Research Paper

On

Effectiveness of Sales Promotion on

Consumers

Submitted to:- Submitted by: - Rahul Gandhi

Prof. Monica Khanna Roll No: 13
PGDM-RM (2009-11)
Date – 20 September 2010

K. J. SOMAIYA INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH,

MUMBAI
 Research Paper: Effectiveness of Sales Promotion on Consumers

Abstract

To identify the Effectiveness of Sales Promotions on consumers. The research addresses how
there is a fit between the Sales Promotion and the attitude towards the product.

The field of sales promotions has grown in importance as increasingly large budgets are allocated
to its use. An understanding of how consumers respond to promotions is important in developing
effective strategies for sales promotions and other associated elements of the communications
mix. Many firms think that sales promotions help in increasing sales and also footfalls in the store
and thus in turn it increases the conversion rate. But the question arises that does sales promotion
really motivate customers to buy? This paper presents a model of consumer response to
promotions which draws upon current work in the study of scripts and information processing to
extend our understanding.

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 Research Paper: Effectiveness of Sales Promotion on Consumers

Introduction

Sales promotion is one of the four aspects of promotional mix. (The other three parts of the
promotional mix are advertising, personal selling, and publicity/public relations.). Sales promotion
is any initiative undertaken by an organization to promote a short term increase in sales, usage or
trial of a product or service (i.e. initiatives that are not covered by the other elements of the
marketing communications or promotions mix). Sales promotions are varied. Media and non-
media marketing communication are employed for a pre-determined, limited time to increase
consumer demand, stimulate market demand or improve product availability.

Examples include:

 contests
 point of purchase displays
 rebates
 free travel, such as free flights

Sales promotions can be directed at the customer, sales staff, or distribution channel members
(such as retailers). Sales promotions targeted at the consumer are called consumer sales
promotions. Sales promotions targeted at retailers and wholesale are called trade sales
promotions.

Research Objective:- To identify the Effectiveness of Sales Promotions on consumers.

Methodology:- Secondary Research

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Literature Review

A question of continuing interest to marketing researchers and practitioners is how marketing mix
variables affect consumers' purchase decisions and thus the sales of a brand. The interest is
growing with the escalation in promotional expenditures. Though manufacturers can see a
gratifying sales increase during a promotion period (Rockney G. Walters), a nagging question
remains—is the increase in sales due to consumers switching from other brands or is the brand
borrowing sales from the future as consumers advance their purchases in time or stockpile the
product? This question can be answered by decomposing the sales "bump" during the promotion
period into sales increases due to brand switching, due to purchase time acceleration, and due to
stockpiling. This is accomplished by understanding the impact of sales promotions on consumer
decisions of when, what, and how much to buy, which in turn determine the overall sales of a
brand. The mere fact that marketing variables affect consumers' purchase decisions is not new.
Many studies have shown that price and sales promotions have a significant impact on consumers'
brand choice, purchase time, and purchase quantity decisions.
Sales promotions have become a vital tool for marketers and its importance has been
increasing significantly over the years. In India, sales promotions expenditure by various marketing
companies is estimated to be Rs 5,000 crore and the emphasis on sales promotion activities by the
Indian industry has increased by 500 to 600 percent during the last 3 to 5 years (Economic
Times, June 15, 2003). In the year 2001, there were as many as 2,050 promotional schemes in the
Rs 80, 000 crore FMCG Industry (Wylie and Kenneth).
Given the growing importance of sales promotion, there has been considerable interest in
the effect of sales promotion on different dimensions such as consumers’ price perceptions, brand
choice, brand switching behavior, evaluation of brand equity, effect on brand perception and
soon. One of the purposes of a consumer promotion is to elicit a direct impact on the purchase
behavior of the firm’s customers (Mariola and Elena). Research evidence suggests that sales
promotions positively affect shot-term sales (John Phillip Jones). Research on price promotion has
consistently reported high sales effect and high price elasticity for brands which are on promotion
(Blattberg, Briesch and Fox, 1995). Studies have shown that price promotions enhance brand
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 Research Paper: Effectiveness of Sales Promotion on Consumers

substitution within a product category, affect aggregate sales, and significantly affect stock piling
and purchase acceleration. However, there have also been studies that suggest that sales
promotion affects brand perceptions. Researchers have found out that promotions, especially
price promotions, have negative effect on brand equity. In another study, Praveen K. Kopalle
argues that over dependence on promotions can erode consumers’ price-value equation. The
results of study indicate that in the long term, advertising has a positive effect on brand equity
where as price promotion has a negative effect. Similarly, research based on structural equation
model, suggests that frequent price promotions, such as price deals are related to low brand
equity, where as high advertising spending, high price, good store image and high distribution
intensity are related to high brand equity. There is also a managerial belief that if a brand is
supported with frequent promotional offers, the equity of the brand tends to get diluted. On the
contrary, there have also been studies that indicate brands benefit from promotions.

