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https://www.youtube.com/watch?v=-YJ5r7FFIv8&t=822s
https://www.youtube.com/watch?v=_sVb87X7irs
Reading Response: Take a screen recording of 20 seconds from
one of the sound films (either embedded in the lecture or
separate in the Module) and describe how the sound relates to
the image. **Alternatively, students may reflect on the CATE
event
with Nazli Dinçel in relation to Zinman's text.**
Example:
键⼊入说明。
https://www.youtube.com/watch?v=-YJ5r7FFIv8&t=822s
https://www.youtube.com/watch?v=_sVb87X7irs
www.hbrreprints.org
If Brands Are Built over
Years, Why Are They
Managed over
Quarters?

by Leonard M. Lodish and Carl F. Mela
Included with this full-text
Harvard Business Review
article:
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work
1
Article Summary
2
If Brands Are Built over Years, Why Are They Managed over
Quarters?
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications
10 Further Reading

Companies become so
entranced with their ability to
price and sell in real time that
they neglect investments in
their brands’ long-term
health.
Reprint R0707H
For the exclusive use of K. Tang, 2022.
This document is authorized for use only by Katherine Tang in
MGT 247 Advertising & Promotions Winter 2021-22 taught by
Margaret Campbell, University of California - Riverside from
Dec
2021 to Apr 2022.
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=itemdetail&referral=4320&id=R0707H
If Brands Are Built over Years, Why Are They
Managed over Quarters?
page 1

The Idea in Brief The Idea in Practice
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The allure of brands is fading. Increasingly,
consumers would rather buy a generic

product than its pricier big-brand counter-
part: From 2003 to 2005, private-label
market share jumped 13%.
To counter this trend, big brands are in-
creasingly resorting to price promotions.
Sure, promotions provide a quick revenue
“lift.” But they also hurt your brands’ long-
term health. Customers don’t buy more of
your products over the long run: they stock
up during sales and wait for the next deal.
Result? Deeper discounts for shoppers—
and shrinking profits for you.
To stop this vicious cycle, start protecting
your brand equity, say Lodish and Mela.
First, track purchasing trends. For instance,
major lifts in sales volume when you offer
discounts may signal consumers’ unwilling-
ness to pay a premium for your brands. If
promotions are backfiring, invest in adver-
tising, new-product development, and
new distribution strategies—strategies that
enhance short- and long-term sales.
To protect your brand equity, Lodish and Mela
offer these guidelines:
UNDERSTAND HOW SHORT-TERM FOCUS
WEAKENS YOUR BRAND
Three forces make companies short-sighted
about managing their brands:
• Abundant short-term data. Through store

scanners, managers can immediately tie a
spike in sales to a price promotion. This
makes promotions look highly profitable,
so managers push for more of them.
Eventually, most of a product is sold at a
discount—eroding profit margins.
• Difficulty measuring long-term marketing
tactics. It’s easier to measure instantaneous
sales spikes than the results of other mar-
keting strategies with longer-term impact—
such as advertising, new product introduc-
tions, and increased distribution. Yet these
other tactics have a more positive effect on
long-term sales than promotions do. For ex-
ample, a TV advertising campaign that
spurs sales increases during the first year
will continue doing so for two more
years—even if the ads are no longer aired.
And the revenue arising from the first year
of advertising doubles over the subsequent
two-year period.
• Wall Street pressures. Analysts use quar-
terly sales performance to value firms and
advise clients. So managers are rewarded
for delivering short-term results.
CONSTRUCT A LONG-VIEW DASHBOARD
Monitor your brand’s long-term health by
tracking these metrics:

•
Changes in baseline sales—your estimate
of what a product’s sales would be at a con-
stant, nondiscounted price over months,
quarters, and years.
• Consumers’ responses to regular prices and
price promotions. A jump in buyers’ price
and promotion sensitivity reflects a de-
crease in the price premium your brand can
command.
Example:
A consumer-goods firm’s analysis of one of
its beverages’ performance from 1994 to
1999 revealed a 3% decline in baseline
sales (shoppers were buying the beverage
only when it was on sale) and a 14%
jump in price sensitivity. The brand decline
wasn’t obvious from short-term sales
data—because discounts had spurred a 7%
growth in sales during the period. The firm
realized the damage to the brand when
it tried to raise prices in 1999. Consumers’
resistance to paying full price cost the firm
more than $5 million in revenues.
FOCUS YOUR MARKETING STRATEGY ON
BRAND EQUITY
Make marketing decisions that protect your
brand.

Example:
When General Mills acquired Lacoste, it
lowered the price on the alligator-
adorned tennis shir ts and broadened
distribution. Sales rose in the short run,
but the brand lost its cachet when shirts
moved from elite stores to clearance
bins. Lacoste repurchased the brand.
After it limited distribution, advertised
the shirts through celebrities, and raised
prices, sales jumped 200%.
Dec
2021 to Apr 2022.
If Brands Are Built over
Years, Why Are They
Managed over
Quarters?
by Leonard M. Lodish and Carl F. Mela
harvard business review • managing for the long term • july–

august 2007 page 2
C
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Companies become so entranced with their ability to price and
sell in

