Promotional Pricing Policies

When Promotional Pricing Makes Sense

Promotional pricing—temporary price reductions to stimulate demand—can be a legitimate tool but carries significant risks. Policies should clarify when promotions are appropriate and how to limit damage.

Legitimate Uses

• Customer acquisition: Price promotions to attract trial from new customers who may become regulars
• Seasonal smoothing: Reduced prices during off-peak periods to fill capacity
• Competitive response: Temporary price reductions to counter competitor actions
• Inventory clearance: Discounts to clear obsolete or excess inventory
• Product launch: Promotional pricing to accelerate adoption of new products

Dangerous Uses

• When promotions become expected: If customers wait for sales, you're training them to avoid regular prices
• When promotions erode positioning: Heavy discounting damages premium brand perception
• When promotions trigger competitors: Price reductions that start price wars harm everyone
• When promotions attract cherry-pickers: Customers who buy only on promotion destroy economics

Promotional Policy Guidelines

Policies should govern several dimensions of promotional activity:

• Frequency: How often can products be promoted? Monthly? Quarterly? Annually?
• Depth: What's the maximum promotional discount? Different limits for different products?
• Duration: How long can promotions run? Short promotions create urgency; long promotions become regular pricing.
• Targeting: Who sees promotions? Mass market or targeted segments?
• Measurement: How will you evaluate promotional ROI? Promotional Element

Premium Position

Mid-Market

Value Position

Frequency

1-2x per year max

Quarterly

Ongoing rotation

Maximum Depth

10-15%

20-30%

30-40%

Maximum Duration

1-2 weeks

2-4 weeks

4+ weeks

Type

Value-add (gifts, services)

Price + value mix

Price-focused

Communication

Exclusive, understated

Balanced

Bold, prominent

The Costco Alternative

Some highly successful retailers reject promotional pricing entirely. Costco famously offers no coupons, no sales, and no loyalty programs. Every day is the best price. The policy provides several advantages:

• Customer trust: No games; customers know they're getting fair prices
• Operational simplicity: No promotional planning, execution, or tracking
• Margin protection: No promotional erosion or cherry-picking
• Brand consistency: Price integrity reinforces the value proposition This approach works when your everyday prices are genuinely competitive, when your target customers value simplicity and consistency, and when your brand positioning supports it. For premium brands, 'everyday low price' may not align with positioning. But for value-focused competitors, rejecting promotional games can be a powerful differentiator.

Post-Promotion Analysis

Every significant promotion should include post-mortem analysis:

• Incremental volume: How much did sales increase versus baseline?
• Profit impact: Did incremental contribution exceed promotional cost?
• Customer quality: Who bought—new customers, existing customers, or competitors' customers?
• Post-promotion dip: Did sales fall below normal after promotion ended?
• Competitor response: Did competitors react, and how? Many promotions that appear successful on volume actually destroy value when properly analyzed. Without rigorous post-promotion analysis, organizations repeat value-destroying activities because they 'feel' successful.

Key Takeaways

• Promotional pricing has legitimate uses but significant risks
• Policies should govern frequency, depth, duration, targeting, and measurement
• Different market positions require different promotional approaches
• Post-promotion analysis is essential to identify value-creating versus value-destroying promotions