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 Research Paper: Effectiveness of Sales Promotion on Consumers

Consumer sales promotion techniques:-

Free samples: You might have received free samples of shampoo, washing powder, coffee
powder, etc. while purchasing various items from the market. Sometimes these free samples are
also distributed by the shopkeeper even without purchasing any item from his shop. These are
distributed to attract consumers to try out a new product and thereby create new customers.
Some businessmen distribute samples among selected persons in order to popularize the product.
For example, in the case of medicine free samples are distributed among physicians, in the case of
textbooks, specimen copies are distributed among teachers.

Premium or Bonus offer: A milk shaker along with Nescafe, mug with Bournvita, toothbrush with
500 grams of toothpaste, 30% extra in a pack of one kg. are the examples of premium or bonus
given free with the purchase of a product. They are effective in inducing consumers to buy a
particular product. This is also useful for encouraging and rewarding existing customers.

Exchange schemes: It refers to offering exchange of old product for a new product at a price less
than the original price of the product. This is useful for drawing attention to product
improvement. ‘Bring your old mixer-cum-juicer and exchange it for a new one just by paying
Rs.500’ or ‘exchange your black and white television with a colour television’ are various popular
examples of exchange scheme.

Price-off offer: Under this offer, products are sold at a price lower than the original price Rs. 2 off
on purchase of a lifebouy soap, Rs. 15 off on a pack of 250 grams of Taj Mahal tea, Rs. 1000 off on
cooler etc. are some of the common schemes. This type of scheme is designed to boost up sales in
off-season and sometimes while introducing a new product in the market.

Coupons: Sometimes, coupons are issued by manufacturers either in the packet of a product or
through an advertisement printed in the newspaper or magazine or through mail. These coupons
can be presented to the retailer while buying the product. The holder of the coupon gets the
product at a discount. For example, you might have come across coupons like, ‘show this and get
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 Research Paper: Effectiveness of Sales Promotion on Consumers

Rs. 15 off on purchase of 5 kg. of Annapurna Atta’. The reduced price under this scheme attracts
the attention of Fairs and Exhibitions: Fairs and exhibitions may be organized at local, regional,
national or international level to introduce new products, demonstrate the products and to
explain special features and usefulness of the products. Goods are displayed and demonstrated
and their sale is also conducted at a reasonable discount. ‘International Trade Fair’ in New Delhi at
Pragati Maidan, which is held from 14th to 27th November every year, is a well - known example
of Fairs and Exhibitions as a tool of sales promotion.

Trading stamps: In case of some specific products trading stamps are distributed among the
customers according to the value of their purchase. The customers are required to collect these
stamps of sufficient value within a particular period in order to avail of some benefits. This tool
induces customers to buy that product more frequently to collect the stamps of required value.

Scratch and win offer: To induce the customer to buy a particular product ‘scratch and win’
scheme is also offered. Under this scheme a customer scratch a specific marked area on the
package of the product and gets the benefit according to the message written there. In this way
customers may get some item free as mentioned on the marked area or may avail of price-off, or
sometimes visit different places on special tour arranged by the manufacturers.

Money Back offer: Under this scheme customers are given assurance that full value of the product
will be returned to them if they are not satisfied after using the product. This creates confidence
among the customers with regard to the quality of the product. This technique is particularly
useful while introducing new products in the market.

Trade sales promotion techniques:-

 Trade allowances: short term incentive offered to induce a retailer to stock up on a

product.
 Dealer loader: An incentive given to induce a retailer to purchase and display a product.
 Trade contest: A contest to reward retailers that sell the most product.

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 Point-of-purchase displays: Extra sales tools given to retailers to boost sales.

