Why can price promotions become dangerous?

Price promotions is a tool that marketers use across many product and service categories. However, many of us know stories where price promotions have triggered very negative business results reflected in severe not only margin but also share losses.

After a business review where results indicated that 50% of the brand portfolio sells had come from price promotions, I realized a strong need to investigate this topic in more details.

The overall conclusion to which leads academic literature on this topic can be expressed by the words of Ehrenberg, Hammond and Goodhardt (1994): “price promotions don’t affect a brand’s subsequent sales or brand loyalty”.

Definitely, successful price promotion do lead to sales increases during the promotional period, mainly driven by:

1. Brand switchers who take an advantage of the price cut.

2. Consumers stockpiling behavior in response to the reduced price.

3. Newly attracted consumers (i.e. real market expansion) (Dawes, 2004).

The research results show that among these three factors, brand switchers are the key driver of price promotions success (Dawes, 2004). This is driven by the fact that brand switchers are mainly represented by light buyers and each brand has a lot of light buyers who buy a brand only infrequently (Dawes, 2004; Scriven, Ehrenberg, 2002). This is also linked with the fact why after a price promotion there is quite often no huge negative after-effect (Ehrenberg, 2000).

Also, according to Dawes (2004): “the brand is also bought during the promotion by consumers who would have otherwise bought it at regular price”. This linked with the results of the research done by Ehrenberg, Hammond and Goodhardt (1994) who conclude that “almost 70 percent of the buyers during the average sales-peak had bought the brand already in the previous half-year, some 80 percent in the previous year, and nearly all, 93 percent, in the previous 2.5 years”.

Another type of brand switchers can be those who are usually price sensitive and always tend to buy at the lowest price option – “many will switch straight back once our price returns to its normal level and will also switch if a competing brand offers a price cut” (Dawes, 2004). However, even in this case consumer don’t change the repertoire of their brands – they “respond if the bargain is for a familiar brand, i.e., one already in their usage portfolio, but very rarely, if ever, if it is for a previously untried brand” (Ehrenberg, Hammond and Goodhardt, 1994).

Considering the stockpiling effect, it is important to highlight that this will affect a brand as much as other brands who can come up with price promotion – “more significantly forward buying will include loyal customers who would have bought our brand at full price” (Dawes, 2004).

It’s also important to mention that consumers who try a brand in response to price promotion are not especially likely to become regular buyers of the brand (Dawes, 2004). Ehrenberg, Hammond and Goodhardt (1994) underline in their work that “buying a habitual brand once again does not normally increase the likelihood of buying that brand in the future – there is no “learning” in what is generally regarded as a “zero-order” stochastic process… Occasionally consumers do try something new, because of variety-seeking or competitive activity, or both. Sometimes they then develop a new repeat-buying habit. But this usually happens only as an exception and sporadically for different consumers”.

At the same time, price promotions can lead to various negative effects for a brand. Thus, Dawes (2004) mentions that frequent price promotions lower consumer’s reference prices for the brand, so that consumers experience a tendency to buy the brand when it’s promoted. In that case consumers no longer perceive the regular price as “the fair” one.

Moreover, price promotions damage brand perception in terms of the product quality –  this is the reason why luxury brands never sell their products on promo (Dawes, 2004).

To sum up, price promotions don’t represent a strong brand building potential as: 1) their gains are very short term and last only during the promotion period; 2) sales peaks can be followed by strong deeps; 3) they don’t drive trial and loyalty; 4) they can significantly decline “the fair” price point;  5) they can hinder a brand’s quality image.

Price_promo

Sources: Ehrenberg, A.S.C., Hammond, K., Goodhardt, G.J. (1994). The After-effects Of Price-related Consumer Promotions. Journal of Advertising Research, 34(4), pp. 11-21; Scriven, J., Ehrenberg, A. (2002). Is Coke Always Less Price-Sensitive Than Pepsi? Marketing Research, 14(4), pp. 40-42; Dawes, J. (2004). Assessing The Impact Of A Very Successful Price Promotion On Brand, Category And Competitor Sales. The Journal of Product and Brand Management, 13 (4/5), pp. 303-314

How to build a strong loyalty program?

