Advertising/ Promotion
Price reductions/discounts: Firms often use short term price reductions or discounts to encourage consumers to purchase
a product. The aim of a price reduction is not only to increase sales in the short term but also to generate greater sales in
the long term as a result of an increased customer base.
Advantages Disadvantages
The most obvious benefit to lowering your price is that you’ll attract more buyers. Lowering your prices can result in your
There are people who will buy at a lower price point that wouldn’t buy at a higher price brand being perceived as cheap or low
point. quality.
Earns revenue on out of fashion goods that would probably not sell otherwise. Revenue is lower on each product, so
profits will be lower.
Lowering prices of new products or even existing products can help launch new Lowering the prices of your product or
product lines. For example, when Apple launches a new iPhone, they almost always service could anger customers who have
lower the price of the old iPhone. This helps purge old inventory, while promoting new already purchased at a higher price.
products as better and more innovative. Launching a new product at a lower price to be
raised later can help create a surge of initial sales. Lower prices used in this way still
position the product as valuable, but lowers the price for a special occasion.
Loss Leaders: An alternative form of price reduction often used by large retail outlets. Loss leaders are items which are
sold below cost (at a loss) to attract consumers into the store. It is hoped that when consumers enter the store to
purchase the loss leader they will also purchase other full price items and therefore the retailer will recover the costs of
the loss leader. They are usually strategically placed at the back of a shop so customers walk past other items and hope to
buy these items and profits are maximised.
Advantages Disadvantages
Sales increase: When buyers purchase other items in Risk of loss: A company may incur a substantial loss from
addition to the loss leader, the seller can make a larger this pricing strategy if it does not closely monitor sales of
profit than would have been the case if it had not offered other items positioned alongside the loss leader; the risk is
the loss leader. that customers may buy only the loss leader, and in large
quantities.
New stores: Loss leader pricing is an excellent way to Pricing perception: Retaining a deep discount for too long
attract shoppers to a new location, since they might can give buyers the impression that a product should have a
otherwise never enter the store, but will do so to take lower price at all times, which can reduce its unit sales once
advantage of a particular pricing deal. Thus, it can be used management stops the loss leader promotion and returns
to build a customer base. the product to its normal price.
Merchandise elimination: The strategy can be used to clear If a company will lower their prices for a certain time and
out older merchandise, so the seller can restock its raise their prices again, the customers will not be
warehouse with newer products. comfortable with the increase in the price and so they will
start buying for the competitor and not buy any more
products from the company.
Competitions: Firms use this to encourage consumers to purchase a product. In many cases consumers have to purchase
the product on a number of occasions to gain the required number of token to enter the competition. This is a strategy
commonly used by the publishers of newspapers who require consumers to collect coupons over a number of days.
Advantages Disadvantages
Effective at achieving a quick boost to sales. Sales effect may only be short-term.
Encourages customers to trial a product or switch brands. Customers may come to expect or anticipate further
promotions.
Customer Retention – a competition is not only a good way May damage brand image.
to get new customers, it’s also a tried-and-trusted method
of keeping them.
Price reductions/discounts: Firms often use short term price reductions or discounts to encourage consumers to purchase
a product. The aim of a price reduction is not only to increase sales in the short term but also to generate greater sales in
the long term as a result of an increased customer base.
Advantages Disadvantages
The most obvious benefit to lowering your price is that you’ll attract more buyers. Lowering your prices can result in your
There are people who will buy at a lower price point that wouldn’t buy at a higher price brand being perceived as cheap or low
point. quality.
Earns revenue on out of fashion goods that would probably not sell otherwise. Revenue is lower on each product, so
profits will be lower.
Lowering prices of new products or even existing products can help launch new Lowering the prices of your product or
product lines. For example, when Apple launches a new iPhone, they almost always service could anger customers who have
lower the price of the old iPhone. This helps purge old inventory, while promoting new already purchased at a higher price.
products as better and more innovative. Launching a new product at a lower price to be
raised later can help create a surge of initial sales. Lower prices used in this way still
position the product as valuable, but lowers the price for a special occasion.
Loss Leaders: An alternative form of price reduction often used by large retail outlets. Loss leaders are items which are
sold below cost (at a loss) to attract consumers into the store. It is hoped that when consumers enter the store to
purchase the loss leader they will also purchase other full price items and therefore the retailer will recover the costs of
the loss leader. They are usually strategically placed at the back of a shop so customers walk past other items and hope to
buy these items and profits are maximised.
Advantages Disadvantages
Sales increase: When buyers purchase other items in Risk of loss: A company may incur a substantial loss from
addition to the loss leader, the seller can make a larger this pricing strategy if it does not closely monitor sales of
profit than would have been the case if it had not offered other items positioned alongside the loss leader; the risk is
the loss leader. that customers may buy only the loss leader, and in large
quantities.
New stores: Loss leader pricing is an excellent way to Pricing perception: Retaining a deep discount for too long
attract shoppers to a new location, since they might can give buyers the impression that a product should have a
otherwise never enter the store, but will do so to take lower price at all times, which can reduce its unit sales once
advantage of a particular pricing deal. Thus, it can be used management stops the loss leader promotion and returns
to build a customer base. the product to its normal price.
Merchandise elimination: The strategy can be used to clear If a company will lower their prices for a certain time and
out older merchandise, so the seller can restock its raise their prices again, the customers will not be
warehouse with newer products. comfortable with the increase in the price and so they will
start buying for the competitor and not buy any more
products from the company.
Competitions: Firms use this to encourage consumers to purchase a product. In many cases consumers have to purchase
the product on a number of occasions to gain the required number of token to enter the competition. This is a strategy
commonly used by the publishers of newspapers who require consumers to collect coupons over a number of days.
Advantages Disadvantages
Effective at achieving a quick boost to sales. Sales effect may only be short-term.
Encourages customers to trial a product or switch brands. Customers may come to expect or anticipate further
promotions.
Customer Retention – a competition is not only a good way May damage brand image.
to get new customers, it’s also a tried-and-trusted method
of keeping them.
