Muscat: Up to 50 per cent off, buy one get one free, Free Service package, win 1 kg of gold...and other similar messages bombard customers in Oman, right through the year. Many brands are on sale for almost eight months in the year! How good or bad is this for the brand? Why do smart marketers also fall into this “promotions trap?” Is there a “good way” of conducting promotions?
A sluggish economy, intense competition and a desire to clear out old inventory often encourage retailers to respond with price cuts and other special offers.
This usually leads to a short-term spike in sales but could create long-term problems for the brand. As prices fall and/or freebies are offered, margins suffer. Over time, frequent promotions could lead to customers only buying during a sale. To continue to entice customers, the discounts may need to be increased and offers made even more attractive resulting in margins getting even further squeezed. Worse still, the brand could begin to be perceived by the customers as a “discount” brand. This may cause long-term damage to the brand’s image. And once the reputation gets dented, it is very difficult for the brand to recover lost ground.
Take the case of the giant retailer, JC Penney, in the United States. Due to very frequent sales, the brand acquired the reputation of being a “discount” brand.Recognising the potential long term damage to its brand name; JC Penney tried changing track by totally eliminating sales in favour of an “everyday value” proposition. This confused the customers because this new proposition conflicted with brand values that had got entrenched over time.
As a result, in the three months following the change, sales fell 20 per cent and store traffic was down by 10 per cent.
Customers accustomed to frequent promotions become increasingly focused on price over product strengths. In addition, they are more likely to switch between brands to get a good price or a special offer. In other words, these customers are not loyal to the brand and that would certainly worry any brand manager.
So, should brands completely avoid offering promotions? No, because that would be like throwing away the baby with the bath water! Rather than using promotions and offers as a “constant” in the marketing mix, they should be used strategically to create an impact and achieve specific marketing objectives. While it is difficult to generalise, a rough rule of thumb would be to not exceed two offers a year.
It is important to think of an innovative offer, to stand out among the competition. One outstanding example is that of Hyundai in the United States. During the recession in 2008, the greatest fear holding back purchase of high value durables was the possibility of losing one’s job. So, Hyundai came up with a unique offer. If the buyer lost his job or had to declare personal bankruptcy within a year of purchase of the vehicle on credit, he could return the vehicle without owing a cent on the loan! This, not only went viral, earning kudos for Hyundai as an innovative and compassionate company but also boosted sales. Soon after the launch of the offer, Dave Zuchowski their Vice President, Sales remarked, “Unit sales are up in the 20 per cent range. Dealers have also reported a surge in showroom traffic.”
In conclusion, marketers should try and present the promotional message in a manner that enhances brand equity. The product should be made the hero and the offer, a subset of the communication. This will ensure that the integrity of the brand is maintained even while pushing the product. Rather than making the brand a part of the promotion, the promotion should be made a part of the brand.
*John Smith is a seasoned marketing professional who has spent almost two decades in the Middle East. The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of Times of Oman.