real time that they neglect investments in their brands’ long-
term
health.
The numbers tell a sobering story about the
state of branded goods: From 2003 to 2005,
global private-label market share grew a stag-
gering 13%. Furthermore, price premiums
have eroded, and margins are following suit.
Consumers are 50% more price sensitive than
they were 25 years ago. In recent surveys of
consumer-goods managers, seven out of ten
cited pricing pressure and shoppers’ declining
loyalty as their primary concerns.
Brands are on the wane. For the many
consumer-goods companies struggling against
this trend, it’s tempting to blame the big-
box discount retailers. Plenty of anecdotes
support their point of view. Recall what
happened to Vlasic, for 50 years a beloved
brand in America’s kitchen cupboards, when
it started discounting its pickles by offering
them in gallon-size jars in the late 1990s.
Wal-Mart began selling the product for an
unheard-of $2.99—a price so low that Wal-
Mart soon made up 30% of Vlasic’s business.
The supercheap gallon jar cannibalized Vla-
sic’s other channels and shrank its margins
by 25%. When Vlasic asked for pricing relief,
Wal-Mart responded by refusing an immedi-
ate price increase and reviewing its commit-
ments to the line. By 2001, Vlasic had filed

for bankruptcy.
Wal-Mart and other powerful retailers have
undoubtedly weakened some brands, but a
number of consumer-product companies have
done a better job than Vlasic at managing
both their relationships with retailers and
their brands. For example, when Foot Locker
cut Nike orders by about $200 million to pro-
test the terms Nike had placed on prices and
selection, Nike cut its allocation of shoes to
Foot Locker by $400 million. Consumers,
frustrated because they couldn’t find the
shoes they wanted, stopped shopping at Foot
Locker. Sales at a competitor, Finish Line, in-
creased. In the end, Foot Locker acceded to
Nike’s terms.
At the core of the differences in how Vlasic
and Nike managed their brands is a crucial
disparity in strategic perspective. Vlasic used
a short-term sales strategy, focusing on a sin-
Dec
2021 to Apr 2022.
Quarters?

august 2007 page 3
gle, large channel partner and discounting
its product to attract consumers. In addition,
the company reduced advertising by 40%
between 1995 and 1998. Nike, on the other
hand, positioned itself for the long term. It
maintained strong relationships with a vari-
ety of retailers and invested in brand equity,
allocating $1.2 billion annually to its adver-
tising budget. By setting its sights on a dis-
tant horizon, Nike continued to own its
customers—and its brand—while Vlasic ceded
both to the channel.
Our research into the role of marketing
strategy in brand performance indicates
that companies are paying too much atten-
tion to short-term data and not enough to
the long-term health of their brands. They
routinely overinvest in price promotions and
underinvest in advertising, new-product de-
velopment, and new forms of distribution. As
a result of these shortsighted approaches,
powerhouse brands have been weakened,
often beyond recovery. It’s time for changes in
how companies measure brand performance,
how they communicate about their brands to
the markets, and how they oversee brand
managers. Those changes won’t happen with-
out a major shift in thinking at the senior-
management level. Corporate managers have

the ability to make these sweeping changes.
Do they have the will?
The Genesis of the Short-Term View
One wonders how manufacturers became so
myopic about their brands. We suggest three
factors: an abundance of real-time sales data
that make short-term promotional effects
more apparent, thus pushing manufacturers
to overdiscount; a corresponding dearth of
usable information to help assess the effect
of long-term investments in brand equity,
new products, and distribution; and the
short tenure of brand managers. We’ll discuss
each in turn.
Data are proliferating. Before the 1980s,
brand managers had to wait up to two months
to get sales numbers. Matching weekly dis-
counts to changes in sales was a difficult and
error-prone task. That all changed with the ad-
vent of store scanners, which gave managers
real-time sales data. These figures made it pos-
sible to attribute a spike in sales to a price pro-
motion. (See the exhibit “Scanner Data Reveal
the Immediate Effect of Price Promotions.”)
Although scanner data showed brand man-
agers the clear link between discounting and
sales, the numbers didn’t necessarily tell them
much about whether a given promotion was
profitable. For that assessment, they needed
to compare sales at the discounted price with

those that probably would have occurred
without the promotion. To help brand man-
agers predict the level of sales in the absence
of a discount, and thus to assess the immedi-
ate profitability of promotions, baseline sales
models were developed—in part by Leonard
Lodish. (It’s important to note that, contrary
to the belief of many brand managers, base-
line sales are estimates—albeit very good
ones—not measures of actual sales. Baseline
sales are estimated by extrapolating from
periods when there are no price reductions
or other kinds of promotions.) This new met-
ric further highlighted the short-term effects
of trade promotions.
The profusion of data has had major conse-
quences for the allocation of marketing dol-
lars. According to various sources, from 1978
to 2001 trade promotion spending increased
from 33% to 61% of firms’ marketi ng budgets.
This growth occurred largely at the expense
of advertising, whose effects play out over a
longer time frame and are thus more difficult
to measure. Advertising spending fell from
40% to 24% of marketing expenditures during
this period. That level has held fairly constant
in recent years.
The reallocation of spending away from
long-term brand building and toward tempo-
rary price reductions was predicated on a
short-term mind-set. Promotions yield an
incontrovertible boost in sales, known as lift
over baseline. This effect, however, is generally
short-lived. To understand how promotions af-

fect brands in the long run, consider some
consequences of short-term sales approaches.
• Changes in consumer behavior. Shoppers
aren’t naive; regular sales promotions encour-
age them to wait for the next sale rather than
purchase a product at full price. As more
people make purchasing decisions exclusively
on price (a behavior that results in decreased
sales when the product is not discounted),
baseline sales eventually decrease and lift
over baseline increases. From a short-term
perspective, this lift makes promotions look
highly profitable, so managers push for more
discounts. Eventually, most of a product is sold
Leonard M. Lodish
([email protected]
.upenn.edu) is the Samuel R. Harrell
Professor at the University of Pennsyl-
vania’s Wharton School, in Philadel-
phia, and the vice dean at Wharton
West, in San Francisco. Carl F. Mela
([email protected]) is a professor of
marketing at the Fuqua School of Busi-
ness at Duke University, in Durham,
North Carolina.