 Training programs: dealer employees are trained in selling the product.
 Push money: also known as "spiffs" An extra commission paid to retail employees to push
products.

Trade discounts (also called functional discounts): These are payments to distribution channel
members for performing some function

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Sales Promotion Strategies

There are three types of sales promotion strategies: Push, Pull, or a combination of the two.

A push strategy involves convincing trade intermediary channel members to "push" the
product through the distribution channels to the ultimate consumer via promotions and personal
selling efforts. The company promotes the product through a reseller who in turn promotes it to
yet another reseller or the final consumer. Trade-promotion objectives are to persuade retailers or
wholesalers to carry a brand, give a brand shelf space, promote a brand in advertising, and/or
push a brand to final consumers. Typical tactics employed in push strategy are: allowances, buy-
back guarantees, free trials, contests, specialty advertising items, discounts, displays, and
premiums.

A pull strategy attempts to get consumers to "pull" the product from the manufacturer
through the marketing channel. The company focuses its marketing communications efforts on
consumers in the hope that it stimulates interest and demand for the product at the end-user
level. This strategy is often employed if distributors are reluctant to carry a product because it gets
as many consumers as possible to go to retail outlets and request the product, thus pulling it
through the channel. Consumer-promotion objectives are to entice consumers to try a new
product, lure customers away from competitors’ products, get consumers to "load up" on a
mature product, hold & reward loyal customers, and build consumer relationships. Typical tactics
employed in pull strategy are: samples, coupons, cash refunds and rebates, premiums, advertising
specialties, loyalty programs/patronage rewards, contests, sweepstakes, games, and point-of-
purchase (POP) displays. Car dealers often provide a good example of a combination strategy. If
you pay attention to car dealers' advertising, you will often hear them speak of cash-back offers
and dealer incentives.

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 Research Paper: Effectiveness of Sales Promotion on Consumers

The 4p’s Aspect:

Out the 4 P’s devised by McCarthy Promotions play a crucial role for any aspect of the product or a
service. However, the other two P’s which are Price and Place also play a crucial role in making or
breaking a product. Promotions are basically done using a balance of all three P’s for e.g. product
bundling could be one major sale promotion, the other sales promotion would be a discount on
price and the third could be place specific if products are not moving in a particular place or a
specific retail outlet. Various theories are designed from various papers throughout the world with
regards to sales promotions and also keeping in mind the hypothesis for this paper the data
collected from secondary sources will prove the above mentioned hypothesis.

Consumer Behavior:
Consumer behavior is 'the process and activities people engage in when searching for, selecting,
purchasing, using, evaluating, and disposing of products and services so as to satisfy their needs
and desires'.

Consumers Behavior Towards Offers & Promotions:

Promotions & offers are the key to demonstrate to the customer that you are doing
something special for him, not merely granting something, that anybody can get. The essence of
offers or discounts a Store has to offer to the customer and his reactions and responses to the
same is significant.
Moreover, shopping is an activity which evokes many responses from people
and they are varied in nature. For some, it is an act of killing boredom, for some it leads to self-
gratification and for some more, it gives a sense of emotional fulfillment and it also has a
socialization effect. Shoppers’ behavior was distinct across shopping formats and was assumed
that this can be linked with their level of involvement in the process of shopping. The shopper’s
behavior was driven by various parameters and the major one being the discounts and incentives
offered to them.

Running Promotion:

Promotion is a tool that can help manufacturers and/or retailers in the achievement of their
objectives (try the brand, help to decide what brand to buy, etc.). Immediate price reduction is the
technique that exerts greatest influence on the brand choice process. It is possible that the
consumer perceives a promotion, for example, coupons or rebates, but does not modify his or her
behavior. In this case, manufacturers and/or retailers will be investing their resources in
promotional actions that do not have any effect on the consumer.

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Rising Inflation:

Inflationary trends in the economy have led to increased media costs forcing many companies to
put their promotion plans on a back seat and focus more on being noticed through various
initiatives like offering discounts and incentives. It has been recognized that well-planned discount
and other incentive activities have a strategic role to play in brand building and enhancing
customer loyalty.

Involvement & Incentives:

With the culture of freebies and discounts spreading widely, brands need to consider their
implications before embarking on a discount strategy. Price discounting not only affects the
profitability of brands, it also affects their equity. But these situation is inevitable as every
organization as to go through.

