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Price promotions: how to make them work for your brand

Price promotions can be highly effective in boosting short term sales. But encouraging trial isnt the same as building brand loyalty, and price cutting can actually be damaging to brand equity. So, to make price promotions work for your brand in the longer term, you need to be clear about your strategy: what you are aiming to achieve, and when the promotion should end. In addition, you should consider supporting the promotion with brand building advertising, to ensure consumers appreciate what makes your brand distinctive not just the savings it offers.
The most powerful influence in-store
In many parts of the world, marketers give priority to price promotions over media expenditure. While their popularity varies across countries and across categories, our studies clearly show that price promotions are the most powerful in-store influence on purchase. In recent years, growth in promotional activity has been fuelled by retailer power, but there are also many reasons why the marketing team might consider promotions, including: attracting new (or lapsed) consumers, volume/stock clearance, to hit sales targets, to match competitive promotions, or to squeeze out a new market entrant.
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brands with a genuinely superior product experience. The following example shows that while the advertising is generating brand awareness, it is the promotion that is generating trial.
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Promotions can be very successful

Promotions can undoubtedly generate increased usage and sales. For example, sales modeling for one petrol brand revealed that brand image advertising produced a short term sales return of 2,000 per GRP, while a TV advertised promotion produced a short term sales return of 1 1,000 per GRP. They can be particularly useful in new categories, or for new

Promotional pitfalls
However, there are a number of pitfalls associated with promotions. In Japan, for example, the shampoo category is fiercely competitive and worth over US$1billion per annum. When a new brand was launched into the category, awareness built quickly, but trial lagged. In response, it adopted a series of price promotions over a two year period. Trial built as a result but regular usage did not follow.
 Millward Brown October 2007

Price promotions: how to make them work for your brand

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At the same time, brand equity declined. Just half the consumers (55 percent) were loyal to any one brand in 2004, whereas 81 percent were loyal in 2003.
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Making the most of price promotions

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Adding in value share to the picture reveals what happened. During the first six months, the price cuts helped to build trial and increase value share. After this, trial continued to grow, but value share was in decline. In the final period, trial reached its threshold and value share continued to decline.
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Two examples from India help point the way to a successful strategy. One food brand that was promoted for three months, supported the promotion through mainstream media. From quarter one to quarter two, claimed buy most often rose from 28 percent to 3 1 percent. But by quarter three, after the promotion ended, this had dropped to 22 percent 6 percent below the pre-promotion level. The most likely explanation was that people had been buying stocks of the product to store for future use. Meanwhile, another food brand in a different market also supported a price promotion through mainstream media. From tracking data, the proportion claiming to buy the brand most often increased from 1 6 percent to 20 percent from quarter one to quarter two; but, crucially, the increased level held at 1 9 percent for quarter three. The difference? This second brand also introduced a brand building campaign with significant spend. Overall, then, its clear: while price promotions can undoubtedly stimulate short term sales, they also have the potential to erode short term margins and long term equity. To avoid these pitfalls, and make the most of price promotions, its important to limit their use and, when they are employed, to provide brand building advertising support.

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What benefit were further price cuts delivering for the brand? They had helped take the brand to a wider market, but real loyalty didnt build. Further analysis showed the brand had failed to build a distinctive position. A second example further illustrates this point across a whole category. In the UK, an OTC category was in growth. However, as a result of a price war, the total volume sold on promotion increased by 15 percent across all brands for the 2004 season. The result was that value was driven out of the market.
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Knowledge Points are drawn from the Millward Brown Knowledge Bank, consisting of our databases of 50,000 brands and 40,000 ads, as well as 1,000 case studies, 700 conference papers and magazine articles, and 250 Learnings documents.

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Price promotions: how to make them work for your brand

Millward Brown October 2007