Introduction-Advertising and Promotions
Advertising and promotions are vital to any running business especially for those surrounded by competitors. Corporations and brands around the world are increasingly spending on advertising through different means. Even more vital in this respect is addressing the right target market. Lately, the field of marketing and advertising is facing tough challenges and issues. Most of them are related to a high number of competitors and frequent price promotions.
Price Promotions cutting Brand Equity?
A recent article published in Science Daily discusses the issue of frequent price cuts and promotions. According to the report, “Frequent price cuts can have major adverse effects on brand equity, even for well-respected brands”. This adversity has been in debate as most of the established brands do not usually enter the race of price promotions. The article makes subject the recent study conducted by Institute for Operations Research and the Management Sciences (INFORMS®). Arranged by Tülin Erdem of NYU; Michael P. Keane of the University of Technology Sidney, Australia and Arizona State University; and Baohong Sun of Carnegie Mellon University the report addresses the general psychological impact of price-promotions on the brand quality. Simply put, too much price promotion indirectly promotes a perception that the brand is facing difficulty in surviving and hence can compromise on quality. According to the report: “Approximately one-quarter of the increase in sales generated by a temporary price cut represents cannibalization of future sales due to the brand-equity-diluting effect of the promotion.” The study was done on selected well-known ketchup brands including Heinz, Hunt’s and Del Monte. The report also discusses the importance of different information sources in influencing the perception of quality. The findings of the study predict that a 10% price cut for an established brand would increase sales by 26%, but this increase is dwarfed by the perceived lower quality. If this perception did not exist, the increase in sales would be about 32%. The report’s conclusion is simply put as: “High-end brands will be better off if they target price promotions at micro-levels rather than through generic price reductions; integrate sales promotions in a consistent manner with the rest of their communications; and refrain from using price promotions frequently”. In this conclusion, the researchers also present the solution to the problem. Price promotions are inevitable for any competitive industry, but more important is that how this is communicated to the customers. A simple announcement of price-cut is less effective in raising sales than an integrated communication of sales communication, production facility improvement, and price promotion.
Reflection
New brands entering the markets view the frequent advertisements differently than those done by established brands, so do the customers. When an established and large-scale production company starts cutting prices frequently, general customers (except very loyal ones) view this as a company’s weakness and inability to stay in the current market with previous prices. There is decreased brand goodwill or equity. This serves to deteriorate the company’s value in long run, although in the short run the sales are increased due to the low prices. Long-term credibility is established by creating a loyal customer base who views the company as strong and competitive. However, price promotions are still inevitable in current fashion market competition, and they are not without any support altogether. There are surveys on the other side that show support for price promotions, discounts, and premiums (Rothenberg).
References
- Institute for Operations Research and the Management Sciences. “Frequent Price Promotions Threaten Quality Brands, INFORMS Study Shows.” Science Daily 208.
- Rothenberg, Randal. “THE MEDIA BUSINESS: Advertising; Study Lends Support To Price Promotions”. New York Times. 1988.Web.