After math:

After a product has been on promotion, the sales of that product may temporarily decrease. This
post-promotion dip is normally explained in terms of forward buying or stockpiling. It may be an
explanation for brand switching. They show that after missing a discount on their regular brand,
consumers may switch to another brand. Switching behavior is much more pronounced when a
large discount is missed in comparison to when a small discount is missed. This finding is
consistent with recent social psychological research on inaction inertia, and the results are
discussed in relation to this phenomenon.

Based on the above compiled research, we narrowed down on the following Hypothesis:

 Indians are price sensitive.

 Discounts, offers & promotions are must to engage Indian consumers.
 Discounts induce a switching behavior which is more often a temporary phenomenon.
 Research shows that there is a definite positive effect on consumers buying behavior when it
comes to pricing & promotions.

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Pricing and Promotions

Price promotions affect consumers’ perception of price through the modification of their
reference prices. A price discount is a decrease of the published price, which the consumer uses
for comparing with the recalled price information. The dissonance between both kinds of
information will cause a reduction in the perception of prices and an increase in the purchase
intent derived from a lower monetary sacrifice.

In this regard, the works by Kalwani and Yim (1992), Kopalle et al. (1999), Monroe (1973) and
Winer (1986) sustain that price promotions lead to a direct decrease of the internal reference
price. Price promotions have a direct and negative influence on the formation of the internal
reference price. Moreover, Mu´gica and Yagu¨e (1993) analyzed the variables that influence a
consumer’s price recall, based on a study by Dickson and Sawyer (1990). They carried out
empirical research applied to the mass consumer goods market, which measured the knowledge
that consumers had about the prices of products once the purchase had been made and the effect
that special prices and purchase frequency had on price recall.

The results indicated that price promotions directly affect a consumer’s price perception, given
that consumers who purchase at special prices are more precise in their price recalls. Both
marketing literature and consumer behavior literature are conclusive in agreeing that the
formation of the reference price is an individual process. There are some consumers who partially
or completely ignore price information when they make a purchase, and for this group, price
promotions have relatively little importance (Jacobson and Obermiller, 1990).

Conversely, there are consumers for whom price constitutes the main factor of choice in their
purchase process. Therefore, it is expected that the promotional effect on the formation of the
perceived monetary price would be moderated by individual variables of consumers, such as
knowledge about prices in the product category and the propensity to seek promotions (Laroche
et al., 2001). Let a moderator variable be a variable that affects the direction and/or strength of
the relation between an independent or predictor variable, and a dependent or criterion variable
(Baron and Kenny, 1986).

The intensity of the search activity for promotions is an indicator that approximates the
knowledge that consumers have about market prices and the sensitivity of their purchase choice
function towards advantageous prices. It is expected that for those consumers who are willing to
make a greater (lesser) search effort for promotions, the effect of price promotions on the
formation of their perceived prices will be more (less) intense. The search for price promotions by
the consumer moderates the effect of price promotions on the formation of the perceived
monetary price. When the consumer makes a greater (lesser) search effort for price promotions,
the effect of price promotions on the formation of their perceived prices will be more (less)
intense.

Price and promotion strategies are closely related. It is very difficult to distinguish price variances
which are caused by decisions derived from the prices policy from those produced as a result of
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the promotion policy. The proposal developed by Cummins (1998) according to which sales
promotion has to stop being a part of the communication mix to become an autonomous variable.
If we focus on promotions, we can say that immediately after they start, there is an increase in
sales of the promoted article. When the promotion ends, sales are reduced even below the usual
levels (without promotion). In the long term, the sales level tends to go back to a position near the
initial position (Ballina, 1996). Even Mela et al. (1998) confirm that long-term price promotions
make the consumer more sensitive to price and therefore their effectiveness is reduced with the
subsequent negative effect on benefits. These results are coherent with those obtained by Mela et
al. (1997).

Nevertheless, we must clarify that the effects provoked by promotions vary according to multiple
factors: the type of incentive, the amount of discount provided or the type of product to which the
promotion is applied, among others. An immediate increase in sales is the result of different
phenomena that are considered next in this paper. First, the purchase acceleration, which refers
to the anticipation of the future needs making use of the advantage offered at that moment.
Second, the product storage according to which the consumer tends to store at home a larger
amount of product than is needed (Chandon and Wansink, 1999). Some years ago both effects
were more intense than nowadays because the use of sales promotion was not as widespread as it
is now.

