Posted By IndustryArchive.Org on 03/25/2018 Pricing Strategy

Popular Promotional Discount Pricing Methods that Work

By: Robert Hennessey

Popular Promotional Discount Pricing Methods that Work

Promotional & discount pricing used in business-to-business selling is applied differently & for different reasons than businesses that sell to consumers. A lot of discount pricing is prevalent in B2C where selling physical products from inventory occurs. Price discounting is also appropriate for selling B2B products and services too. 

Below you will find many of the promotional and discount pricing methods in use today by businesses selling consultative products and services to other companies. Knowing when and how to use these promotional pricing methods is critical to business success today.

Free
A free service is the hottest method of promotion of those selling on the Web. Customer skepticism has become such a given that the practice of giving away products or services for free has become commonplace. This approach could be considered akin to the old B2C trial size promotional marketing approach. The idea is to lower customer purchase uncertainty by giving something away of real value and then up-selling the customer because you gained their trust.

  • Buy One Get One Free
    There are many examples of discount pricing including approaches such as Buy One Get One Free or a slight twist on this theme, buy one item and get another item of equal or lesser value free.

  • Loss Leader Pricing
    The purpose of loss leader pricing is to entice new buyers. The approach is to offer select products/services at or below cost, with the expectation that these same buyers will purchase other higher profit products/services on the same purchasing trip.

  • Closeout Pricing
    This pricing method is to offer excess or obsolete inventory at a substantial discount. The goal is to recoup some cash before storage or disposal costs place you in negative cash flow position.

  • Membership or Trade Pricing
    By segmenting customers into various groups, the strategy is to offer profitable customer segments by rewarding them with special prices. Membership is usually provided for loyalty or frequenting buying program where these specific customers receive lower prices on particular items, a flat percentage discount, or free rewards.

  • Quantity or Bundle Pricing
    This strategy encourages people to purchase a large quantity or more total items by offering discounts for volume or bundling their purchases. You can efficiently group discontinued, phase-outs or overstocks with good sellers to avoid distress or liquidation pricing. You can also employ this technique with trying to establish new product/services by bundling a new product you're are trying to promote with good selling items to build overall sales or to increase brand identity for your new product/service.

  • Geographical Pricing
    Geographical pricing is sometimes an option where there are circumstances that necessitate pricing products/services differently around the world. Employing geographical pricing could be due to any number of factors like shipping costs, cultural influences, and scarcity in one locale versus another.

New Product or Service Pricing Methods

For new products, the pricing objective often is either to maximize profit margin or to maximize the quantity (market share). Skim and penetration pricing strategies are commonly used to meet either of these goals during the initial introduction of a new product or service for a limited time.

  • Price Skimming
    Price skimming is an excellent strategy for launching new products/services. The new product or service pricing is set at a high-profit margin initially since the customer is not familiar with the prevailing market price for this new product or service. The strategy is to recoup R&D and other marketing launch costs before the entry of competitor alternatives into the marketplace. Eventually, the new product/service will be priced according to its real value as determined by the market.

  • Penetration Pricing
    Here the price charged for a product or service is set at a deliberately low selling price To gain market share quickly.

  • Versioning Pricing
    Versioning is now a classic up-sell approach to pricing used widely on the Internet for selling information products. Versioning is an often used pricing strategy for information, services or software. It is most appropriate selling the same base product/service in multiple editions or "versions."

An introductory or basic edition of a product or service is available at a low or no cost. Then the customer is then encouraged to purchase an upgraded version with more features or benefits at higher prices.

  • Captive Product Pricing
    Often referred to as razor/razor blade pricing, the technique is to give away a product or service and bundle them with another item in the system. In this strategy, you need two of the products or services that are required to work together to provide a customer benefit. In the razor/razor blade example, a razor is either sold for a low or free price to entice the customer to purchase the razor. Once purchased, the razor blades that will only fit that razor, are then sold at a high-profit margin to cover the cost of the razor and the blades. Once the customer has the razor future razor blades are continued to be sold at a premium price.

Bottom Line
In our consumption-driven society, we have all been taught to react to get more without paying more. Nobody has instilled the free and discounted value proposition into our purchasing habits than Internet marketers. Free, promotional, and pricing discount strategies will be in the toolbox of all business sellers for the foreseeable future. Knowing how and when to utilize the proper promotional and discount pricing strategy is a must.


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