The double jeopardy of sales promotions

The maturing of most consumer markets in the United States has put great pressure on manufacturers in their search for growth. They have concentrated on building sales and expanding share proportions in the stagnant markets with devices like niche products, product extensions, mergers, and international ventures. They have shifted emphasis to sales promotions at the expense of advertising. But promotions, when you come right down to it, mean price reductions. Trade promotions are almost always rebates, and consumer promotions are usually temporary price reductions or coupons. The cost in reduced profit, demonstrated mathematically through calculations of price elasticity, is severe. Besides, when the promotion is over, the manufacturer has not moved forward an inch in shoring up the brand franchise. Promotions bring volatile demand, whereas the producer seeks stable demand. By sustaining a brand image and building customer loyalty, on the other hand, theme advertising can stabilize demand. Moreover, this type of advertising is less likely than promotion is to invite destructive competitive retaliation. Calculation of the advertising elasticity of a brand indicates that sometimes even modest sales increases can produce healthy profit improvement. In a well-planned marketing campaign, there is often good reason to include trade or consumer promotion--to counter a leading competitor's moves, for example. But there is no point in carrying out wild swings at rivals in a struggle for market share. Mathematical techniques can aid the efficiency of marketing planning and put on a more rational basis the decision on where to put the dollars.