Dec
2021 to Apr 2022.
mailto:[email protected]
mailto:[email protected]edu
Quarters?
august 2007 page 4
at a discount, and profit margins decrease. The
average brand manager, who believes that
baselines do not change with pricing policy, is
left to wonder what went wrong.
In addition, customers often stockpile a
product if they think the price is particularly
good. In the short term, this behavior may
give the appearance of an increase in sales;
over the longer term, however, customers
simply delay purchases as they work through
their inventory. In other words, stockpiling
can amplify the immediate effect of a promo-
tion without increasing overall sales.
• Diluted brand equity. By focusing consum-
ers’ attention on extrinsic brand cues such as
price instead of on intrinsic cues such as
quality, promotions make brands appear less

differentiated. Consumers, over time, become
more price sensitive, and the product gradu-
ally becomes commoditized. Even stores can
be threatened with commodity status. A factor
cited in Kmart’s bankruptcy was the retailer’s
reliance on discounts to attract consumers to
the store. When it tried to curtail price promo-
tions, sales plummeted. By communicating
to shoppers that low prices were its main
draw, Kmart had given customers no reason to
develop any loyalty.
• Competitive response. When one firm in-
creases its discounts, others usually follow
suit. As a result, individual promotions increase
but overall sales do not, further lowering
everyone’s margins.
Together, these factors can substantially
diminish the usefulness of sales promotions.
In a study of 24 brands in Europe using data
from 2002 to 2005, Information Resources,
Inc. (IRI) found that the total impact of dis-
counts is only 80% of their short-term effect
(in other words, the effects measured over
the long term turn out to be 20% less positive
than they first appear). In contrast, the long-
term effect of advertising can be 60% greater
than its short-term impact. Research on 71
brands by a consumer-packaged-goods mar-
keter in the United States resulted in a similar
conclusion: Price sensitivity measured weekly
is seven times higher than it is when the
same data are assessed quarterly. This differ-
ence can be ascribed, in part, to the fact that

weekly data recognize increases in purchases
but ignore subsequent competitive price reac-
tions and changes in consumer behavior.
Nonetheless, the increased availability of
short-term data dramatically affects percep-
tions of the value of promotions. As promo-
tional measurement becomes even more
granular (with daily and hourly data for
sales available on demand), this short-term
orientation will probably be reinforced.
Long-term effects are harder to measure.
While immediate increases in sales arising
from discounts are striking, the effects of dis-
counts and of other components in the mar-
keting mix—such as advertising, new prod-
ucts, and distribution—can be understood
only over the long term. However, because
long-term effects are more difficult to measure
than short-term ones, few companies pay
much attention to them. Research to help
managers take a longer view is increasingly
Scanner Data Reveal the Immediate Effect of
Price Promotions
Before real-time sales data became
widely available, managers had a hard
time knowing if price promotions
boosted sales to consumers. For infor-
mation on retail sales to consumers,
they had to rely on periodic retailer in-
ventory audits, which didn’t necessarily
align with periods during which prod-

ucts were promoted to consumers. The
chart “Without Scanner Data...” comes
from this pre-scanner-data environ-
ment. It shows, for a packaged food
product, the manufacturer’s total U.S.
shipments to the retailer, the months in
which the manufacturer promoted the
product to the retailer, and aggregate
consumer sales on a monthly basis (the
data were extrapolated from a small but
representative sample of stores in the
United States).
1978 1982198119801979
manufacturer’s
shipments
to the
retailer
unit sales to
consumers
manufacturer’s
promotions
to the retailer
Without Scanner Data…
managers can’t see any meaningful
fluctuations in sales to consumers.

Dec
2021 to Apr 2022.
Quarters?
august 2007 page 5
available. Studies by Lodish and colleagues
found that advertising has a small short-term
effect on sales compared with the effect of a
price promotion—but a TV advertising cam-
paign that does generate significant sales
increases during the first year will continue to
do so for two more years, even if the ads are no
longer being aired. The revenue arising from
the first year of advertising approximately
doubles over the subsequent two-year period.
Equally important, if a TV campaign does not
have a significant impact during the first year,
it will have no long-term impact (and roughly
half of all TV ads generate no lift in sales,
according to some recent research).
One might conclude that TV advertising is
difficult to justify on a short-term basis. We
disagree with this view for two reasons. First,
advertisers who test their ads in the market

can isolate the campaigns that will increase
revenues over the long term, since advertise-
ments that are successful in the short run
also have a positive long-term effect. Second,
even campaigns that don’t do much to boost
sales can increase margins by differentiating
brands and thus allowing companies to raise
prices. Indeed, Victoria’s Secret has conducted
a number of regional and local TV advertising
tests in which consumers in some regions
were exposed to the ads and others were not.
According to Jill Beraud, chief marketing of-
ficer of Limited Brands, the parent company
of Victoria’s Secret, the brand’s TV ads do not
generally increase short-term sales enough to
justify the cost. However, Victoria’s Secret has
linked increases in TV advertising to its ability
to charge higher prices over the long term.
The investment in TV advertising helps build
the overall strength of the brand and decrease
customers’ price sensitivity.
Companies have paid even less attention
to the long-term effects of distribution and
new products than they have to the effects
of advertising. By coupling recent statistical
advances with five years of data on 25 packaged-
goods categories, Carl Mela and colleagues
examined the long-term effects of distribution
(the number and kind of stores carrying the
product) and of product-line length (the num-
ber of items) and variety (the extent to which
items are distinct). Results indicate that in-
creases in the length and variety of a product
line play a major role in boosting a brand’s
baseline sales. Moreover, increased product-

