A spotlight on promotions
Academic learnings about their effectiveness during events and the impact of a “Promotion-Free World”
Events and promotional effectiveness
What a summer: the Euros are over, the Olympics will shortly start. The massive increase in advertising spend (in certain categories) is easily recognizable, but how do such events impact promotional effectiveness?
A study focusing on the effectiveness of promotions for a large number of events in the Dutch market showed that:
- Sales promotions are an effective marketing tool during events: On average, a 10% price cut increases brand volume sales by +60% in event times compared to +16% in non-event times (see Table).
- Brands typically increase the frequency of their promotions but not the depth around event times.
These results make a strong case for shifting marketing spend to promotional activities during event times. Also, promotional clutter during events does not decrease the impact of promotions whereas advertising clutter has been shown to reduce its effectiveness.
Who wins when all promotions are off?
In spite of the various challenges promotions pose (e.g., reduced reference prices, damage to brand equity, stockpiling by consumers, inventory issues) individual brands are faced with a prisoner‘s dilemma: if they stop promoting and no one else does, they would likely face massive sales drops.
During a recent Europanel BG20 webinar we learned that brands are affected differently if everybody stopped promoting. A ban on promotions for several weeks in Belgium during the Covid-19 crisis offered an opportunity to examine the impact of such a promotion-free world on sales.
Here are some learnings:
- Brands that usually offer deep promotions suffer more. It seems that (some) consumers have become accustomed to their lower promotional prices and consider their regular prices too high.
- Brands with large assortments benefit. Without promotions serving as signals, strong visual salience through more shelf space is an effective means to trigger choice.
- Private labels benefit: Promotions (usually by brands) provide an opportunity for some consumers to up-trade or stick with national brands – through a financial saving that is not available without promotions.
This study underscores the warnings by researchers and fears by practitioners of the potential negative impact of promotions on brand strength. While a general stop of promotions is unlikely manufacturers are well advised to invest in the strength of their brands to offer additional reasons for choice beyond a price below the regular level.
Want to learn more? Watch the Europanel BG20 webinar by Lieve Heyrmans and Els Breugelmans.