1.

Discuss what sales promotions can and can’t do to full-price and discount brands (use
examples).

Many consumers stereotype discount stores, like Aldi, that base their business models on the sale
of non- or discount brand name products in a negative way. Some of these stereotypes are that
discount stores are for poor or low-income families, the goods offered at discount stores are of
lower quality, or that these types of stores are only successful during economic recessions. These
misconceptions have been disproven since Aldi has grown significantly outside of a recession,
the private labels produced by Aldi are of the same quality as other national brands, and there are
‘smart shoppers’ who seek to save on costs whenever possible (Steenkamp & Kumar, 2009).

Discounted brand products, like those sold at Aldi stores, do not often have a large enough profit
margin for their prices to be lowered. Because of this, discount stores often have non-monetary
promotions, like a point system, that can be redeemed in future transactions. Customers often
feel as though they are benefitting from these types of promotions, even if the benefit is toward a
future transaction. In order to maintain market share, discount stores must keep a lower base
price, which should be maintainable based on efficient supply chains. Hard discounters like Aldi
must be careful in how products are priced, especially when private labels and discounted labels
are both being sold. A small price gap will result in private labels cannibalizing the sale of the
discounted label while large price gaps will have an opposite result. In order to refute the belief
that private brands are superior in quality, discount stores must consider utilizing attractively
designed outer cases and labels because approximately 95% of private brands were missing this
element (Steenkamp & Kumar, 2009). Though this effort can marginally increase overall costs,
this investment can potentially increase sales.

Successful companies know that sales promotions are among the most effective methods of
increasing sales, boosting customer satisfaction, and heightening brand awareness (2021).
Leveraging deals, promotions, and offers can minimize risk, make a profit, and retain customers;
plus, giving back to customers in the way of sales promotions usually results in more loyalty and
business from them (2021). 88% of online carts are abandoned but offering promotions to
window shoppers just may be the nudge they need to complete a purchase (2021). Price
promotions drive short-term sales, increase competition, and drive in customers; but the visible
short-term sales results often lead managers to overlook the long-term negative impact to a
brand’s value and, ultimately, the financial returns to the firm (McNeilly, 2013).

To remain competitive, brand name companies have long relied on sale promotions. Price
reductions and mark-downs allow for a wider consumer base since there are plenty of consumers
who prefer brand name products but are ordinarily unable to afford them. Discount stores usually
offer non-monetary forms of sales promotions because they are more effective than temporarily
losing profits through price reductions and mark downs. Non-monetary sales promotions can
include store rewards, contests or sweepstakes, point systems, and free samples. However, most
consumers do not need significant marketing or sales promotion for products that are already
sold at a price 75% to 150% below the brand price (Steenkamp & Kumar, 2009).

So how do price promotions hurt the brand? Many consumers become conditioned to do their
purchasing only during sales promotions. Consumers also become increasingly focused on price
over product differentiators and perform mental trade-offs based primarily on cost/benefit versus
emotional attachment to the brand (McNeilly, 2013). They are also much more likely to switch
between brands just to get a good price. Nancy Smith, founder and CEO of Analytic Partners,
has been studying the impact of price promotions on brands across several industries and has
compiled a database that has tracked the impact of 72,000 marketing tactics representing $250
billion worth of marketing spend executed in 46 countries (McNeilly, 2013). Based on her
experience Smith explains “If you’ve spent many years training customers to wait for your price
promotions it’s very hard to get back to better profitability (2013).” The study that’s laid out in
Harvard Business Review (2009) found that when a promotion for a specific product was
introduced by Chicago’s second largest chain supermarket, sales for that product significantly
increased and after a short period of time, revenue for the product declined until it leveled out,
with no long-term effects to be seen (Srinivasan, et al. 2020). This goes on to illustrate that when
brand name items are discounted, consumers have a tendency to ‘stock-up,’ which results in a
lack of sales in the future due to a reduction in demand (and possibly value). Further, when J.C.
Penney decided to switch over to a true discount store business strategy, their “everyday low
pricing” resulted in the loss of a lot of their customer base (Olenski 2017) because many of them
did not want to be perceived as shopping at a discount store.

In order to get back to the fundamentals of brand building, it is vital for companies to
differentiate their offerings, communicate that differentiation, and move from price discounting
and sales promotions to value-add offers. Though manufacturers can see a gratifying sales
increase during a promotion period, 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 stock- pile the product (Gupta, 1988)? According
to Gupta, the effectiveness of a sales promotion can be examined by decomposing the sales
“bump” during the promotion period into sales increase due to brand switching, purchase time
acceleration, and stockpiling; and the results indicate that more than 84% of the sales increase
due to promotion comes from brand switching (1988). 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.
 References

“15 Insanely Effective Sales Promotion Examples To Win More Customers”

(2021), WordStream, (accessed March 16, 2021), [available at
https://www.wordstream.com/blog/ws/2020/10/13/sales-promotion-examples]. 

Gupta, Sunil (1988), “Impact of Sales Promotions on when, what, and how Much to
Buy,” Journal of Marketing Research, 25 (4), 342–55. 

Jean, Wong Ai and Rashad Yazdanifard (2015), “The Review of how Sales Promotion Change
the Consumer’s Perception and Their Purchasing Behavior of a Product,” Global Journal
of Management and Business Research: E Marketing, 15 (5). 

McNeilly, Mark (2013), “Price Promotions May Be Killing Your Brand: Here's What You Can
Do About It,” Fast Company, Fast Company, (accessed March 16, 2021), [available at
https://www.fastcompany.com/3006315/price-promotions-may-be-killing-your-brand-
heres-what-you-can-do-about-it]. 

Olenski, S. (2017, January 17). To discount or not to discount? That is the question. Retrieved
March 17, 2021, from https://www.forbes.com/sites/steveolenski/2017/01/16/to-discount-
or-not-to-discount-that-is-the-question/?sh=37716214314d

Srinivasan, S., Pauwels, K., Hanssens, D., & Dekimpe, M. (2020, September 01). Who benefits
from price promotions? Retrieved March 17, 2021, from https://hbr.org/2002/09/who-
benefits-from-price-promotions

Steenkamp, Jay-Benedict E.M> and Nirmalya Kumar (2009), “Don't be Undersold!,” Harvard

Business Review.