Sales Promotion

In many ways, sales promotions have been impacting customers’ habits for decades. Sales promotions are marketing activities that provide extra value to the sales force, distributors, or the ultimate consumer to stimulate immediate sales. Sales promotions are highly effective because they can trigger automated scripts that customers use to shop or break down established habits. However, sales promotions often result in customers learning to expect a promotion, creating deal-sensitive purchase behavior.

Sales promotions can be seen as push, getting products into distribution channels, or pull, getting end-use customers to go looking for the product. Under both conditions, companies are sweetening the pot to stimulate behavior, but in doing so, they risk changing the perception of the deal.

Sales promotions represent the behavioral fine-tuning large businesses need to balance reality against projections. If it’s the end of winter and you have 10,000 unsold overcoats, it makes sense to try to get rid of them. The profit you hoped to make on them is a dream long gone, and your priority has shifted to offsetting potential losses. The cost of warehousing the coats for another season is prohibitive, and styles are likely to change in the interim. You are feeling the pressure, and every day you delay a decision makes your position that much weaker.

A trade-oriented promotion might be offering a deal to an existing distributor if he would take all the coats. You might even agree to throw in co-op advertising dollars. Conversely, you might rely on a consumer-oriented sales promotion, such as coupons offering a buy-one-get-one-free deal, or you might have a contest in which one lucky winner gets a trip to Alaska to show how well the coats work.

Sales promotions have grown over the years to eclipse the money spent on advertising. This has happened for a very powerful reason—sales promotions are working with the habitual mind and advertising is often working against it. A consumer-directed sales promotion is designed to get an immediate reaction from the customer. Through trial and error, companies learn how to craft these promotions to trigger a response.

The brain’s automatic-response systems can learn to automate highly complex behaviors. The effectiveness of sales promotions is related to our established behavioral responses to events in the environment. When customers shop, they are in one of three states we have discussed. They can be on autopilot, relying on cues in the environment to activate habitual responses; they might be using heuristics, relying on simple rules to simplify decision making; or they might be consciously evaluating choices, engaging the executive mind to process a deal or consider the options. Let’s look at how sales promotions can impact these three states.

When shopping on autopilot, sales promotions cue stored behaviors. Special point-of-purchase displays break the brand out from the background, which can activate a cue. Similarly, coupons can be used like a shopping list, guiding a customer through the store to specific books or televisions. In many ways, sales promotions are a reaction to the clutter created by the marketplace. The massive proliferation of products makes it hard for any one brand to stand out, forcing companies to go to extreme measures just to get noticed.

Promotional activity can also work into a customer’s heuristics—indeed, sales promotions often create our heuristics. For example, people who consider themselves smart shoppers rely on deals to reinforce their self-image. To a smaller degree, a customer might become deal sensitive after repeated presentations of an offer. Coupons can easily reduce the cost of a box of cereal by 25% to 50%, a substantial savings for a family with a large grocery bill. If a customer periodically receives coupons for a preferred cereal, that customer might develop a script that says “Wait for coupon before buying cereal.” Unwittingly, the promotion manager has created a new segment of the marketplace: the deal-prone customer. Companies and stores have tried to break this group of their addiction by promoting everyday low prices, but that doesn’t cue the customer to buy a specific brand.

Promotions are often used as part of a product-awareness campaign to arouse the attention of the executive mind. Building product awareness is one of the main goals of sales promotions, a way to announce to the highly resistant conscious part of your brain that something new might be of interest. Successful campaigns can create sufficient buzz to take a customer from awareness all the way to trial.

But in the words of Harry Balzer, “Variety seeking is a habit.” A sales promotion for building awareness can be effective in the long term only if it gets people to use a product repeatedly. Otherwise, these efforts will make a lot of noise, possibly even significant sales, but will not result in long-term success. A good example is Zima, the Coors malt-based alternative to wine coolers. Launched in 1994 with $50 million in marketing and promotional dollars, the campaign was so successful that nearly half of the alcohol-drinking American public tried it—once.

Sales promotions are effective because they work with the dinosaur brain and the executive brain. They can work with habits or disrupt them. Successful consumer-oriented sales promotions overcome the noise in the environment or work with the cues used by the habitual mind.

Trade-oriented promotions work much the same way, disrupting the automatic rebuy processes by creating attractive deals. Whether that means cooperative advertising dollars, price breaks, or cash for placement, sales promotions get the corporate buyer to buy more.

However, sales promotions have a dark side. When used proactively, they can advance the brand’s strategic positioning. But when they are used reactively, they often undermine the brand’s value proposition.

When car manufacturers began offering 0% financing, new car sales spiked. However, when the financing stopped, sales slowed. Customers’ perception of the deal had changed, if not permanently, at least for several years. Although managers instinctively understand this risk, they talk themselves into these types of promotions to address current problems.

Similarly, exclusive brands that dump excess inventory by using discount chains to move last year’s goods can see years of a product’s positioning eroded overnight. An exclusive brand that is available at a discount store is no longer exclusive.

Sales promotions to channel partners can have the same effect—buyers become deal conscious. Instead of adhering to traditional arrangements, everyone along the distribution chain enters into deal mode.

Sales promotions have grown over the years in direct relationship to their effectiveness. Because sales promotions are directed at driving specific behavior, these types of marketing efforts often prefer them to the indirect approach of advertising. However, sales promotions can have nasty side effects if they undermine the brand promise. Managers must evaluate potential alterations to the perception of the deal, not only on the brand, but on the company as well.