The Impact of Price Promotions on Brand Equity

Tulio Rizzi- IXNOVEM Editor / November,2023

Frequent price discounts can make your consumers get used to it, creating a new perception of value, eroding your brand equity

In Business, price promotions are often seen as a magic bullet. A quick discount, a flashy ad, and voilà – sales go up. But what happens when the promotion ends? Do those customers stick around, or do they revert to their old habits? And what about the impact on your brand's perception?

In this post, we'll explore the double-edged sword of price promotions: Short-term gains vs. the long-term risks they pose to your brand equity. I hope that it can bring a brief light for a better understanding of when and when not to use price promotions, and then avoid the temptation of regular and frequent price discounts in exchange for peaks of volumes in sales.

• Fact 1: Promotion (price discount) increases sales. The price drops, sales rise, the price returns to normal, sales fall and return to the previous level. In other words, it is a peak that cannot be sustained

The point here is on ROI (Return on Investment) and get to it you examine whether the margin you gave up was worth the return in sales volume, considering also the spent in ads to support it (e.g. digital media and TV ads during Black Friday). This is the easiest party

• Fact 2: Promotion leads to Brand substitution. The person was already planning to buy a TV from brand X on Black Friday, however, due to the impact of the promotion, he or she decided to buy brand Y

We can say that the promotion was an effort to attract new consumers to the brand, therefore, an activity to increase sales momently could also bring some long term benefits. Really?

• Fact 3: There is no indication that shows that replacing brand X with Y leads to loyalty to brand Y. In fact, studies indicate that people tend to opt for the Brand they already know.

Price discounts don't necessarily create a strong emotional bond with the brand. Loyalty is built on trust, admiration, and a genuine connection with the brand's values and experiences. Price promotions, on the other hand, are purely transactional and don't address these deeper emotional drivers of loyalty

What if instead of reducing the margin, buying media (usually expensive, especially in massive events like Black Friday, Christmas, etc.) just to have a peak in sales, this investment was diluted throughout the year in Branding communications? In other words, to create the brand's image, strengthening its positioning based on the Functional and Emotional Benefits, wouldn't it be more efficient and lasting?

Wouldn't this effort generate more consistent sales increases throughout the year?

In addition to strengthening your Brand, you avoid getting your consumers used to discounts. Remember that Price promotions are often seen as a sign of weakness. When a brand regularly offers discounts, it can be seen as a sign that the brand is not confident in its value. This can lead to consumers questioning the quality of your products or services, eroding the Equity of the Brand.

When planning your next campaigns, always keep in mind the real cost of price promotion and its long-term impact. Assess whether it wouldn’t be better to invest in creating the mental paths in your consumers’ minds little by little (re-branding), so that when they decide to buy the category, your product appears first in their mind, regardless of the discount.

Tulio Rizzi

is IXNOVEM Editor.

Marketing, Sales and eBusiness Global Project & Program Mananer, specialized in FMCG industries

FAQ

(1) What are the short-term gains of price promotions?

Price promotions can lead to short-term increases in sales. This is because discounts can make products more attractive to consumers. However, these gains are usually temporary. When the promotion ends, sales typically fall back to their original levels.

(2) What are the long-term risks of price promotions?

Price promotions can damage your brand equity in the long term. This is because they can signal to consumers that your products or services are not worth the full price. They can also lead to brand substitution, where consumers switch to other brands that are not offering discounts.

(3) What are the alternative to price promotions?

Instead of price promotions, you can invest in branding communications. This can help to create a strong emotional bond with your brand and attract new customers. It can also lead to more consistent sales increases throughout the year.

(4) How can you avoid getting your consumers used to discounts?

You can avoid getting your consumers used to discounts by using them sparingly. You should also avoid offering discounts on your most popular products or services.

(5) What is the real cost of price promotions?

The real cost of price promotions is not just the loss of margin. It also includes the cost of advertising and the potential damage to your brand equity.

(6) What should I consider when planning my next campaigns?

You should always consider the real cost of price promotions and their long-term impact when planning your next campaigns. You should also assess whether it would be better to invest in creating a strong brand image.