line variety and distribution in leading re-
tailers reduce consumers’ sensitivity to price.
Together, these results suggest that increasing
variety and high-quality distribution raises
sales and prices in the long run. Also of note,
discounts had a deleterious long-term effect
on brand performance.
An example of a company that has consid-
ered the effects of distribution is Lacoste,
known for tennis shirts adorned with a tiny
alligator. When the French company started
selling the shirts in the United States in the
1950s, they became a fashion rage. General
Mills acquired the brand in 1969, and it con-
tinued to sell well. However, in the mid-1980s,
General Mills lowered the price on the shirts
and broadened distribution to include dis-
A manager examining this chart sees
that sharp increases in the manufac-
turer’s shipments to the retailer coin-
cide, on average, with the manufac-
turer’s promotional periods (the times
when shipments to the retailer decrease
during these promotions may be ex-
plained by a shortage of the product or
by competing promotions from other
manufacturers). But even though retail-
ers usually pass along a manufacturer’s
promotion to consumers—in the form
of a price reduction—a manager hoping
to see a spike in consumer sales during
promotional periods will be disappointed

here. The line representing sales to con-
sumers remains relatively flat.
The chart “With Scanner Data...” was
compiled using weekly, store-level scan-
ner data from the orange juice cate-
gory. The short-term effect of retail
price reductions on consumer sales is
unmistakable. (The relatively flat line in
this chart shows baseline sales: an esti-
mate of sales volume in the absence of
a price promotion.)
1week 100908070605040302010
With Scanner Data…
managers can see that price reductions coincide
with sharp increases in sales to consumers.
unit sales to
consumers
baseline
sales
retail price
per unit
Dec
2021 to Apr 2022.

Quarters?
august 2007 page 6
count outlets instead of adding high-end
stores. The short-term effect was predictable:
Sales increased. Yet the brand went from elite
stores’ racks to clearance bins and lost its
cachet. Lacoste repurchased the brand in
1992. The company limited distribution to
higher-quality clothing retailers, advertised
the brand through celebrities, and raised
prices. A change in senior leadership in 2002
precipitated an even stronger brand focus.
Since that time, sales have jumped 800%.
However, in the initial years after Lacoste
repurchased the brand, the company’s mar-
keting efforts had little immediate effect on
revenues. Had the company assumed a short-
term sales perspective, it may not have been
able to reinvigorate the brand.
Despite the growing evidence that marketing
strategies—other than price promotions—
yield positive long-term returns, compa-
nies continue to manage their brands with
a short-term perspective. This orientation is
exacerbated by Wall Street analysts who focus

on quarterly figures to value firms and advise
clients. Lauren Lieberman, Lehman Brothers’
equity analyst for cosmetics, household
products, and personal care products, gave
us a Wall Street point of view: “We analyze
quarterly revenue and profit performance
because it’s the best gauge we’ve got. But
what we really value is sustainable top-line
growth because we feel it is indicative of
higher returns to shareholders over time.”
Of course this habit of looking chiefly at
quarterly performance communicates itself to
the companies being watched. Managers we
interviewed at a major packaged-goods firm
said that distribution in high-end stores and
product innovation play the greatest role in
increasing sales in the long term—but they
focus their marketing programs and research
efforts on discounting and advertising. When
asked about the emphasis on discounts, they
said they are judged on quarterly sales be-
cause investors focus on those numbers, and
that the link between discounts and the cur-
rent quarter’s sales is transparent. Thus, short-
term numbers drive out those that tell the
fuller story, leading managers to manage
brands with the data they have, not the data
they need.
Brand managers have short tenures. The
use of short-term sales data as a yardstick
for brand performance can interact in un-
fortunate ways with the tenure of a brand
manager—which is typically quite brief, often

less than a year. Any brand manager who takes
a long-term perspective—investing in adver-
tising or new-product development—is likely
to benefit the performance of subsequent
managers, not her own.
In sum, the increasing availability of more
thinly sliced short-term sales data has led to a
greater emphasis on short-term marketing
productivity, to the detriment of the long-run
health of brands. Scanner data have been
available for decades now, so it should be
easier, not harder, to take a long-term view of
brands. Unfortunately, most companies dis-
card these data, unaware of how they can be
used to track a brand not just over quarters
but over many years.
A Long-View Dashboard
In the short term, discounts lift sales over
baseline levels. But baselines and lifts are
not immutable: They change in response to
marketing strategy. Those changes signal a
long-term shift in brand performance. Higher
baseline sales mean that consumers are
buying more of a product at full price. Think
of this as a quantity premium. Whereas the
baseline measure reflects only the volume
sold when a product is not discounted, the
lift-over-baseline measure represents the
difference between discounted and nondis-
counted sales. Smaller lifts reflect greater
customer loyalty because loyals tend to buy

regardless of the discount status. Brands
with loyal customers face less pressure to
reduce their prices and therefore enjoy a
price premium. Together, quantity and price
premiums reflect a brand’s long-term health.
If both increase, demand and margins will
be higher—along with brand equity and
profits. If consumers pay less of a premium
for the brand and baseline demand is decreas-
ing, then the brand is headed in the wrong
direction—and the firm has a problem.
A C-suite manager can monitor how a brand
is doing in the long term by watching the
following dashboard of measures each quarter:
• Baseline sales. Recall that this is an esti-
mate of sales at a nondiscounted price. This
measure reflects a brand’s quantity premium.
• The changes in baseline sales over months,
quarters, and years and the statistical signifi-
cance of those changes.
Shoppers aren’t naive;
regular sales promotions
encourage them to wait
for the next sale rather
than purchase a product
at full price.

