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 5 Insights from ESOMAR Research Rally in London

Today I would like to share with you my key ideas & insights from the ESOMAR Research Rally that recently took place in London.

Overall, it was a magnificent event that give Marketing Researchers a fantastic chance to collaborate closely on very inspirational business ideas across various industries.

Combined with my experience in collaboration with different start-up companies in Switzerland, France and the UK, I’ve decided to share my vision on where start-ups need the most support from the side of the Consumer & Market Insights experts and what can be the best way to approach these business need.

bestinsightsphere.com - Research Rally Insights -1.2

Start-ups love their idea and work a lot on it! Some efforts fail, new ideas come up and quite soon many start-ups face the situation that they go in very different directions. Even more, they have lots of directions!

Consumer & Market Insights experts are always able to stay behind and identify this problem that requires a holistic analysis of the markets and their potential. It should allow to identify the Size of The Price for each business idea and decide which of them can have the biggest long term potential.

bestinsightsphere.com - Research Rally Insights -2.2

Being a start-up you are forced to think about your financials 24 hours a day! But quite often it makes you too much focused on your margins that can lead to a very big challenge for the company.

Consumer & Market Insights experts are to support companies with the most effective and efficient pricing model, keeping the end consumer in mind. Important watch out, traditional pricing research is too much claimed. One of the most attractive solutions here was discussed in the previous post: https://bestinsightsphere.com/2017/02/27/getting-consumer-insights-as-real-as-possible/

bestinsightsphere.com - Research Rally Insights -3.2

We all love numbers! That’s why start-ups are so much eager to jump into quantitative studies. Seriously, “Are you a researcher? I need a questionnaire!”. And this can bring a big threat in terms of where numbers will lead business decisions.

Consumer & Market Insights experts should always keep the final business objective in mind. Start-ups are about the initial stage of the development both of the business and product offering. This means that explorative research could be much more beneficial for them. And explorative doesn’t mean very expensive – observations, quick charts with shoppers, asking questions on forums & blogs, looking at social media, all these can be done almost for free.

bestinsightsphere.com - Research Rally Insights -4.2

Despite very disruptive business ideas start-up companies usually don’t look broadly enough on the potential communication channels. Yes, Digital is important, but it’s still not only one!

Consumer & Market Insights experts can provide a broad understanding of the different communication tools and touch points with which consumers are engaged.

bestinsightsphere.com - Research Rally Insights -5.2

Start-ups come with brilliant product/service ideas, but they often miss a lot the initial consumers feedback.

Consumer & Market Insights experts can facilitate the process of the product/service development via co-creation workshops, which can allow to achieve a stronger product offering.

Research Rally London_ Nadia_Morozova

 

 

“Market Research in the Mobile World” Conference Highlights: Key Trends in Market Research

Today I would like to share the key highlights on the trends in market research that were discussed in the frames of “Market Research in the Mobile World: Europe 2016” conference in London.

1.Mobile crowdsourcing research is booming: there are more and more business cases where mobile crowdsourcing platforms are used.

The beauty of mobile crowdsourcing research is linked with its high agility – the solution can be used at home (pre-shopping, ethnographies, product reviews), in store (price checks, retail audits, in-store photos, OOS, competitor analysis, mystery shopping) and out of store (typical applications used, ads awareness).

2. Mobile research allows to be closer to the moments of truth: mobile operators can help to build a consumer journey and daily diaries, including commuting patterns, digitality, affluence and lifestage.

Importantly also to keep in mind that consumers use mobile a lot while on traffic.

3. Consumer first approach should be also implemented in surveys: we should ask ourselves “what do our consumers want us to ask them?”.

4. Social Media possessing a lot of information about consumers is still quite close to a holistic analysis. Thus, Antedote study underlines that only 1-20% of posts are geotargeted and 70% of the content refers to dark media (closed content).

5. Internet of Things shows a strong potential for the market research. But there should be considered a fact that device and respondents in general use different types of logic.