Nowadays the consumer observes that the category of products is systematically affected by some
promotional actions, and as a consequence he will not modify the planning of his purchase (Fader
and Lodish, 1990; Lal, 1990). Retail establishments should modify their promotional plans in order
not to lose the essential objective: modify favorably the consumer buying behaviour surprising
him with a promotion action. This element of surprise is now in danger. Besides, the presences of
promotion actions attractive to consumers may make these change establishments (Tellis, 1997).
This effect is related to the change of brand, that is, consumers who do not usually acquire the
brand feel attracted and buy it. The greater increase in sales occurs as a consequence of this
reality (Blattberg and Neslin, 1990; Gupta, 1993).

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It is necessary to be continuously in touch with the market because on certain occasions the use of
promotions could cause unwanted effects. This happens when the consumer perceives that he is
paying for unnecessary product highlighting and positioning activities, which will make his
behavior deviate from the desired one, and thus, he will stop buying the promoted brand
(Simonson et al., 1994). On some occasions the consumer may also stop buying a brand or avoid
its purchase when it is promoted so as not to have to justify his behavior before the group
(Simonson, 1989). Or the consumer simply decides not to buy the promoted product because he
feels that he is being manipulated and he will act punishing the retailers.

The results of works such as those by Suri et al. (2000), Lam et al. (2001) or Gilbert and Jackaria
(2002) detect the need to introduce promotions as explicit elements of the consumer buying
behavior. Similarly, as such studies analyze, it is necessary to consider that not all sales promotion
actions will be as successful and will be developed with the same effects. The effect promotions
centered on immediate price reductions have on the likelihood of brand choice is greater than the
effect produced by any other type of sales promotion action.

Sampling a Technique

Marketers often use sampling as a tactic to promote their products; this is especially so in the food
and beverage categories. Although food and beverage sampling is considered an effective
marketing tool, marketers often believe that sampling a food or beverage item can also make
consumers less hungry and thus reduce their subsequent consumption related behaviors. Is
sampling a consumption cue high in incentive value (e.g., chocolate) would strengthen or satiate
people’s drive states and thus increase or decrease their subsequent consumption-related
behaviors, beverage-related cue (e.g., the appetitive smell of fabric refreshener) would exert the
same influence on subsequent reward-seeking behaviors, consumption cues on subsequent
reward-seeking behaviors Sampling has many benefits, including the ability to change a product’s
image, generate word of mouth, or introduce a new product (e.g., Nowlis and Shiv 2005; Shiv and
Nowlis 2004).
The findings suggest that the effects of sampling are much broader than previously believed.
Specifically, the findings suggest that presenting consumers with cues that are high in incentive
value (e.g., a tasty food or beverage item, a pleasant odor) in a store environment can induce a
general motivational state that increases the likelihood of engaging in a broad array of reward-
seeking behaviors. In other words, sampling a food or beverage item high in incentive value in a
grocery store is likely not only to increase the subsequent desirability and purchase of that
particular food or beverage but also to affect the desirability of other rewarding items, such as
hedonic nonfood and on-sale products.

This leads to the possibility that marketers could actually benefit from stationing several food and
beverage sampling booths at various locations in the store, particularly at the entrance to the
store. Indeed, certain stores often follow this practice. Notably, the results show that even
appetitive olfactory cues, such as the smell of a fabric refreshener, can activate the general
motivational state, thus leading to an increase in reward-seeking behaviors. These results imply
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that there may be a greater tendency for consumers to purchase items at luxury stores when
these stores are specifically located next to stores that emanate appetitive smells, such as
restaurants or specialty food stores. Indeed, it would be worthwhile to test this proposition with
field data. Finally, the results suggest that sampling will have different effects depending on the
incentive value of the product that is sampled.

For example, health food stores often offer samples of products that are not as high in incentive
value, such as soy chocolate or other items that are not particularly tasty. In contrast, grocery
stores often offer samples that typically taste good. The findings suggest that an enhancement in
subsequent consumption-related behaviors will ensue more from the latter situation than from
the former situation. At the extreme, sampling a product that has aversive incentive value, such as
the unattractive smell of a cleaning agent, could actually dampen the subsequent desire to engage
in reward-seeking behaviors. In their totality, these results suggest that different types of
appetitive samples should be strategically placed throughout the store to maximize the overall
likelihood that other products will be pursued by the shoppers.