Dec
2021 to Apr 2022.
Quarters?
august 2007 page 7
• The estimated response to regular prices
and price promotions. An increased response
to promotions reflects a decrease in the price
premium a brand can command.
• The changes in response to regular and
discounted prices over months, quarters,
and years and the statistical significance of
those changes.
Given the relatively short tenure of brand
managers and the significant reallocation of re-
sources that changes in long-term marketing
strategy entail, someone higher up in the firm
must track these measures. Such measures can
also be useful tools for communicating the
benefits of long-term marketing investments

to a firm’s analysts.
To see what insights the dashboard can
yield, consider the example of a large consumer-
packaged-goods firm that, in conjunction
with IRI, tracked the performance of one of
its beverages from 1994 to 1999. The analysis
revealed a 3% decline in baseline sales—an
indication that shoppers were increasingly
buying the beverage only when it was on
sale—and a 14% increase in price sensitivity
over that period. The overall brand decline
was not obvious from the short-term sales
data because the firm had increased dis-
counts, which had led to a 7% growth in
sales during the period. The damage to the
brand became apparent when the company
tried to raise prices in 1999. Consumers’ resis-
tance to paying full price cost the brand more
than $5 million in revenues. This debacle
prompted a review of the brand’s strategy:
Management discovered an 8% increase in
promotion spending and a 7% decrease in
advertising budgets.
How long-term metrics can redress short-
term myopia. We believe that the dashboard
approach can improve brand performance
over the long term in three ways.
First, this view prevents an exclusive focus
on short-term data. If firms supplement sales
data with data for quantity and price premi-
ums, they will have a more complete sense of
how various marketing programs affect their
brands. Specifically, managers can establish

whether price promotions have damaging
long-term effects on brand equity and can
therefore make more strategic decisions about
marketing spending. Moreover, Wall Street an-
alysts can use data on price premiums to get a
better sense of a company’s profitability.
Second, brand managers’ performance can
be judged on a combination of quarterly
sales and quantity and price premiums. The
temptation to discount a strong brand will
be reduced, because damage to the brand’s
long-term health will become more appar-
ent. This will encourage managers not only
to take a long-term view of performance but
also to expend some effort determining
which factors contribute to a brand’s
strength. In addition, plots of dashboard
metrics over time can serve as early warning
systems to alert brand managers to problems.
Finally—and most broadly—long-term met-
rics inform a company’s marketing decisions.
Consider, for example, the launch of a new
product. When Kraft introduced DiGiorno
Rising Crust Pizza, thereby creating a high-
quality tier in the frozen pizza category, the
company anticipated that the new product
would cannibalize Tombstone, a mid-tier
Kraft pizza. A recent study using long-term
metrics shows, however, that the launch of
DiGiorno had a consequence that Kraft did not
anticipate: The new product did not just steal
sales from Tombstone but caused its price
premium—and that of all mid-tier pizza
brands—to drop sharply. Apparently, Di-

Giorno made the mid-tier brands seem more
ordinary to consumers; as a result, Tombstone
was less able to withstand discounting from
other pizzas like it. Ultimately, the introduc-
tion of DiGiorno was highly profitable for
Kraft, but the company, unaware of the effect
on Tombstone’s price premium, may have
overstated the profitability of the launch.
One can easily imagine that in other situa-
tions, a company armed with such metrics
might have concluded that a launch would
be unprofitable.
Data and methodology. A company doesn’t
truly have a long-term orientation unless it
holds on to its data for longer periods and
carefully analyzes the numbers.
We are astonished by the paucity of longi-
tudinal data collected by the firms we visit. It
is hard to see how companies can attain any
insights into brand building with just 52
weeks of data, yet many firms have only that.
Even major data suppliers such as IRI and AC-
Nielsen discard data after five years—at the
same time that they’re building more capacity
and processing power to collect hour-by-hour
measures. Hour-level data can undoubtedly
Dec
2021 to Apr 2022.

Quarters?
august 2007 page 8
be useful for monitoring stock-outs. However,
it is difficult to imagine that local stock-outs
affect market capitalization as much as brand
equity, which often takes many years to build.
Interbrand calculates the market value of
the Coca-Cola brand to be $67 billion. This
value developed over decades. It would be
fascinating to study the evolution of Coke’s
marketing mix—but in all likelihood it would
be impossible to do so, because the data have
probably vanished.
A detailed look at methods for analyzing
long-term marketing results is beyond the
scope of this article. The baseline sales and
price sensitivity measures we propose for the
dashboard are relatively easy and available
from many data suppliers. Ideally, firms should
collect and retain these measures over a long
period—five years or more. Other analyses are
more difficult. To assess the long-term effect of
marketing strategy on brand performance, one
would need to statistically link marketing pol-
icy over years or quarters to price and quantity

premiums. This approach allows managers to
gauge simultaneously the long-term effects
of marketing campaigns on price premiums
and the short-term effects of a given week’s
discounts on that week’s sales.
An Application
Some blue-chip companies have adopted a
longer view of brand management and are
starting to show positive results. For exam-
ple, Clorox, a leading consumer-packaged-
goods firm, is ahead of the curve in its use of
long-term metrics to steward its brand. Until
the second quarter of 2005, the Clorox bleach
product line was in a seemingly endless cycle
of discounting. Almost once a month, the
price of a 96-ounce bottle of regular Clorox
bleach was reduced to $0.99 at retail—even
cheaper than most bottled waters. The
company had also reduced its advertising
spending. From a short-term perspective, the
promotions appeared to be quite profitable.
Yet consumers learned to lie in wait for these
deals, which increased short-term sales but
decreased baseline sales.
In the midst of this, Stephen Garry, director
of advanced analytics at Clorox, introduced
long-term metrics to measure brand perfor-
mance. The top chart in the exhibit “How
Clorox Rescued Its Brand” depicts quarterly
baseline sales for the brand and the projected

