The pricing strategy determines how much a product can be marked down.
There is a delicate balance between pricing and promotion, as marketers aim to move units and make a profit, without sacrificing brand equity. The goal of pricing strategy is to set a value to the good that will cover costs of production and marketing, and produce a profit. By integrating promotional efforts, marketers make customers more aware of the brand and compel them to take immediate buying action. Coupons, discounts and rewards are all strategies used to temporarily drive down the price, and spur the customer to act within a fixed time. When properly implemented, price and promotion strategy can cause an instant, seasonal or predictable spike in sales.
Pricing Strategy
Price is determined by supply, demand, and competition--and within these parameters marketers can choose three types of pricing strategies: skimming, penetration or competitive. The competitive price of a good is set by the market, and marketers can set their price on par with competitors (competitive strategy), higher than competitors (skimming strategy), or lower than competitors (penetrating strategy). The strategy behind setting the price takes into account the cost of production plus the mark-up, as well as the desired perceived value of the branding. Marketers might choose to skim the market to position their brand as a luxury good. Or they might penetrate the market, marketing the product as a discount brand, to grab more market share. Either way the price, high or low, determines how they will use promotional strategy.
Limited Offers
Coupons and rebates are both examples of limited offers. These promotions reduce the price for one time only, pushing the customer to take buying action. If the marketer has skimmed the market, his main preoccupation is to discount the product without diminishing the perceived value of the premium brand. However, if the marketer is penetrating the market, he has to be careful not to set a promotional price so low that it will cut into profits. The time frame when marketers will see a return on investment is not so easily calculated, since the customer chooses when to cash in the coupon or rebate.
Seasonal Sales
Promotional periods are set by retailers, and the cost of the promotion is usually shared between the retailer and the brand. By designing a sale program that coincides with a specific holiday or seasonal time of year, retailers and marketers can predict a spike in consumer spending and recoup losses in sales and inventory. Choosing the discounted price in conjunction with the length of time is key, because marketers do not want the customer to get so accustomed to the lower price that they are less willing to pay full price for the product when the promotional period has expired.
Bulk Purchase
A bulk-buying promotion strategy lowers prices for buying more than one of a specific item. This ensures that marketers will sell more units, and take advantage of lower production costs because of economies of scale. Customers who buy competitive to low-priced goods in bulk reap the benefits of this strategy. A bulk-buying promotion doesn’t work as well with a price-skimming strategy because the higher-priced items are not normally manufactured in quantities large enough to be considered a bulk purchase.
Membership Programs
Customer enrollment in a valued membership club--where she receives exclusive promotional discounts--is something that is used at all price points and can actually fortify perception of the brand. Because membership equates to exclusivity, it doesn’t diminish brand equity in a luxury product, and it can spur multiple sales in lower-priced goods. Furthermore, by controlling the sales periods for valued customers, marketers can predict when a specific segment of their customers will be more likely to buy. Thus, businesses profit from two income streams: a discounted but more predictable income stream, and full-price but less-predictable stream.
Tags: brand equity, bulk-buying promotion, buying action, marketers predict, marketers will