Tips for Managing Your Company's Promotional Strategy

It's well known that businesses of all sizes are focusing on marketing efforts that drive revenue, increase margins, enhance customer loyalty and ultimately add to shareholder value. What's less evident is that one effort in particular, deep discounting, can in fact be more harmful than helpful in achieving those strategic goals.

A deep discounting strategy, historically categorized as buy-one-get-one-free (BOGO) offers or dramatic markdowns of 30 percent or more, was originally popularized as a method to incent consumers to purchase a brand within highly competitive business sectors. It was a methodical marketing strategy to encourage trial and purchases, but also to induce consumer change.
Times have changed, however. In the age of online shopping and city-sized warehouse stores, brand loyalty is at a crossroads. Consumer preference is now increasingly driven through new experiences like product reviews, social media and other forms of communication that both allow and empower consumers to compare prices, products and services. Best quality and best pricing are musts for consumers in the decision-making process. As such, brands and retailers must take a long, hard look at their short-term discounting strategies.

Deep discounting may seem like a viable and time-tested tradition, yet what many don't realize is that once a business makes the decision to exploit a deep discounting strategy, it can be a very hard trend to reverse.

How Can it Affect Your Business?
The general assumption across industries has been that promotions are a winning, competitive strategy for all parties, including retailers, brands and consumers. In the short term, this is generally true. Consumers buy and retailers move volume off the shelves.

However, what eventually transpires from a consistent strategy of deep discounting is the conditioning of consumers to only buy at low prices and in bulk. In the long term, this can force a retailer to increase shelf prices so that the markdowns it offers seem more tempting, ultimately making it difficult to sell anything at full price. Furthermore, other marketing tactics a business might employ (e.g., online, TV or creative campaigns) may be less effective and efficient during times of high discounting.

One example of this occurred within the over-the-counter drug industry, where a strong, well-tested media campaign resulted in lower-than-expected sales gains. Upon further analysis, it was discovered this was due to the high level of BOGO activity three months prior, which resulted in consumers stocking up on the drug and thus removing themselves from purchase consideration for an extended period of time. The media campaign had a strong impact, but with a smaller pool of consumers, ultimately resulting in lower-than-expected sales.

Striking a Balance
Ongoing use of deep discounting strategies is a slippery slope. So how can businesses strike the right balance, particularly when their competitors are participating in the same type of promotions?

Truthfully, there might not be a way to avoid discount promotions altogether. However, the correct method is less about the current offer and more about a holistic approach, one that involves thinking about promotions within the current marketplace and that complements other marketing efforts.

It's important to consider the following when planning your promotional strategy:

• What time of year is it?
• What's your competition doing?
• What other activities are planned for your business?
• Considering the above, what types of promotional offers will achieve your target goals?

After considering the above and analyzing the marketing and customer data at your disposal, you can strike the appropriate balance to achieve your business goals. To drive efficiency, you may choose to offer less of a discount, but provide an added-value incentive such as a complementary product to generate trial. To minimize the impact of a new competitive entrant, you may choose to leverage a deeper discount strategy to remove consumers from the marketplace. Whatever the strategy and purpose, it's critical to consider and integrate the entire marketing plan to fully leverage the synergies and mitigate the risks.

Relying solely on deep discounting strategies can be detrimental to your long-term survival. Diving into your data and recognizing that promotions have deep and lasting effects can help you avoid short-term gain at the expense of long-term pain.

Nancy Smith is the founder of Analytic Partners, a global analytics firm.