Long-Term Effects from Marketing Promotions

Promotional efforts are recognized as a potent tool for managing brands, with in-store displays,
feature advertising, and temporary price reductions key components of a traditional promotional
mix (Blattberg and Neslin 1990). In examining the effects from promotional efforts, scholars are
increasingly pointing to the value of understanding their long-term impact (e.g., Dekimpe and
Hanssens 1999; Rust et al. 2004; Srivastava, Shervani, and Fahey 1998). A long term sales impact
may appear in two forms: (1) permanent effects, which represent a true change in baseline sales,
and (2) cumulative effects, which summarize the over-time changes (which may be negative or
positive) before sales return to baseline (Pauwels, Hanssens, and Siddarth 2002). Indeed, even if
no single marketing action has the power to change baseline sales permanently, managers may
repeat this action to increase sales, which is beneficial as long as the cumulative effect is positive.

Although research has shown that promotions generate high cumulative effects on brand choice
and purchase quantity (Ailawadi and Neslin 1998; Jedidi, Mela, and Gupta 1999; Mela, Jedidi, and
Bowman 1998) and on category incidence (Pauwels, Hanssens, and Siddarth 2002, Van measures
that attempt to value the future potential of a brand are often subjective, such as the multiplier
used by Interbrand and purchase intent used by Equitrend. Other market-based measures, such as
market share, are not likely to capture the underlying value of the brand, because they ignore
price premium and value-priced strategies.

Finally, customer mindset measures are valuable from a diagnostic perspective (including the
segment-level utilities in Rangaswamy, Burke, and Oliva [1993] and Kamakura and Russell [1993]),
but they are not available for a wide range of (especially small) brands to researchers and are
difficult to connect to the value a brand offers to the firm (Keller and Lehmann 2006). Heerde,
Gupta, and Wittink 2003), permanent effects of promotions are rarely observed. In particular,
among the top-selling brands analyzed in numerous product categories, fewer than 5% have been
shown to experience a permanent impact from promotional efforts (Dekimpe, Hanssens, and
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Silva-Risso 1999; Nijs et al. 2001; Pauwels, Hanssens, and Siddarth 2002). Given this virtual
absence of permanent effects from extant research, no study has analyzed the cross-brand
variation in permanent promotional effects.

Furthermore, although moderating factors such as national versus private brands (Dekimpe,
Hanssens, and Silva-Risso 1999; Pauwels, Hanssens, and Siddarth 2002) and brand market share
(Fok et al. 2006; Kopalle, Mela, and Marsh 1999; Macé and Neslin 2004) have been shown to
affect the cumulative promotional impact, little is understood about how long-term promotional
effects depend on the brand’s equity and innovation activity.

Does Sales Promotions have a long term effect?

Sales promotions can have long term effects on a brand’s sales and that brand equity plays an
important role in these effects. Although prior studies have shown that cumulative effects are
positive but permanent effects are rare, our examination of 9–25 brands per category
demonstrates permanent effects are fairly common. In addition, our results show that brand
equity influences both cumulative and permanent promotional effects. In particular, our analysis
of brands with different equity sheds new light on the role of the brand on long-term effectiveness
of different promotional efforts. Extending beyond the usual distinction between national brands
and private labels, we empirically measure the degree of brand equity and find that it has a
significant, positive effect on the extent to which a brand generates long-term effects from
promotional efforts. This supplements extant research that shows that brands with higher equity
capture higher immediate returns to marketing efforts (Slotegraaf, Moorman, and Inman 2003).
Moreover, our results complement findings on lower consumer sensitivity to price increases for
high-equity brands.

For example, whereas East lack and Rao (1986) demonstrate that the V8 brand did not suffer a
long term drop in sales after a price increase, our results show that its price promotions can
permanently increase sales. We believe that this asymmetry in long-term sales effects for price
increases versus decreases is an important but under researched benefit of brand equity.
However, there appear to be ceiling effects associated with strong brand equity. In particular, our
results show that lower-equity brands obtain higher long-term benefits from new product
introductions than higher-equity brands.

