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 the Everyday Low Prices (EDLP) strategy, and share some examples.
Firstly, we’ll uncover the benefits that this strategy provides as well as its shortcomings.
Advantages and Disadvantages of High-Low Pricing
Almost every retail business selling mass-market products uses this pricing strategy. Promoting a product twice as cheaper as its regular price allows companies to enhance flash sales and impulse purchases. Customers are tempted to buy due to a powerful sense of urgency no matter whether they actually need this item and turn a blind eye to price gouging.
For this method to work, both businesses and clients should know the relative price for each item, which is an average price for a product on the market. When launching a high-low pricing campaign, ensure that you actually charge much less than your competitors do.
Now you should understand the advantages and disadvantages of this strategy. The benefits you may get include the following ones.
- Revenue increase. If promoted well, a sharp price decline will increase your total sales volume, and therefore, your 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. Be proactive and launch campaigns to promote goods that don’t sell and get more 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 to this and wait for the deals because of much lower prices, which can hurt your revenue.
- Customers can doubt your product quality. Clients know that there is no such thing as a free lunch. Big discounts make them question the quality of your goods, and they can get rather suspicious of your brand.
- Marketing costs can be high. Sometimes promoting a product can cost more than selling it at a relative price, and thus, the strategy won’t pay off. However, 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 and inform 10,000 users about your sales via web push notifications.
You see that these benefits can be tangible if you give your campaign a good thought and choose a reliable marketing platform.
Big brands often combine high-low pricing and Everyday Low Prices strategies. Let’s see the difference between these two tactics.
High-Low Pricing vs. Everyday 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 their 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 prices low during a specified period or even forever. You definitely have a supermarket chain in your region that has established a reputation 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 that 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 essential issues will be rather tight. You won’t be able to invest much in hiring a highly experienced staff to improve your customer service or invest more in a better promotion.
Both pricing strategies have pros and cons. If you go for EDLP, you can present 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 popular in the fashion and shoe industry. The most famous companies reaping its benefits include Nike, Reebok, and Adidas. Considering the fashion industry, Nordstrom and Macy’s choose this strategy. Their prices are relatively 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.
Now that you realize the advantages and disadvantages of high-low pricing, you can start using it in your business with the marketing tools provided by SendPulse for free.
References
- This article covers high-low pricing advantages and disadvantages in detail.
- This article provides the advantages and examples of this strategy.
Last Updated: 05.07.2023
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