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

Building Your Word of Mouth

Development of social media changed significantly not only the way how brands communicate with their consumers but also how brands consider their consumers.

Nowadays brands are looking forward to being not just purchased, they wish to be actively and broadly discussed. That means for us as marketers that communication and targeting are becoming much more wider terms.

So, now when we start considering our target consumers we should also take into consideration people with whom our consumer will discuss our brand and what kind of experiences he or she will share.

Thus, it becomes highly important to investigate which reference groups our consumers represent and what reach they have. Who are friends and followers of our consumers? Who are the people who read and actively share further the information that our consumers initially shared?

For me it sounds like a valuable additional dimension for a classic segmentation analysis or a point of consideration for a new communication campaign.

How can we make such kind of investigations? The first idea that comes to my mind it to do a social listening type of study. Not to focus only on what consumers say, but also who are those people who first share their experience, those who read and repost it, and those who actively discuss it.

However, social media is just one channel that consumers use for their experience sharing. Another important communication channels might be interests clubs, social and voluntary activities. For instance, the core source of information about running products for me is other runners who I meet in long distance running competitions or in runners clubs. There I can both hear about personal experience of other runners and see a product in its performance.

So, such communities and clubs might be of a strong interest for marketers especially of highly innovative products. But it’s important to take into consideration the diversity of participants and types of brand and product related communications that take place where.

To sum up, my recommendation for a development of word of mouth campaign would be: 1) make an investigation of who are the people discussing you brand and product, focusing not only on those who are in your direct reach; 2) create a message that would be relevant for a broad consumers reach, not just initially defined narrow target consumers group.

WOM

Source: https:// redcanoemedia. com/ social-media-sharing/

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

“MADE IN” Products

The first time when I entered a supermarket in Copenhagen I immediately asked myself a question: “Are these people so patriotic or is it the National Day today?”. The reason for this question was a fully staffed by national flags the store entrance that as I realized later had meant that this, this and that fruit or vegetable was grown in Denmark….

The country of origin effect is a long and widely discussed topic. However, the trend of Consumer’s Ethnocentrism is still growing and companies can continue to stress that it’s wrong to purchase foreign made products.

Consumer Ethnocentrism is growing in Western European countries and can be observed in the USA and Canada. Consumers in these countries believe that products can be trusted only from the local origin, that is especially relevant for food categories but is starting to go also outside…

So, it’s important to continue investigations of this trend in your product category and either utilize it for communications in different channels in case of the local production or identify the ways how your product can be attributed to it.

Made_in_productsSource:http:// civileats. com/ 2016/01/22/5-food -systems-lessons-the-u-s-can-learn-from-denmark/