Although higher-equity brands draw more consumers when they promote, they also attain
stronger associations (Keller 1993). A large number of brand associations can be a limiting factor
(Meyers-Levy 1989), and we find that when actions are taken to communicate something new to
consumers, such as new product introductions, the strong associations that are typical for higher-
equity brands seem to limit the effect of brand equity on long-term sales. Thus, there appears to
be a ceiling on the extent to which high equity brands can benefit from specific marketing actions,
which is an important area for further research. Second, our results indicate that the introduction
of new products can generate fertile ground for long-term effectiveness of marketing promotions,
especially when these brands communicate something new to consumers. For example, V8 Splash
blended fruit juice, Rembrandt’s Low- Abrasion Whitening Toothpaste for Kids, and the
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uniqueness of Fresh Start’s detergent packaging all offered something new to consumers when
these products were introduced.

Thus, revitalizing a brand through new product introductions can generate long-term effects when
the brand is promoted. However, ever-expanding product lines are not the key to success. Taken
together, our results suggest that brand managers should carefully monitor the breadth of the
brand’s product line so that new product introductions can communicate something new to
consumers and ill-performing line extensions can be pulled from the market. For example,
ConAgra (2005) recently decided to reduce low-volume, low-margin SKUs to reduce complexity
and to increase focus on the SKUs that have higher profit potential. Finally, this article extends
current research on the negative impact of brand size on promotional returns (e.g., Foket al.
2006).

Indeed, brands with a shallow product line obtain higher promotional elasticity’s than brands with
a broad product line. In this regard, our findings add a silver lining to the cloud of challenges the
come with growing small brands. Not only do such brands face a demand-side “triple jeopardy”
because they are purchased by f ewer consumers, less often, and with less behavioral loyalty
(Fader and Schmittlein 1993), but they also face a supply chain disadvantage because retailers are
less likely to pass through and support their manufacturer promotions (Pauwels 2007). Our results
suggest that if the retailer passes through promotional efforts, the efforts may facilitate the
growth and revitalization of small brands.

The demonstration of such permanent benefits is important for brand managers, who are often
strapped for resources and thus need to focus on actions that obtain a larger return for the dollar.
For example, Topol toothpaste experiences permanent promotional benefits in our sample.
Wansink (1997) discusses how this brand was purchased for $200,000 in 1973 and was turned into
a vital, high-margin brand with $23 million in sales ten years later.

The Role of Brand Equity

Brand equity refers to the value of a product with a brand name in comparison with that if the
same product did not have a brand name (e.g., Aaker 1991; Ailawadi, Lehmann, and Neslin 2003;
Farquhar 1989; Keller 2003). It reflects certain consumer attitudes and associations with a
branded product (e.g., Aaker 1991, 1996; Keller 2003) that, in the aggregate, yield specific
consequences, such as incremental volume, price premiums, and profit (Ailawadi, Lehmann, and
Neslin 2003). These product-market outcomes (Keller
and Lehmann 2003, 2006) quantify the incremental benefit due to the brand name and “reflect a
culmination of the various mechanisms by which the brand name adds value” (Ailawadi, Lehmann,
and Neslin 2003, p. 2).

These outcomes are also an important means of quantifying the value of a brand because they are
inextricably linked to market forces (e.g., Collis and Montgomery 1995). Whereas different
market-based measures have been proposed, a revenue based measure is likely to be more useful
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 Research Paper: Effectiveness of Sales Promotion on Consumers

to researchers and marketing managers in demonstrating a brand’s value to the firm.1 Therefore,
we base our brand equity measure on the difference in revenue a branded product generates in
comparison with the private label (Ailawadi, Lehmann, and Neslin 2003). Because revenue
premium and market share
are correlated but conceptually differentt measures (e.g., marketing investments can influence
brand equity and market share differentially), it is important to control for market share effects
when analyzing the explanatory power of brand equity (Keller and Lehmann 2006) Regarding the
effect of brand equity, we expect that higher-equity brands attain greater long-term sales
elasticity from their display, feature, and price promotion efforts. In general, consumers are
purported to react differently to marketing-mix efforts for a branded product in comparison with
efforts for an unbranded product (Keller 1993). Research comparing differences between national
brands and private labels offers some support for this argument.

