Adapting the Price

Promotional Pricing
Companies can use several pricing techniques to stimulate early purchase:
• Loss-leader pricing. Supermarkets and department stores often drop the price on wellknown
brands to stimulate additional store traffic. This pays if the revenue on the additional
sales compensates for the lower margins on the loss-leader items.Manufacturers of loss-leader
brands typically object because this practice can dilute the brand image and bring complaints
from retailers who charge the list price.Manufacturers have tried to keep intermediaries from
using loss-leader pricing through lobbying for retail-price-maintenance laws, but these laws
have been revoked.
• Special event pricing. Sellers will establish special prices in certain seasons to draw in more
customers. Every August, there are back-to-school sales.
• Special customer pricing. Sellers will offer special prices exclusively to certain customers.
Road Runner Sports offers members of its Run America Club “exclusive” online offers with
price discounts twice those for regular customers.74
• Cash rebates. Auto companies and other consumer-goods companies offer cash rebates to
encourage purchase of the manufacturers’ products within a specified time period. Rebates
can help clear inventories without cutting the stated list price.
• Low-interest financing. Instead of cutting its price, the company can offer customers lowinterest
financing. Automakers have used no-interest financing to try to attract more customers.
• Longer payment terms. Sellers, especially mortgage banks and auto companies, stretch
loans over longer periods and thus lower the monthly payments. Consumers often worry
less about the cost (the interest rate) of a loan, and more about whether they can afford the
monthly payment.
• Warranties and service contracts. Companies can promote sales by adding a free or low-cost
warranty or service contract.
• Psychological discounting. This strategy sets an artificially high price and then offers the
product at substantial savings; for example, “Was $359, now $299.” Discounts from normal
prices are a legitimate form of promotional pricing; the Federal Trade Commission and Better
Business Bureaus fight illegal discount tactics.