price promotions merely equate to an attempt to buy customer loyalty. For example, in the telecommunications industry promotions such as cash incentives often encourage customers to switch service providers. While these types of promotions may be effective in building volume, they do little to retain it. They say to the customer, “It is all right to be disloyal and switch for a better price”, resulting in customer “churn”, frequent switching among suppliers. Over time, these promotions encourage customers to base their purchase decision primarily on price rather than the value of the product and/or service, often leading to commodity type prices. In addition, this kind of price promotion can alienate your current, loyal customers who are not privy to this type of exclusionary discount.

What to do:
Substitute price reducing promotional tactics with promotions that incent consumers to purchase for non-monetary rewards. Promotional gifts and frequent “buyer” credit points are examples. These tactics achieve sales oriented goals while taking the focus away from price in the purchase decision, helping to preserve the perception of quality that surrounds a particular brand. If you feel that you must offer a promotion for switching suppliers, provide a similar incentive to current customers to reward them for being loyal and to help retain the newly won customers.


3. Discourage forward and/or delayed buying

Companies that use price promotions frequently, or during specific times of the year, often find that overall volume does not grow as expected. This is usually because of forward and/or delayed buying. Forward buying means that customers stock-up at the promotional price. Delayed buying involves customers waiting to make a purchase in anticipation of a future price promotion. Over the past 10 years, for example, many cosmetics companies have offered attractive bonus packs to customers. One particular company runs its promotion at the same times in the spring and fall each year with the result that over 50% of its sales occur during these two periods. Customers have been trained to delay purchases until the promotional period and stock up on the product when retailers are offering the promotion.


What to do:
Change the timing, frequency, and depth of your price promotions. Inconsistency will help avoid forward and/or delayed buying. There is no doubt that price promotions, when used appropriately, can be powerful tools in building an effective pricing strategy. However, the key to successful long-term profitable use of price promotions is to achieve an optimal frequency of usage that creates significant volume lifts for the product without encountering any major pitfalls.



Promotion pricing can sometimes be hazardous to the overall value of a product in regards to customer perception and behavior towards purchasing. Successful price promotions rely on an understanding of customer conceptualization of value. By ‘keeping the ceiling up’, ‘encouraging long term customer loyalty’ and ‘discouraging forward/delayed business’ companies can begin to ensure the safety of their product-cost when pricing promotions are deployed.

Just When You Thought You'd Heard Them All: Top Ten Lies of Pressure Pricing

JUST when you thought you'd heard them all… One of the most frequently requested items from our pricing seminars is a list we call The Top 10 Lies of pressure pricing. It's a list created several years ago from a survey of purchasing managers who were asked what devices they regularly employed in order to obtain a better price from suppliers. For the most part, the entries are self-explanatory. A few, such as "Employing a shill", may need a word of explanation. The term "shill" comes from the shell-game con, one of the oldest around. The shill is the confederate of the con artist whose job it is to "volunteer" to play the first game, which he or she promptly wins. In the world of purchasing, the "shill" is a bidder who helps the buyer to obtain a better price. The shill is not necessarily a confederate of the buyer, but nevertheless plays a key role because the buyer knows that this supplier will provide an aggressive price. The buyer, however, has no intention of buying from the "shill". The buyer simply uses the low price as a lever for obtaining a better price from a supplier they prefer to do business with. "Imposing time pressure", number two on our list, is a favourite tactic of some purchasing managers. It takes advantage by forcing a quick decision from sales reps without allowing them to refer to management. It's one reason so many companies believe that the sales force needs to have price discretion. It's also one reason we wonder how many times this kind of pressure is real, or simply imposed. Not long ago, we heard the story of a seasoned sales rep who was being pressured by a customer to give him a price "right away" if he wanted to get the deal. The sales rep resisted giving an immediate response but offered to get back to the customer the next day. On the way out of the meeting the sales rep turned to his junior colleague and told him exactly what price he was going to quote. The junior colleague asked why he hadn't told the customer the price in the meeting if he already knew what it would be. The sales rep said, "I don't want him thinking that he can pressure me for a price. He has to learn that pricing is not something we can develop on the spur of the moment." There's another good reason for taking time. A quickly quoted price has the appearance of an ill-considered price. It becomes more difficult to defend on the basis of value.

Top Ten Lies of Pressure Pricing

1.        Creating an atmosphere of aggressive competition

2.        Imposing time pressure

3.        Threatening to take the business elsewhere (or implying the threat)

4.        Employing a shill

5.        Claiming a lack of flexibility

6.        "Putting down" the selling firm

7.        Making excessive demands

8.        Claiming limited authority

9.        Threatening to move the negotiations up to the seller's boss (or implying the threat)

10.     Running the "good cop-bad cop" routine 

INTEGRITY PRICING: MANUFACTURING TRUST by Michael Hurwich

WHERE DOES YOUR COMPANY STAND when it comes to building pricing trust and demonstrating credibility with your customers?

Have you:
a) Earned it?
b) Lost it?
c) Never had it at all?

If your answer was b) or c), it's time to ask where your management team made the wrong turn.

Was it a poorly defined pricing strategy? A betrayal of product, service and pricing support? Conflicting goals and objectives? Misguided pricing practices?

Well, often the answer resides in some element of all of the above.

Some of the most common symptoms of poorly-executed integrity pricing include:

• Providing discounts and allowances to many, if not all, of your accounts;

• Favorable pricing to customers who have not earned it through volume, a profitable sales mix, or loyalty to
  the relationship (see illustration);

• Fluctuating pricing strategy that favors price-sensitive buyers who will "jump ship" given a new opportunity
  from your competitor;

• Compromising the best interests of the existing customer base in favor of new accounts with undefined
  loyalty;

• A frustrated sales team looking for definitions of what constitutes a fair price for the value offered; and

• Starting the conversation on the topic of price, or a price concession.

A key lesson has been realized:

Managers need to make pricing decisions that are consistent with customer behavior while avoiding the noise from competitors, price-sensitive buyers and professional negotiators, as well as internal corporate dynamics that reward volume and sales over profitable and relevant market share.

For companies that have already lost price integrity in the eyes of existing and non-customers, their focus should be to work their way back to a value-based pricing strategy.

Achieving this will require some imposed discipline internally, as well as a communication strategy to help change and manage customer expectations.

The goal should be to raise customers' willingness to pay a price that reflects your product's true value, rather than simply accepting whatever customers are willing to pay. Consider the pricing game like a game of Poker:

Don't let customers bluff their way into an attractive deal.

The most powerful single communication you make about your product is its price.

Although it takes years to create, capture and communicate value through price, it takes only a few moments to compromise and lose credibility and trust with customers.