–60%
–50%
–40%
–30%
–20%
–10%
0%
10%
20%
policy change: reduce discounting and
increase TV advertising
percentage
change from
previous year
percentage
change from
previous year
percentage
change from
previous year
lift over
baseline

baseline sales
–40%
–30%
–20%
–10%
0%
10%
20%
30%
40%
50%
60%
promotion
spending
TV gross
rating point*
retail prices
Q2
2006
Q1

2006
Q4
2005
Q3
2005
Q2
2005
Q1
2005
Q4
2004
Q2
2006
Q1
2006
Q4
2005
Q3
2005
Q2
2005
Q1
2005
Q4

2004
–6%
–3%
0%
3%
6%
revenue
Q2
2006
Q1
2006
Q4
2005
Q3
2005
Q2
2005
Q1
2005
Q4
2004
Through the first half of 2005, most consumers

bought bleach only during promotions.
How Clorox Rescued Its Brand
So, Clorox reduced its promotion spending
and increased advertising.
As a result,
revenue rebounded.
*TV gross rating point is a measure of the
percentage of household exposed to TV ads.
Dec
2021 to Apr 2022.
Quarters?
august 2007 page 9
incremental lift arising from promotions.
Both measures are expressed as a percentage
change from the corresponding quarter of
the previous year to control for seasonal

fluctuations in sales and to protect the
company’s data.
Garry found that before the third quarter
of 2005, baseline sales were low (not de-
picted in the chart) and decreasing. Lift over
baseline—which reflects price sensitivity—
was extremely high (not depicted in the chart)
and increasing. These numbers indicated
weakness in the brand from the perspective
of both sales and margins. In response, Garry
initiated an effort to reverse this trend by re-
ducing discounting and increasing television
advertising. The changes, implemented in
July 2005, are depicted in the middle chart of
the exhibit.
As a result of the policy change, baseline
sales increased dramatically and lift over
baseline decreased. Consumers were no
longer buying from promotion to promotion
but were instead purchasing more volume at
full price. These changes had a positive long-
term effect on the company’s revenues and
profits by increasing the brand’s quantity and
price premiums.
As shown in the bottom chart of the exhibit,
revenue (which was low before the policy
change) eventually began to turn around as a
result of the reduction in discounting. Clorox
further indicated to us that profits, which con-
tinued to fall in the short term (the third and
fourth quarters of 2005), rebounded sharply in
the first and second quarters of 2006.

Note the implication for the analyst who
typically focuses on short-term metrics such
as quarterly revenue. In the third quarter of
2005, the analyst might have downgraded the
brand as a result of revenue and profit de-
creases. Yet these short-term decreases reflect
the time it takes for consumers to acclimate
to the price changes and respond to the
advertising. Clorox, with the foresight and
temerity to monitor the attendant long-term
changes in brand health, persevered with its
strategy. The ensuing quarters yielded higher
revenues and substantially increased gross
profits. Without long-term brand-health mea-
sures, the analyst may have come to a mis-
leading conclusion about the value of the
brand or Clorox may not have realized the
fruition of its strategy. Armed with long-term
metrics, firms and analysts can assume a
longer-term perspective on the brand, leading
to improved profitability.
• • •
Brand management today is like driving a
car by looking only a few feet ahead. The driv-
ers can change direction rapidly, but they’re
not necessarily on a path that will take them
where they want to go. In the face of an in-
creasingly fragmented media and powerful
retailers, brand managers cannot afford to be
steering their brands in the wrong direction.
Mounting evidence suggests that a short-term

orientation erodes a brand’s ability to compete
in the marketplace. Accordingly, managers
are well advised to refocus their attention on
the basic principles that once made their
brands ascendant.
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If Brands Are Built over Years, Why Are They
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Further Reading
A R T I C L E S
Competing on Analytics
by Thomas H. Davenport

January 2006
Product no. 3005
To sustain your brand, you need to gather
reliable long-term data and analyze it in new
ways. Davenport explains how leading com-
panies are using analytics to make more
strategic—and more profitable—marketing
investments. To wring every last drop of
value from your marketing processes, hire or
train employees for analytics expertise. Make
it clear that analytics is central to your mar-
keting strategy. Invest in the technology
needed to accumulate massive stores of
data and slice it into a variety of fine segments.
And formulate strategies for managing the data.
The Perfect Message at the Perfect
Moment
by Kirthi Kalyanam and Monte Zweben
November 2005
Product no. 219X
The authors recommend another way to com-
bat brand-weakening price sensitivity: target
your marketing promotions to the individual

needs of your customers. For example, figure
out who your bargain-minded customers are,
and communicate with them (through e-mail,
phone calls, Web offers, and on-site interac-
tions) in ways that keep them loyal to your
brand. Tactics include invitations to special
marketing events, announcements of newly
arrived goods, advance notice of markdowns,
and updates on where customers stand rel-
ative to promotions. For example, Harrah’s
Entertainment tells casino visitors when
they’re “only one visit away from our Total
Diamond reward level.” Also adapt your mar-
keting messages for each customer’s situa-
tion. For instance, customers submitting a
change-of-address notice could receive a
promotional offer for a product that would
be useful to someone who has just made a
household move.
Dec
2021 to Apr 2022.
=itemdetail&referral=4320&id=3005
=itemdetail&referral=4320&id=219X
=itemdetail&referral=4320&id=219X