How many times have you heard from your marketing manager that this is the time to think about a new loyalty program? Working on a broad portfolio of brands and channels I’ve discussed this question already for many times….

However, this time before bringing consumer insights to my team I’ve decided to revisit a book written by B. Sharp “How brands grow: what marketers don’t know” as well as some related academic papers.

Let’s have a look at the key marketing rules & ideas discussed in the book from a perspective of building a new loyalty program.

Purchase duplication law says that “everybody switches” and that “defection rates don’t vary significantly between competing brands” (Sharp, 2010). The key metric that varies is a penetration – in line with a market share.

That can lead us to the first conclusion that eventually the key objective of the loyalty program should be a growth of its market share (Sharp, Wright and Goodhardt, 2002; Dawes, 2008).

Double Jeopardy law underlines that brands with a small market share “suffer twice – fewer people buy them, and those who buy them do so less often” (Sharp et al, 2012).

Research shows that loyalty programs is a classic example of a strategy skewed towards heavier buyers of a brand and as a result “loyalty programs generate small or no shifts in market share” (Sharp, 2010).

Heavier buyers of a brand are much more prone to join loyalty programs due to two reasons: 1) significantly higher physical and mental availability of a loyalty program for them; 2) sufficiently stronger economic value that heavy buyers receive from a participation in a loyalty program (Sharp, 2010).

However, light buyers do matter for a brand success. This is linked with the fact that all brands have a long tail of light buyers.

As research results show, loyalty programs don’t attract a disproportionate number of new heavier buyers for a brand, they have a potential to attract some light buyers (Sharp, 2010). For instance, loyalty programs that include several brands where bigger brands can attract some light buyers to make a trial / buy more frequently smaller brands presented in the program (Sharp and Sharp, 1997).

So, the second conclusion – as loyalty programs won’t attract disproportionate number of heavy buyers, it is worth to focus on attracting more light buyers.

Dirichlet model highlights that “consumers don’t randomly allocate their purchasing among all brands in a category but do so in a biased fashion…. All buyers have their own particular loyalties… consumers are polygamous loyal to a number of brands in most categories” (Sharp et al, 2012).

Hence, positive short-term results of a loyalty program can be driven by a temporary shift in buyers purchase frequency and/or spend per purchase; however, it won’t be represented in a long-term increase in buyers’ loyalty and will lead only to decrease in company’s profitability (Sharp and Sharp, 1997; Sharp et al, 2012).

Hence, the third conclusion is that since buyers behavior changes very little over the time, loyalty programs actually drive consumers switching within the repertoire of brands that in long-term won’t lead to a substantial impact on a brand share (Sharp et al, 2012).

Taking into account these three conclusions, the following recommendations on development of the loyalty programs can be provided to marketing managers:

1. Shift the focus of the loyalty programs from a decline in a brand retention rate to gaining more brand switchers.

2. Target buyers of diverse brands rather than a particular brand as it will allow to increase a base of the light buyers.

3. Include smaller brands in the loyalty programs to drive cross-selling and trial from the side of the light buyers of big brands.

4. Analyze loyalty program results in a long-term basis and consider market share as a key success metric.

5. Consider alternatives to loyalty programs to build consumers loyalty – e.g. moving from repertoire market to subscription market can increase buyers loyalty without additional loyalty programs (Sharp, Wright and Goodhardt, 2002).

6. Benefit from information received in the frames of the loyalty program – e.g. to build a database of consumers, empower communication channels and monitor purchase behavior.