For example, advertising for national brands leads to greater purchase intentions than it does for
private labels (Bearden, Lichtenstein, and Teel 1984). In addition, price promotions offered for
private labels typically yield a lower immediate category incidence elasticity than those for
national brands (Srinivasan et al. 2004) but benefit the competing brands in the category more in
the long run (Pauwels 2007). Yet such broad comparisons between national brands and private
labels can mask specific effects due to different levels of brand equity of the national brands,
which the current research investigates.

When a brand has stronger equity, consumers hold more favorable, powerful, and unique
associations with the brand and have a more established familiarity with the brand (Keller 1993).
Because of the highly firm-specific, legally protected, and socially complex processes by which a
brand is created and managed over time, a positional barrier is generated (Wernerfelt 1984) that
likely influences the effectiveness of its marketing promotions. Moreover, research indicates that
these effects may be long-term, with promotions garnering greater effects for familiar brands
(Alba, Hutchinson, and Lynch 1991) and higher-price, highquality brands (Blattberg and Wisniewski
1989). In addition, exposure to high-equity brands through visual means, such as displays or
feature advertisements, may enhance a brand’s competitive advantage (Alba, Hutchinson, and
Lynch 1991).

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 Research Paper: Effectiveness of Sales Promotion on Consumers

Findings:-

 The results point out that price promotions directly and indirectly affect the formation process
of perceived price. Thus, some differences are observed in the intensity of the above-
mentioned relationship according to the tendency of the consumer to seek advantageous
prices.

 The results confirm the use of reference prices by consumers, highlighting the importance of
the stimuli present at the point of sale for their formation. Likewise, the paper observes the
interrelation of strategic decisions, emphasizing the collateral effects derived from them.

 In – store display proneness has the strongest effect on product trial compared to other sales
promotional tools. Attractive in – store display practices are necessary to gain the greatest
sales from product trial.

 The presence of a time limit does not impact directly on perceptions of value or search and
purchase behavior. A marginally significant interaction effect between time limit and discount
size is present, impacting in particular on search behavior.

 Communications can do much more than simply motivate shoppers through promotional
messaging. For this reason, retailers have stripped away a lot of the historical cardboard in a
bid to clean up the aisles for customers and make the shopping trip easier.

 "Retailers are also reactive, not pro-active. They say 'no' to manufacturer communication
initiatives, often as a matter of course, without necessarily having good reasons or having a
reference point on how communication could and should be used differently, around different
parts of the store, for different types of categories, and for different share brands within a
category.

 "Retailers are reactive and unconvinced, and there's a lack of high-impact communication
formats to break the deadlock, which is where the opportunity for the mobile phone comes in.

 The promotions are in-pack coupons that consumers receive only after they have purchased
the product. Redeeming in-pack coupons requires additional effort, such as visiting the store
again and/or purchasing a specific product.

 Marketers might offer other types of samples that do not involve the sense of taste or smell.

 It was found out that sale promotions should be for a short period and not carry on for long
periods which would have a negative impact on the brand. If it’s a timed promotions
consumers would wait for that particular time only to purchase the products.

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 Research Paper: Effectiveness of Sales Promotion on Consumers

Suggestions and Conclusions

 Consumer Sales Promotions should be run for a short period of time.

 It is better used during sample testing or for new product development

 If there is a sales promotions then it should not be predictable

 The sale promotions should not be used often, since it will dilute the brand. For e.g. what
happened to Bombay Dyeing

Although managers often hope to obtain long-term benefits with temporary marketing actions,
academic studies imply that their chances are slim. Extant research has implicitly assumed that the
brand itself carries no influence over whether marketing promotions have the power to lift sales
permanently. Using panel data for seven years from 100 brands across seven product categories,
the authors employ a two-stage approach in which long-term promotional effectiveness is first
estimated with persistence modeling and then these effectiveness estimates are related to brand
equity and new product introductions. By examining a broad range of brands in each category, the
authors find that positive sales evolution from promotional efforts is fairly common, especially for
small brands. Moreover, the authors find that both permanent and cumulative sales effects from
marketing promotions are greater for brands with higher equity and more product introductions,
whereas brands with low equity gain greater benefits from product introductions. These results
offer new research and managerial insights into the presence and conditions for persistent
benefits from marketing promotions.

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 Research Paper: Effectiveness of Sales Promotion on Consumers

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