A Strategic Perspective on Sales
Promotions
Magazine: Summer 2007 • July 01, 2007 • Reading Time: 16
min
Betsy D. Gelb, Demetra Andrews and Son K. Lam
advertisement
How to plan profitable sales promotions by considering the
stature
of your brand in the marketplace, the message being delivered,
and how customers and competitors will react.
While most managers would think long and hard before bringing
to market a product
that lacked patent protection and could be easily imitated, many
invest in sales
promotions — sweepstakes, coupons, time-limited price
discounts, free gifts or samples,
special events, displays, membership rewards, consumer-
directed promotions and so on
— that are easier to imitate than the simplest new product.
Others sign off on plans so
generic that they seem unrelated to the brand or company
offering them, despite the fact
that sales promotions may absorb a significant portion of a
company’s promotional
dollars — currently a reported 31% of marketing budgets —
and they are increasingly
being used for both packaged goods and consumer durables as
concern has grown about
the cost effectiveness of media advertising.

For example, the “you pay what we [employees] pay” price
promotion
instituted by General Motors Corp. during the summer of 2005
was
imitated after only five weeks by its two major U.S. rivals.
Analysts estimate that the promotion cost GM an
average of more than $5,000 per vehicle through its September
30 termination, contributing to a $4
billion loss on North American operations during the first nine
months of 2005. The full year was marked
by a 50% decline in GM stock value and a 4% decline in sales
vs. 2004.
The unhappy outcomes for GM — and similar ones for imitators
Daimler-Chrysler and Ford — illustrate the
negative consequences of easy-to-copy promotions, but this
example is hardly unique. An analysis of 20
years of research evaluating sales promotions indicates that
most such promotions do not pay off, and even
the studies painting a happier picture find no more than 60%
earning back their costs.
1
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In contrast, a strategic focus leads to promotions that defy or
delay imitation and yield disproportionate
benefits for companies that have already developed a strong
competitive position. For a fraction of the cost
of the “you pay what we pay” promotion, any automobile
marketer — or any other marketer — has a range
of promotional tools to consider. For example, both the Pontiac
and Cadillac divisions of GM reported
successful promotions in 2005 that did not involve discounts.
Pontiac used an episode of Donald Trump’s
“The Apprentice” television show to have two teams compete in
producing brochures for the 2006 Pontiac
Solstice, a new model compact convertible. Viewers were
offered an early chance to purchase the Solstice,
and with the help of supplementary web promotions, Pontiac
presold 7,116 cars to become the market share
leader in the compact convertible category.
Cadillac sponsored a Super Bowl post-game show to promote
the ability of its V-Series cars to hit 60 miles
per hour in less than five seconds. The company created a
special Web site promoting a “Five Second Film

Competition,” then invited site visitors to shoot and upload a
five-second film on any topic. More than 2.5
million consumers visited the page, 2,600 of whom submitted
films. Cadillac reported in its award-winning
“Reggie” entry that in the four months following the promotion,
sales of the Cadillac V-Series jumped by
25%.
A clearer contrast to GM’s summer price promotions could
hardly be imagined. These were successful
promotions that no competitor even tried to imitate, given their
unique ties to the brand images created by
Pontiac and Cadillac, respectively.
Any sales promotion worth its salt will increase sales, but
creating a profitable promotion is more difficult.
Indeed, successful promotions are most often those that
consider how customers and competitors will react
to any promotional effort, as well as the message delivered and
the brand’s stature in the marketplace. To
help managers align those factors in planning profitable sales
promotions, this article will analyze
successful and unsuccessful promotions — and what
differentiates them. (See “About the Research.”)
About the Research
This paper began as a hypothesis: that promotions easy for
consumers to adopt and difficult for competitors
to imitate would disproportionately be profitable. The sources
of promotions permitting a test of that idea
were the Promotion Marketing Association’s “Reggie” award
Web sites for 2005 and 2006, since each entry
seeking to be adjudged a sales promotion winner must provide
data on sales results and ideally also on
profitability. Thus, in a sense, the research proceeded in an

unorthodox way. Because promotions that fail
are not entered in the competition for “Reggie” awards, the
authors could not simply compare promotions
that fit the easy-to-adopt and hard-to-imitate category with
those that did not fit that category to calculate
the proportion of successes in each. However, it was possible to
look at the set of successes and see to what
extent they fit the expected category. Almost all appeared to do
so, although only a few illustrations were
7
8
selected for this paper. Winners were also analyzed to see what
other characteristics they shared, leading
the authors to conclude that communicating something about the
brand predicts a successful promotion, as
does promoting a brand with a differential advantage rather than
counting on the promotion to bring an
unknown brand out of obscurity. Read more about the 2007
“Reggie” winners at
http://www.pmalink.org/awards/default.asp?p=2007reggie_winn
ers.
Whether designed for consumers or for organizational buyers, it
appears that a successful promotion has
these features:
IT PROVIDES THE SPONSOR WITH A PERIOD OF
EXCLUSIVITY BECAUSE IT PRECLUDES OR DELAYS
IMITATION BUT ENCOURAGES QUICK BUYER
RESPONSE.

