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A High Low pricing strategy involves applying offers and promotions on products more or less constantly throughout the year, to products that have initially high prices. An e--commerce business that opts for this strategy will launch a product at a high price. When sales start to decrease, they reduce the price with discounts or offers that consumers are unable to resist. Once the promotion ends, they can increase the price again to attract less price-sensitive users. It is a loop which can boost sales of certain items.
This strategy is successful as it makes consumers believe that they are getting a bargain, an unmissable opportunity. Consumers will then be more inclined to buy the product in question, and the final buying decision will be faster. This pricing strategy can be introduced in combination with others, depending on the e-commerce’s objectives and the sales volume. We explain the pros and cons so that you can assess whether it is suitable for your business.
Advantages for your e-commerce business: increased revenue in less time
The main advantage of High Low pricing is that it drives a rapid increase in sales and, therefore, a significant increase in the profits. Attractive prices and the right calls to action underscore the fact that these are unique offers, which increase the purchase volume and the customer’s average ticket. The lure of great promotions will also drive increased traffic to the website. Once on the site, good optimisation is necessary and you should cross-match offers to increase consumer retention and loyalty.
On the other hand, this strategy encourages increased stock rotation and helps give an opening to lower-demand products whose stock levels the e-commerce will want to reduce. The higher the discount percentage, the more attractive products are, even if they are from previous seasons. Many brands have a ‘special prices’ section.
Given the similarities with penetration pricing, High Low pricing is especially useful for new product launches. Then as the months go by and the initial excitement wanes, you can continue to attract customers who are only willing to pay lower prices. Many electronic device retailers and brands use this strategy.
Disadvantages: potentially damaging to your brand image
By implementing a High Low pricing strategy, you risk your brand or e-commerce site being associated with poor quality goods. It is crucial to be mindful of the manufacturing process and be transparent about articles’ features so that you do not mislead consumers. Other disadvantages include:
- Marketing costs: the offers need to be supported by a strong advertising and marketing campaign so that customers are informed and are redirected to the online store.
- Consumer expectations: consumers can decide to wait for the next promotional cycle, and demand can fluctuate, which goes against the aims of this strategy.
- Potential losses: you need to carefully analyse each offer to ensure that costs do not exceed revenue.
To access as much information as possible, before designing a High Low pricing strategy, you can conduct an in-depth analysis of users’ perceived value of each of your products. In other words, how much consumers are prepared to pay for them, and your competitors’ prices. This will help you set competitive prices that are in line with supply and demand. It will also enable you to ascertain the range of discounts you can afford without affecting your profit margin. Automated pricing tools will help you.
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