Loyalty_insights_bestinsightsphere

Source: https:// securityintelligence. com/ cybercriminals-phish-their-way-into-customer-loyalty-programs/

Sources: 1. Sharp, B. (2010) How brands grow: what marketers don’t know, Australia: Oxford University Press; 2. Sharp, B., Sharp, A. (1997). Loyalty Programs And Their Impact On Repeat-purchase Loyalty Patterns. International Journal of Research in Marketing, 14, pp. 473-486; 3. Sharp,B., Wright,M., Dawes,J., Driesener,C., Meyer-Waarden,L., Stocchi,L., Stern,P.(2012). It’s a Dirichlet World. Modelling Individuals’ Loyalties Reveals How Brands Compete, Grow, and Decline. Journal of Advertising Research, 52(2), pp. 203-213; 4. Sharp, B., Wright,M., Goodhardt,G. (2002). Purchase Loyalty is Polarised Into Either Repertoire or Subscription Patterns. Australian Marketing Journal, 10(3), pp. 7-20

Top 6 Insights on Digital

Digital continues to bring to marketers more questions than answers. Here I would like to share a set of holistic insights on Digital that comes from an academic research.

1. Higher effectiveness of consumer generated vs company created content.

“Online community participation enhances loyalty and influences new product adaptation. Communication originating in online communities has more pronounced long-term effects than firm-initiated communication” (Yadav and Pavlou, 2014).

“Customer-initiated communication is significantly more effective than firm-initiated communication for acquiring and retaining customers” (Yadav and Pavlou, 2014).

2. Personalization of the digital content is a core.

“Personalization of e-mail significantly increases perceived interactivity and clicks rates up to 62%” (Yadav and Pavlou, 2014).

3. Lower consumers price sensitivity in eCommerce vs offline stores.

“Buyers at online stores are less price sensitive than those at offline stores” (Yadav and Pavlou, 2014).

4. Building loyalty in Digital is more fruitful than in offline.

“… [there is a] strong evidence of higher brand loyalty for online purchases compared to online” (Danaher, Wilson and Davis, 2003).

“Loyalty-based price promotions are more effective in online versus offline contexts” (Yadav and Pavlou, 2014).

5. Price promotions in Digital don’t lead to strong consumers loyalty.

“Customers acquired with online price promotions make shorter-term commitments, whereas those acquired with informational e-mails or search engine ads lead to longer-term commitments (Yadav and Pavlou, 2014).

6. Social Listening can provide critical consumer insights to companies.

“Reviews, particularly their dispersion across heterogeneous customer groups, are predictive of new product success or failure” (Yadav and Pavlou, 2014).

“Negative word-of-mouth behaviors are motivated primarily by a desire to address a perceived injustice” (Yadav and Pavlou, 2014).

Overall, marketers can benefit from these insights by focusing on: 1) Digital activities that will trigger consumers to generate content; 2) creative ways to build personalized consumer content; 3) creation of strong price mix between on-line and offline trade channels; 4) enhanced loyalty programs specifically created for Digital channel; 5) Social Listening programs for new product launches and product/brand ‘always on’ monitoring.

digital_insights

Source: https:// aimia. worldsecuresystems. com/ BookingRetrieve.aspx?ID=315717

Sources: 1. Danaher, P.J., Wilson, I.W., Davis, R.A. (2003). A Comparison of Online and Offline Consumer Brand Loyalty. Marketing Science, 22 (4), pp. 461-476; 2. Yadav, M.S., Pavlou, P.A. (2014). Marketing in Computer-Mediated Environments: Research Synthesis and New Directions. Journal of Marketing, 78, pp. 20-40.

Building Shopper Perceived Ownership in the Era of eCommerce

The reasons why in the countries with developed trade Super- and Hypermarkets have been strongly outperformed traditional trade with over the counter sells are feasible for marketers now.

One of the core drivers of this shift is related with the success with which modern trade stores have managed to build shoppers perception of the product ownership even before shoppers actually put the product in their basket and pay for it.

