Promotional Pricing

Companies can use any of seven promotional pricing techniques to stimulate early purchase (see Table 4.5). However, smart marketers recognize that promotional-pricing strategies are often a zero-sum game. If they work, competitors copy them and they lose their effectiveness. If they do not work, they waste company money that could have been put into longer impact marketing tools, such as building up product quality and service or strengthening product image through advertising.

Table 4.5

Chapter 12 Designing Pricing Strategies and Programs Promotional Pricing Techniques




Loss-leader pricing Special-event pricing Cash rebates

Low-interest financing

Longer payment terms

Warranties and service contracts

Psychological discounting

Stores drop the price on well-known brands to stimulate additional store traffic. Sellers establish special prices in certain seasons to draw in more customers. Manufacturers offer cash rebates to encourage purchase of their products within a specified period; this helps clear inventories without cutting the stated price.

Instead of cutting its price, the company can offer customers low-interest financing.

Sellers stretch loans over longer periods and thus lower the monthly payments that customers pay.

Companies can promote sales by adding a free or low-cost warranty or service contract. Used legitimately, this involves offering the item at substantial savings from the normal price.

Kmart cuts the price of selected toys to attract shoppers before Christmas.

Staples offers special prices on stationery items during a back-to-school sale.

Mazda advertises cash rebates on the purchase of selected previous-year models to clear these vehicles out of dealer inventory.

Ford offers low- or no-interest financing to encourage the purchase of selected vehicles.

Auto companies and mortgage banks use this approach because consumers are more concerned with affordable payments than with the interest rate. Real estate brokers offer special warranties on selected homes to expedite sales.

A jewelry store lowers the price of a diamond ring and advertises "Was $359, now $299."

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