Avoiding the discount trap and increasing promotion effectiveness
In today’s fight for shelf space, it’s tempting to discount. However, while a short-term sales boost may seem tempting, it is likely to do long-term harm. We shared a more effective way to use promotions and build loyalty with Campaign Asia-Pacific.
The promotion paradox: Avoiding the discount trap
“In the face of competition, CPG brand managers can easily fall into a ‘discount trap’. What seems like an easy appeal to price-sensitive consumers can quickly become a slippery slope. Instead, brand managers should ask themselves which strategies will drive market share—not only in the short term but also over the long haul. A short-term sales boost can actually wind up being detrimental to a brand’s financial health. And certain pricing promotions perform better with fewer side effects.
Better promotion effectiveness, fewer long-term side effects
When it comes to products that consumers buy regularly, such as food, household, personal care and other staple supermarket items, there are two basic types of promotions:
- Explicit discount on a product as a percentage (e.g. 15 percent off) or a direct monetary price reduction (e.g. $2 off)
- An offer of a larger “value” pack, or a BOGO (buy one, get one) promotion
A meta-analysis of recent pricing studies reveals the short-term and long-term effect of these two types of promotions, and the conclusions are clear. The discount strategy is effective at generating short-term benefit. When products are offered with an explicit discount, one does get the highest share boost, and that is certainly good for cashflow. However, in the long term, most brands end up worse off…”
Find out more about our pricing solutions for promotion effectiveness at skimgroup.com/promotion-effectiveness.