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Research outlines impact of promotions

News, 17 November 2015

NEW YORK: Research published in the Journal of Advertising Research (JAR) could help tackle one of marketing's longest-standing disputes: with a limited amount of dollars, does advertising or sales promotion work best to have an immediate impact?

In Do Price Promotions Help or Hurt Premium-Product Brands? The Impact of Different Price-Promotion Types on Sales and Brand Perception, authors Felix Zoellner (BMW Group) and Tobias Schaefers (TU Dortmund University, Germany) drilled down into the impact of such incentives.

"Price promotion represents one of the instruments most frequently used by marketing and sales managers to increase sales," they argue.

"It is characterised either by reducing the price of a product or enriching the product while keeping the price constant."

But their research also identified a performance gap with premium-product brands. Their analysis, which included field research (sales data of German premium automobile brands) and data analysis (consumer-behavior insight development), "showed that direct-price reduction had the strongest positive sales impact."

Brand perception, they discovered, deteriorates least for direct-price reduction without a precondition – such as promotions offering free gifts, trade-in incentives or loyalty programs.

The main takeaway point: "Marketers could focus on price-promotion activities with direct-price reduction when their goal is to increase sales.

"Preconditions, such as a limited eligibility, however, should be considered only in conjunction with indirect-price reductions that extend the value of the promoted product."

But Schaefers and Zoellner added a caveat for managers of high-quality brands: "Moreover, promotion types that are well known among customers should be preferred to minimise a premium brand's image and prestige deterioration.

"The often newly created promotion types that advertisers use to hide a discount may not have the intended success but rather negate the purpose of the action."

Specifically, marketers and advertisers "should consider how a price-promotion activity is framed with regard to the directness of the price reduction and the existence of a precondition, as both extend the value of the promoted product".

Data sourced from Journal of Advertising Research; additional content by Warc staff