Navigating promotional pricing for increased customer engagement
Customers love promotions. Think about it: there’s nothing better than seeing that your grocery store is having a BOGO sale on your favorite cereal. Is the deal ‘limited time only’? Before you know it, you’re probably stocking up on items you weren’t even intending to buy.
As suppliers, promotional pricing comes with its own challenges. While it’s a great strategy to adopt when you’re looking for increased sales, a competitive edge or better brand awareness, promotional pricing is not without some risks. To do it right, there are a few things that suppliers should keep in mind.
What is promotional pricing for suppliers, and why should my brand do it?
Promotional pricing is a strategy that suppliers use to achieve a specific business goal. That goal varies depending on the current supplier strategy.
Boosting sales
When suppliers want to increase their sales in a short period of time, promotional pricing can attract more customers and encourage them to make purchases they may otherwise delay or skip.
Inventory management
Suppliers may use promotional pricing when they have excess inventory, especially for old or seasonal items.
Market penetration
Lower prices can help suppliers reach new markets and are a good starting point for acquiring new customers.
Competitive edge
When there’s a lot of competition, suppliers can use promotions to gain an edge in the market and increase market share, especially with customers who are more sensitive to high prices.
Enhancing retailer relationships
Promotional pricing with retailers strengthens relationships and could lead to more shelf space, more favorable terms and more opportunities for collaboration.
Customer loyalty
Suppliers who offer discounts are more likely to see repeat customers who appreciate a good deal. If suppliers do promotional pricing with any type of regularity, customers may develop a preference for that brand.
This all sounds great. Why would any supplier not want to offer promotional pricing from time to time?
As with any good supply chain strategy, promotional pricing can be a complex process to get right. Eroded profit margins, brand devaluation and unrealistic customer expectations are just a few of the risks associated with promotional pricing that’s done incorrectly.
Risk #1: Eroded profit margins
If suppliers offer promotional pricing too often with no significant increase in sales volume, they run the risk of eroding their profit margins.
Risk #2: Brand devaluation
Constant promotions can lead customers to believe that the brand is low quality or make the decision to only purchase items when there is a discount.
Risk #3: Operational strain
When suppliers offer promotional pricing, they will most likely see sudden spikes in demand. Without the proper supply chain setup, however, they may struggle to keep up with the influx of orders.
Risk #4: Inventory shortages
When promotional pricing is too successful, it can lead to inventory shortages, which disappoints customers and damages the supplier’s reputation.
Risk #5: Market oversaturation
If there’s too much promotional pricing, the market becomes saturated, which makes it difficult for suppliers to generate interest in future promotions.
How can suppliers navigate promotional pricing in a way that works with their supply chain strategy?
Though the line between good promotional pricing and bad promotional pricing can be thin, there are some strategies that are available to help suppliers decide when and how to offer discounts. It’s important for suppliers to zero in on exactly what they’re looking to gain by offering promotional prices.
First, suppliers should analyze historical data of past promotions by looking at inventory levels, promotional prices, discount percentages and sales lift to create a solid sales plan for the next promotion.
Collaboration with trading partners should be another priority for any supplier looking to offer discounted prices. They’ll be able to confirm inventory quantities and demand to ensure the correct promotional pricing is offered.
Once the promotion is running, it should drive customers into the store to purchase the items at a discount while also leaving with other items in their basket.
With the help of the right technology, you can find the perfect balance for promotional pricing with capabilities like analyzed and actionable sell-through data insights, streamlined item, pricing and other data, and inventory visibility for trading partners. To power successful discounts every time, download our promotional pricing checklist.
