What Is Promotional Pricing?

Promotional pricing is a sales strategy in which brands temporarily reduce the price of a product or service to attract prospects and customers. By lowering the price for a short time, a brand artificially increases the value of a product or service by creating a sense of scarcity. Promotional pricing can help with customer acquisition by encouraging cost-conscious shoppers to buy. It can increase revenue, build customer loyalty, and improve short-term cash flow.

How to Calculate the Best Promotional Pricing for Your Business

To avoid devaluing their brand, marketers should assess the feasibility of a discount and the length of the offer before setting a promotional price. A New York Times article lists three factors for determining if Groupon—possibly the most extreme form of promotional pricing—is a good strategy for brands:

1. The Type of Business. Is there the capacity to support a huge spike in business? Does discounting align with your brand position? If you are a premium brand like Apple, you only discount select products at certain times of the year, such as laptops for during the back-to-school season. If you are a value brand like Kohl’s,  a discount strategy might be one of your brand’s core attributes.
2. Branding. Would offering a large discount damage the brand? 
3. The Math. How do the numbers add up? Eight critical calculations include:
   • The incremental cost of sales (the actual cost percentage for a new customer)
   • The amount of the average sale
   • Redemption percentage
   • Percentage of coupon users who are existing customers
   • Number of coupons each customer buys
   • Percentage of coupon customers who become regular customers
   • The advertising value of promoting the business to a large number of people
   • The normal customer acquisition cost through advertising
4.  

Another key calculation is the repeat purchase rate of a newly acquired customer. Frequent discounts condition a brand’s consumers to wait for a reduced price they know will eventually come. A promotional pricing strategy is successful only when it helps a brand acquire high-value, repeat customers who aren’t conditioned to expect discounts. The best promotions are selective, targeted, and strategic.

Identity Marketing and Promotional Pricing

Identity marketing, a new form of personalized promotions, avoids the pitfalls of traditional promotional pricing. It doesn’t rely on attracting bargain hunters, which can reduce margins and devalue a brand. Identity marketing takes a more targeted approach to reaching its audience. Brands use identity-driven promotional offers to specifically engage high-value customers by appealing to their deep sense of belonging to a consumer tribe.

Here’s how identity marketing works: 

1. A company creates a gated, personalized promotion for a consumer tribe that aligns with its brand and invites prospects to take advantage of it through the company’s normal channels. 
2. Consumers opt in to redeem the offer and are digitally verified to ensure the consumer is eligible and prevent discount abuse.
3. Brands use this zero-party data to nurture ongoing customer loyalty.

Identity marketing takes the focus off price. By tapping into the deep-seated attributes that members of a consumer tribe share—such as their life stage (students, seniors), occupation (teachers), or affiliation (the military community, first responders)—brands build goodwill. This results in higher repeat purchase rates from ideal customer groups. Identity marketing also protects a brand’s profit margins because it is a form of personalized marketing in which brands create an offer to a specific consumer tribe, rather than making an offer available to every customer.

Identity marketing leverages the power of tribal marketing by harnessing the deep connections of the group’s members, who virally share the offer with their network. Research shows that 71% of teachers who receive a personalized offer would share it with their colleagues. And 96% of the military would share a personalized offer with others in the military community.

Identity-Based Promotions and Student Seed Marketing

College students present a huge opportunity, particularly for software companies. With 235 million college students globally and 44 million in the US alone, college students have more than $593 billion in buying power. They are obsessed with technology and are always searching for good deals. Nearly two-thirds of college students cite financial concerns as particularly stressful. 

Businesses like Pandora, Tableau, and Alteryx use identity-driven promotional offers for their student seed marketing programs, knowing these will bring long-term value to their brands. In fact, streaming media companies using identity-driven promotional offers report that graduating students with discounted subscriptions convert to full price at rates as high as 98%.

Identity Marketing Success Stories

Leading brands in retail, streaming, software, hospitality, and finance use identity marketing to acquire high-value customers who are long-term, repeat purchasers:

Targus Used Identity-Driven Offers to Increase Orders by 389%

Targus helps professionals protect their devices with high-quality laptop and tablet cases as well as other technology accessories. The company wanted to generate greater brand awareness and loyalty while rewarding key consumer tribes and corporate clients. It launched a series of identity-driven promotions to students, teachers, the military, and employees at a number of Fortune 500 companies. 

After ramping up its promotions to get the word out, Targus saw a 389% increase in the number of orders and a 413% increase in revenue for personalized offers verified by SheerID.

CompTIA Generated a 20:1 ROI and Reduced Discount Abuse by 20%

The Computing Technology Industry Association (CompTIA) wanted to encourage student success in the field of technology. To do so, the association offered students a 40% discount on its certification courses and other products. The campaign generated a 20:1 ROI while reducing discount abuse by 20%.

Headspace Acquired 25,000 New Subscribers

Headspace, the popular subscription-based meditation app, is on a mission to improve the health and happiness of the world. The company wanted to honor educators with a personalized promotion that gives them free access to the app and classroom support while preventing fraud. Headspace acquired 25,000 new educator subscribers in three new markets, reduced fraud by 41%, and boosted engagement.

A Final Word on Promotional Pricing

Customers love a great deal, and promotional pricing appeals to their strong desire to get the most for their money.  Successful brands such as Headspace, Targus, Purple, and CompTIA use identity-based promotions to acquire and retain high-value customers and protect their profit margins. And because these promotions reward deep-seated aspects of a customer’s identity, they encourage long-term brand loyalty.