With the development of the modern trade stores companies also pay much more attention at the ergonomics of the product packagingtrying to stand out from the shelf so much that shoppers start willing to take this product in hands. One of the best experience that shoppers can get with product packaging in FMCG categories definitely refers to Cosmetic Perfumeries. If you are looking for packaging ideas, welcome to the Perfumeries world! The concept of perceived ownership perfectly works here- after the shopper starts product exploration, he or she is eager to put it in a bag.

But what does happen in that case in eCommerce environment? Do eStores have any chances to drive shoppers perceived ownership?

My investigation both across various scientific papers and available books in consumer behavior shows that eStores do have many opportunities to build shoppers perception of the product ownership.

Thus, for instance, R. Dooley (2012) shows that product squeeze page, that represents “one long page filled with product data, testimonials from satisfied customers, and answers to common objections and so on”, allows to build strong shoppers engagement in the product information (see also http://www.codrutturcanu.com/13-best-squeeze-page-examples/). As a result it builds ownership imagery about the product.

Another driver of the perceived product ownership is linked with different types of augmented reality. Ray Ban represents a strong case on how augmented reality can drive product ownership- in their site a shopper can find a virtual mirror where he or she has a chance to select a type of Ray Ban model, color of glasses and then make a photo of his-/herself via web camera.

Ray_Ban_virtual_mirror

Source: http://www.ray-ban.com/france/virtual-mirror

To sum up, development of eCommerce technologies allows to enhance and diversify solutions that will enable companies to drive consumers perceived ownership. Therefore, I would recommend marketers to continuously develop enhanced eStore content bringing digital novelties like it used to be with augmented reality to build stronger consumer ownership imagery.

Sources: Dooley, R. (2012).Brainfluence: 100 Ways To Persuade And Convince Consumers With Neuromarketing, John Wiley & Sons, New Jersey

What does in Value for Money matter?

One raining evening after a long walk in Oxford I came up to enter a symbolic place- Blackwell’s bookshop where my strong inspiration  by consumer neuroscience led me to buy a book “Brainfluence” by R. Dooley.

One of the core topics in the book that readers find across chapters is linked with the area on which I have had a lot of conversations with my colleagues- how to build the best brand and product value for money.

R. Dooley steps a bit back from this question and highlights that for consumers cost has the same brain association as usual pain does. “Buying pain- the activation of our brain’s pain center when paying for a purchase -increases when the price seems too high“.

Therefore, in order to deal with the associated pain, consumers make both conscious and subconscious evaluations of the cost “fairness”. In order words, perception that the product or service has a good value for money means for consumers that the product cost is fair.

Here I see two crucial points- first, value for money attribution to both conscious and subconscious  evaluations, and second, the importance of value for money for the overall buying pain reduction.

Considering the conscious value for money evaluations, it’s important to remember that “our brains aren’t good at judging in absolute values, but they are always ready to compare values and benefits“.

Hence, from my point of view, the most relevant idea here is anchoring that has been introduced by D. Arley in his book “Predictably Irrational”. Anchoring means that consumers evaluate fairness of the product prices taking into consideration different anchor prices. They might come from products within the category, but also can be other prices with which consumer has recently dealt.

So, if anchor prices are established then offers involving lower prices will be attractive to consumers and be perceived as offers with good value for money.

For subconscious evaluations might be important attributes associated with the overall shopping experience. In case of repeated purchases, consumption experience might also play an important role.

To sum up, there are several recommendations for marketers. In order to enhance the perceived product value for money, it’s important to:

1. Understand and refer to the right product anchors: evaluating the category in terms of the most relevant consumer anchors and/or introducing the most relevant anchors.

2. Make a price a bargain: leveraging sales prices, restating prices to make them look smaller (e.g. monthly rate vs an annual subscription cost), using ‘nice’ price communication (like ‘just’ or ‘small’).

