The problem with promotions

Do promotions increase consumption? The answer is not simple. For instance, should there be a promotion on chocolate, if you are anything like me, it will increase consumption. As the more that I buy, the more we eat.

However, other product promotions don’t have the same positive impact on consumption. For example, stocking up on laundry powder is unlikely to encourage you to wash more clothes! You will not increase the laundry loads purely due to the fact that the powder is on hand.

Another example. consider a major toilet paper manufacturer in Australia. The company sees an 800 percent uplift when its bathroom tissue is on offer. Is this an effective promotion? Is it likely that people are suddenly consuming eight times as much toilet paper? Not at all.

All that his happening is that sales are dropping between promotions. The benchmark price for the brand (and perhaps the category) has changed, and the promotional price has become the norm.

Shoppers stock up while the deals are on and stop buying the rest of the time. In effect, the “standard” price of the product, in the eyes of shoppers, is now the promoted price. The non-promoted price is not seen as good value and is ignored by shoppers, who have been trained to stock up when a deal is on.

In this way, entire categories can be poisoned. The phenomenon is particularly common where products have a long shelf life and can thus be stored at home for a long time. For instance, with toothpaste, 40 percent of global sales are on promotion. Manufacturers are training shoppers to buy on sale.

Discounting, then, merely lessens the brand’s value in the eyes of the trained shopper–and often trains them to only buy on discounts. With this practice, we create more bargain hunters, which is simply not sustainable. In the long run, many discounts merely prompt shoppers to stock up, reducing future purchases. And when “later”comes along, the retailer and the brand experience another drop in sales. What’s the solution? Drop the price again. And the cycle repeats.

Learn more about this in our course The True Cost of Discounting for the Brand. Gain full access to all our courses, videos and podcasts for only $50pm billed annually.

January 26, 2019

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