The fierce competition to fight for shelf space often renders companies to resort to discount strategy. They often implemented discount strategy to appeal to price-sensitive consumers and therefore, boost short-term sales. Yet, this strategy will more likely do long-term harm to the brand: the trade off between boosting short-term sales and maintaining profit margin.
Fortunately, brand managers don’t have to go that way as there is a better way to enforce pricing strategies. To share with you what other more effective pricing strategies there are, our VP Pricing and Portfolio Solutions, Oskar Toerneld, had the following article published in the Pricing Advisor.
The promotion paradox: Avoiding the discount trap
“When it comes to products that consumers buy regularly, such as food, household, personal care and other staple supermarket items, there are two basic types of promotions:
- Explicit discount on a product as a percentage (e.g. 15 percent off) or a direct monetary price reduction (e.g. $2 off)
- An offer of a larger “value” pack, or a BOGO (buy one, get one) promotion
A meta-analysis of recent pricing studies reveals the short-term and long-term effect of these two types of promotions, and the conclusions are clear. The discount strategy is effective at generating short-term benefit. When products are offered with an explicit discount, one does get the highest share boost, and that is certainly good for cash flow.
However, in the long term, most brands end up worse off. Here’s why…”