3. Avoid repeated pain points: utilizing product bundles/sets when purchase decision is done only once.

4. Appeal to important needs associated with the product purchase.

5. Create strong shopping and consumption experience: levering the shopper marketing tools and enhancing second moment of truth.

value_for_money

Source: http:// www. pandarix. com/ why- pandarix/

Sources: 1. Ariely, D. (2010). Predictable Irrational: The Hidden Forces That Shape Our Decisions, Harper Perennial, New York; 2. Dooley, R. (2012). Brainfluence: 100 Ways To Persuade And Convince Consumers With Neuromarketing, John Wiley & Sons, New Jersey

Get Your Consumers Attention

Thinking about a new communication campaign we usually expect it be catchy and leading consumers to go to a store to buy our product.

But how do consumers in general terms perceive our communication?

Recently I’ve read a book on the popular today Positive Psychology. Initially I didn’t expect to find where something relevant for this blog. However, one of those ideas has a big relevance to my everyday work.

Thus, working on a new campaign I believe it’s important to remember that “we all go through three psychological states in response to exposure: curiosity, recognition, and decision” (Gielan, 2015).

So, it looks to be quite a long way from seeing our communication to taking a trip to a store. But there is one more important point that we should keep in mind: “usually people don’t even “see” an advertisement for the first three times, and it’s only by the fifth time that it permeates their conscious brain” (Gielan, 2015).

Well, it makes everything really complicated! For sure marketers know that we should keep a substantial amount of GRPs on TV, for instance, to get those 5 exposures… And for it we should definitely know how often this particular touch point is used by our consumers, I mean to have enough chances to be seen those 5 times…

Or another solution might be a multichannel communication that is becoming nowadays widely utilized by companies.  And this is exactly what will allow to have a mix of communication channels, keep the same communication message and visuals, and get desired 5 hits probably even faster.

One of my favorite examples here is P&G “Thank you, Mom!” campaign that is widely used multichannel communication to deliver its message. The picture below shows a strong mix of TV and different Digital channels. Moreover, the company actively used in-store communication sticking to the same message and visuals. It was a huge success from which we can definitely learn a lot!

P&G_Thank_you_Mom

Source: http://fr.adforum.com/creative-work/ad/player/34488409/thank-you-mom/procter-gamble

Source: Gielan, M. (2015). Broadcasting Hapiness: the Science of Igniting and Sustaining Positive Change. BenBella Books, Dallas

Should We Invest Heavily in Cross-selling?

The idea of cross-selling enhancement has been always attractive to us as marketers. Quite often it’s perceived so obvious and simple in terms of its logic that we start thinking that this is the same logic that consumers have.

Actually, there are so many possibilities! For cross-selling can be used either existing product/ brand portfolio or it can be put as one of KPIs for brand, product or category extensions.

Once I worked my team on the understanding why this simple logic which everyone among us have clearly understood didn’t bring the expected sales results. To be true they were, but very short term.

If I could describe the situation in consumer words they would be like following: “I see your offer and it’s really attractive for me, so that I buy these two products today… But in the future, why should I switch?”.

Reading Sharp’s book (2010) I found his idea valuable to share: “there is little difference in cross-selling metrics between competing brands, and the small difference that do exist tend to reflect market share- not whether or not they have dedicated cross-selling program“.

So, quite often ambitious cross-selling plans don’t bring long term sales results and at the end don’t have high ROI.

Attributing to this point Sharp (2010) underlines: “dramatic changing cross-selling metrics is difficult and expensive“.

Therefore, I would recommend to analyze the overall category effectiveness of cross-selling campaigns both in terms of their short and long term volume uplifts in order to set the right expectations.

Secondly,  if you believe in game changing in your category, then this campaign shouldn’t be limited just by on product and POSM communication. It should go much further than just in-store environment and are better to utilize multi channel communication.

Cross-selling

Source: http:// shopware. orangefluid. com/

Sources: Sharp, B. (2010). How Brands Grow: What Marketers Don’t Know, Oxford University Press, Australia