Pricing strategy is fundamental part of a marketing with a strong focus on generating revenue and, ultimately, profit for the company. In a marketing campaign, a pricing strategy, such as discount pricing, can be considered the pursuit of identifying an optimum price for a specific product.
What makes a successful pricing strategy?
Numerous factors play a role in sculpting a successful pricing strategy. Firstly, having clarity on market conditions is necessary. A company needs to understand the cost of the product and closely monitor what the competition is doing. It is also important to understand the demands of the consumer, and identify what desires are unmet from consumers. Lastly, understand what amount they are willing to pay to satisfy that desire.
Companies will use discount pricing as part of their product promotions. Discount pricing can be used to increase traffic, attract new customers, and sell low-priced products in large quantities. Other companies use discount pricing to build customer loyalty. Additionally, discount pricing can be an effective tool to get rid of old inventory and encourage a short-term boost in revenue.
What effect does it have on customers?
A discount is the difference between the original list price and the paid price. For customers, it is normally seen as a value or percentage off the original price. Discounts can be placed on an entire invoice, through individual sales lines, in set quantities, or for each individual customer.
When the price is discounted, it can be used as an effective tool to draw attention to a product in a store. It is sometimes considered a hook or loss leader. A loss leader is a product that is sold at a loss to attract customers. When a loss leader product is sold below market cost, it focuses on luring customers in with the intent that they will purchase more profitable products once they are in the store. Changing loss leader products regularly is important to keep customers interested, excited and to encourage repeat visits.
Seasonal changes are an example of when companies often implement the discount pricing strategy. When summer is ending, a company might discount all the summer items that are going out of season. The discount pricing can be used to prompt purchases in off-peak times and as a tool to increase purchases at the beginning of a peak season.
It is common for discounts to be offered to customers who purchase a large quantity of goods. If a customer places a large order, this is where an entire invoice can be discounted. Additionally, discounts can be rewarded to loyal customers. The coffee card is a great and effective example of discount pricing on a small scale. The card would reward you if you buy 9 coffees, you get the 10th coffee free! Loyalty cards such as these encourage repeat business by incentivising customers with a discount down the line. Discounts can be very beneficial for companies as they provide a platform to build loyalty.
Things to keep in mind with discount pricing
It is important to recognise that when a product has a discounted or low price, it can be associated with low-quality. If the brand is not well established, the product and brand are at a risk of being perceived as low-quality. Companies need to work hard to maintain high quality goods and time their discount pricing strategically.
Overall, when used properly, discount pricing can be a useful pricing strategy and an effective way to gain new customers and increase sales.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.