Random discount price works because of the psychological effects it has on customers. Since the discount is for a limited period, customers have to make hasty purchasing decisions. This goes in favor of the company.
When customers see a product at a much lesser price than its normal price, they often buy the product even if they do not have any particular need for it. Companies realize this and exploit this psychological phenomenon.
Benefits of Random Discount Price
The benefits of random discount price are as follows:
More revenue – Random discount price enables companies to simultaneously make profits from less price-sensitive customers while generating sales to more price-sensitive customers occasionally. The result is a bigger bottom-line for the company.
Retaining price-conscious customers – Another benefit of random discount prices is keeping the revenue of the firm high while retaining price-sensitive customers.
Unpredictability – Since customers cannot predict when will discount the price, it stops them from waiting on an impending discount to make their purchase.
Clearing old stocks – Giving discounts also helps in clearing out the old stock. Goods that retailers are not able to sell still occupy inventory space. Thus, retailers often give random discounts on these goods to tempt customers into buying them.
New customers – The price discounts attract many new price-conscious customers, who were earlier indecisive about whether to buy the product or not. There is a distinct chance of these new customers liking the product and the brand and choosing to buy from the brand even when prices return to normal.
Disadvantages of Random Discount Price
There are certain disadvantages of this strategy as well. Since the prices of products during the event are much lower than the normal prices of these goods, customers assume that these goods must be of low quality. This happens because customers innately associate the higher price of a good with its higher quality. This can lead to damage to the reputation of the company.
Another disadvantage stems from the fact that many new customers only choose to buy the product because of the discount and never buy it at a normal price.
In other words, low prices have their downsides as well as upsides.
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