High-low pricing is a widely-used pricing strategy that allows companies to charge more for initially introduced products and then sell them at a much lower price during promotional campaigns. These usually include seasonal deals, clearance sales, and markdowns. The primary goal of these campaigns is to increase revenue.
In this article, we'll explain why firms use this method, unveil its pros and cons, compare it to Every Day Low Prices (EDLP) strategy, and share some examples.
Firstly, we'll uncover the reasons and benefits which this strategy provides.
Advantages and Disadvantages of High-Low Pricing
Almost every retail business selling mass-market products uses this pricing strategy. Promoting a product twice cheaper than the regular price allows companies to enhance flash sales and impulse purchases. Customers are tempted to buy due to the powerful sense of urgency no matter whether they do need this item, so it makes them turn a blind eye to price gouging.
For this method to work, both businesses and clients should know the relative price for each item. It means the average price for a specific product in the market. Launching a high-low pricing campaign, ensure that you really charge much less money than its current cost among competitors.
Now you should understand the advantages and disadvantages of this strategy. The benefits you may get include the following ones.
- Revenue increase. Sharp price decline if promoted well will increase your total sales volume, therefore, revenue.
- Selling low-demand products. High-low pricing is your chance to convert old stocks, excess inventory, and slow-moving items into cash. Each firm has items that collect dust on the gloomy shelves of their warehouse. So, be proactive, and launch campaigns to promote goods that don’t sell and get space for new arrivals.
- Boosting website traffic. If you promote your deal via email campaigns, chatbots, and web push notifications, you increase your website traffic naturally which has a positive impact on your search rankings.
Although the advantages seem very attractive, this strategy has drawbacks as well. Check them out below.
- Customers wait for deals. If you run high-low pricing campaigns on a regular basis, your clients will adjust and wait for the deals because of muck lower prices. This can hurt your revenue.
- Customers can doubt your product quality. Clients know that there ain't no such thing as a free lunch. Big discounts make them question the quality of your goods so they can be rather suspicious about your brand.
- Marketing costs can be high. Sometimes promoting a product can cost more than selling it at a relative price. This way, this strategy won’t pay off. Although, you don’t need to spend a dollar when promoting your deals with SendPulse marketing tools. You can send emails to 500 subscribers a month for free as well as inform 10,000 users about sales via web push notifications.
So, you see that benefits can be really tangible if you give good thought to your campaign and choose a reliable marketing platform.
High-low pricing and Every Day Low Prices strategies are often combined by big brands. Let’s see the difference between these two strategies.
High-Low Pricing vs Every Day Low Prices (EDLP)
While a high-low pricing strategy implies setting a high price initially and then lowering it during promotional campaigns, EDLP allows companies to set a low price without making customers wait for deals.
With EDLP, clients don’t need to compare manufacturers and search for the lowest price since a firm promises to keep their price low during a specified time period or even forever. You definitely have a supermarket chain in your region that positions itself as the lowest price seller. This strategy was applied by Walmart, Procter & Gamble, Food Lion.
EDLP strategy allows stores to predict demand and prevent sharp fluctuations which occur during high-low pricing campaigns. Besides, companies don’t have to pay regularly for promoting one-day deals as high-low pricing requires. On the other hand, companies that use EDLP can’t benefit from creating discounts since they will hurt their profit margin. Moreover, if you sell at lower prices, your budget for other important issues will be rather tight. So, you won’t be able to invest much in hiring highly experienced staff to improve your customer service or invest more in a better promotion.
So, both pricing strategies have pros and cons. If you go for EDLP, you can position your brand as the most profitable choice, while choosing a high-low pricing technique will provide more opportunities to increase sales volume and sell low-demand items.
Examples of High-Low Pricing
This strategy is widely used in the fashion and shoe industry. The most popular companies reaping its benefits include Nike, Reebok, and Adidas. Considering the fashion industry, Nordstrom and Macy’s choose this strategy. Their prices are rather high, but these brands regularly motivate and reward their clients with big discounts devoted to the end of the season. This way, they sell off-season goods, retain customers, and acquire new prospects to assess their quality at a reduced price.
So, now you realize the advantages and disadvantages of high-low pricing and can use it in your business with the marketing tools provided by SendPulse for free.
- This article covers high-low pricing advantages and disadvantages in detail.
- This article provides the advantages of this strategy along with examples.
- This article explains how high-low pricing works, in particular, in fashion retail.
Last Updated: 25.02.2021