This article is an excerpt from our ebook Sales Promotion: How to improve the performance of your investments, which you can download for free.
In Europe, the average discount rate increased from 18% in 2002 to 33% in 2015. Yet the fact that the market still remains sluggish despite strong promotional pressure demonstrates the limits of the strategies being practiced.
Besides, we observe that some adverse effects of promotions impacting consumer behaviour have deepened.
On brand and product
Promotional activity causes a subsequent purchase transfer between similar products, at the expense of products not on offer.
Devaluation of brand image
This means that the perceived quality and value are impaired. The lower the price caused by promotion, the less consumers perceive quality.
Decreasing customer loyalty
In 2015, 27% of UK consumers bought from retailers they would not normally choose. Promotion increases cross-shopping behaviour which decreases customer loyalty and brand attachment, thus having a negative impact on brand equity.
On consumer behaviour
Consumers postpone their purchases until the next promotional period;
The consumer stocks up excessively during the promotional period of a product. This reduces the likelihood of immediate repeat purchases outside of promotional periods;
Fair price perception
Consumers are losing sight of what a fair price is. Many promotions applied to the same product tend to confuse buyers. As a result it lowers the consumer reference price and thus may hamper long-term profitability.
The feeling of getting a good deal tends to fade as a result of exposure to promotions.
Consumers are becoming increasingly opportunistic in their shopping behaviour. Take France for example, where ‘bargain hunters’ represented 18% of the population in 2015. They bought 51% of their purchases when on sale, against 16% for the national average.
Retailers and manufacturers are confronted with many pitfalls caused by traditional promotional strategies. This is aggravated by the fact that consumers are unique. A comprehensive understanding of their behaviour when confronted with promotions, and subsequent relevant targeting and personalisation, is the secret recipe to counteract – or at least reduce – the adverse effects of promotions and to boost their performance.