6. Modern technologies can allow us to get more in-depth behavioral data that can help to address a high gap between real and claimed data.

Market researchers should continue to look for the ways on how to address the difference between real and claimed data. As, for instance, research shared by Beatgrid Media has shown that real TV exposure is 19% while claimed is 34%.

Another research conducted by Wakoopa has revealed that on average 64% of the respondent’s answers about their mobile behavior is wrong and 65% of the respondents who answered wrong overestimate their usage.

7. Share of experience is more predictive than share of voice. Share of experience can include: “me using/eating/drinking”, “peer observation” and “retailer advertising”.

It’s important to remember that according to research of Mesh Agency “positive experiences have three times the impact of a neutral experience on brand consideration”.

nadia-morozova_mrmw

Top 6 Insights from Panel Discussion about Technology Impact on Market Research

Last September I had a privilege to moderate a fascinating panel discussion on the topic: “A faster, cheaper and easier future for Market Research- or not?” in the frames of the Conference: “Market Research in the Mobile World: Europe 2016”.

In the panel were presented outstanding Market Research professionals: Ank Van Ophoven from Philips Lighting, Frank de Boer from KLM and Jocob Wieland from BBC.

I should admit that it was a great pleasure for me to discuss this topic on the stage of Millenium Mayfair London. Despite the fact that we touched different aspects of the impact of technologies on the Market Research, I still managed to make some key take away notes.

  1. We as market research professionals definitely shouldn’t be threatened by the modern technologies, in fact we can benefit from them a lot!
  2. Market researchers need to develop a set of skills to be able to leverage these technologies – like using data from connected devices and social media. However, it doesn’t mean that we as professionals are required to have an absolutely different profile in terms of the technical skills.
  3. Bringing insights into action is still a core of our job and technologies just bring us an access to a broader spectrum of information that can be leveraged for insights generation.
  4. Modern data is used differently in different industries that is also linked with an access to different type of data. However, there is one thing common- we as professionals should look and benefit from sources of cheap and fast data.
  5. Traditional market research techniques aren’t obsolete but having at our disposal a wider diversity of the data we could get deeper insights. Traditional techniques stay in the industry but while even 5 years ago they were a core for insights generation now they are just one of many.
  6. A core challenge for market research professionals continues to be a combination of various data types to create holistic insights.

nadia-morozova-panel-discussion_1

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Transform your Consumer Empathy with the Use of Mobile

Today I would like to share with you highlights of my presentation which I did in the frames of the last conference “Market Research in the Mobile World: Europe 2016” in London.

I came to the idea to share my experience on the topic of building consumer empathy within the organization as I believe that currently mobile research technologies provide a lot of opportunities for companies. Even for those who don’t have a direct access to mobile data!

During my presentation I’ve shared a case where in close collaboration with one of the European mobile crowdsourcing companies I managed to create a solution with which employees of a company collected different types of pictures about their products & categories and answered a set of fast&easy questions on their mobile phones.

As a result it brought not only several successful business projects but also substantially increased an overall company’s engagement in listening to its consumers.

Even despite a high resistance that I’ve heard initially in the company towards getting more engaged in understanding consumers as we see below:

nadia_morozova_consumer_empathy_sl3

I received an overall felling that consumer empathy is already here:

nadia_morozova_consumer_empathy_sl5

Building on what was already available in the company, I defined what I would like to achieve at the end:

  • Consumer Empathy is a set of mind
  • For the whole Multifunctional and Leadership Team
  • That is institutionalized within the organization
  • And represents the best research ROI.

So, my solution to this case was:

nadia_morozova_consumer_empathy_sl6

However, there are several challenges which I had to overcome to achieve my initial objectives:

nadia_morozova_consumer_empathy_sl7

While overcoming these challenges I built my list of hits & tips that allowed me to achieve development of the projects with strong business results and significantly improve overall company’s involvement in listening and understanding its consumers.

nadia_morozova_consumer_empathy_sl13

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