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.