This criterion is the most critical in avoiding promotional
losses. Difficulty of imitation may occur either
because of a unique association of the promotion with its
sponsor or because some hard-to-duplicate
resource makes imitation difficult. Quick buyer response is
encouraged by a promotion that is simple to
understand, ideally with informative elements or emotionally
appealing components or both.
IT DOES NOT RELY ON DISCOUNTING ALONE, BUT
COMMUNICATES SOMETHING ABOUT THE COMPANY,
THE BRAND, OR THE SPECIFIC GOODS OR
SERVICES OFFERED.
It informs potential purchasers or creates an emotional bond,
even if the message connecting the brand to
the potential buyer is conveyed indirectly.
IT IS LAUNCHED BY COMPANIES THAT HAVE SOME
DIFFERENTIAL ADVANTAGE IN THE MARKETPLACE
ALREADY.
Sales promotions don’t create that advantage as much as they
exploit it.
Deterring Imitation but Attracting Buyers Quickly
An easily imitated promotion, like a time-limited price cut or
reward program based on purchase frequency,
can result in a lose-lose outcome both for the originating
company and for its imitators. Depending on the
type of promotion, imitation can not only reduce profitability —
it can even reduce per-unit sales revenue. If
a temporary price promotion is more than matched by
competition, an escalating price war can lower prices
throughout a product category.

That danger suggests that price promotions should be adopted
only with great caution. Certainly longer
term price reductions can be valuable competitive tools when
they expand the total market for a product
category, promote trial for a brand with a distinct but hard to
communicate advantage, or discourage
competitors from entering a category. However, a price
promotion is by definition a short-term cut, and
many such promotions accomplish little more than inviting
imitation and reducing profits. Their primary
advantage, accounting for their frequent use, is that buyers
understand price promotions easily and so can
respond quickly. Ideally, promotions are designed with
consideration of the time gaps between initiation of
a promotion and two subsequent events: significant response by
a target audience and imitation by
competitors.
Realistically, maximizing the “monopoly window”— the time
between consumers’ response to a promotion
and competitors’ reaction to it — involves trade-offs, because
the simplicity and ease of communication that
speed up a consumer purchase will likewise normally speed up
imitation. (See “The Monopoly Window.”)
Conversely, promotions designed to be difficult to mimic may
also be difficult for targeted individuals to
understand, and thereby may delay customer response.
Furthermore, promotions designed for
implementation by channel partners — distributors or retailers,
for instance — must be simple enough so
that those channel partners are motivated and able to implement
them, an effort often made more complex
if those partners span the globe.

THE MONOPOLY WINDOW
The Monopoly Window
Optimally, customer response is quick and imitation is slow,
yielding a period of exclusivity between those
two events for the promotion to attract buyers.
Given these conflicting priorities, managers increase the
likelihood of successful sales promotions when
they “buy time” by employing elements that are scarce or
difficult to acquire and incorporating complex
linkages with third party providers that are difficult to imitate.
(See “Predicting Imitation of a Promotion
and Speed of Consumer Response.”) Among the factors that
predict competitive imitation of promotions,
preemption of scarce resources ranks high as a way to preclude
imitation.
9
https://sloanreview.mit.edu/files/2008/12/48401-si1-lo6.png
PREDICTING IMITATION OF A PROMOTION AND SPEED
OF
CONSUMER RESPONSE
Predicting Imitation of a Promotion and Speed of Consumer
Response
Developing a strategy for preventing promotional imitation is of
course most important when imitation of a
promotion by rivals is most likely. The best clues to such a
likelihood come from research on imitation of

pioneering new products. Such research identifies as factors that
increase imitation (1) a high degree of
market dependence on the part of the competitor, (2) market
power asymmetry in favor of the
competitor, and (3) a high degree of perceived similarity
between the competitor and the pioneer. In
other words, an underdog brand in a category where the leading
brand is similar and is vital to its parent
company’s profitability is likeliest to face promotional
competition. Managers responsible for such brands
are thus most strongly advised to consider the strategic
considerations presented here and the methods
utilized by award winning promotions to compete successfully.
10
11
https://sloanreview.mit.edu/files/2008/12/48401-si2-lo6.png
The Home Depot Inc. provides an example of a promotion that
was difficult to copy. In 2004, the Atlanta-
based retail chain increased Web site and store traffic by
employing 450 athletes training for the Olympic
Games and the Paralympic Games. By offering a flexible work
week with full-time pay and benefits to the
athletes, who “donned orange aprons and worked in aisles of
Home Depot stores,” the chain cemented an
association with the Olympic Games that differentiated it from
other Olympic sponsors and certainly from
its retail competitors. Its reported results included publicity at a
level equivalent to having every American
hear or see its story twice, plus 40,000 registrations at its Web
site.

A far more common promotion — offering loyalty bonus points
— offers another example of the need to
gain a differential advantage through preemption, since rivals
will either have similar promotions underway
or are likely to initiate them. The key to creating a bonus points
program that is the least vulnerable to
competition is communicating the idea that as spending
increases, the reward per dollar spent increases
even more: A shopper who spends $100 in a given month at a
particular chain, for example, earns double
“reward points” for every dollar spent thereafter in the same
month. While any retailer can institute such a
promotion, the one who couples it with a New Year’s Day or
April Fools’ Day food festival to attract
shoppers on the first day of the month starts out with a
substantial number of buyers reaching the $100
threshold. Such a tactic exemplifies the multiplier effect
inherent in many excellent plans: A sales
promotion works most effectively when the brand attracts
interest for more than the “buy now” offer alone.
Speeding Consumer Response
The uniqueness of the Olympics protected the Home Depot
promotion from duplication. However,
sponsors such as retailers with loyalty programs expect that
rivals will simply be delayed from imitation,
not precluded entirely. Thus, however difficult or easy a
promotion may be to imitate, wise managers design
promotions not only to delay imitation but to accelerate
consumer response.
What factors influence consumers to act quickly? Promotions
elicit purchase by tapping into one or more of
three types of motivations: economic, informational and
affective. Economic incentives make a purchase
less expensive in money and/or in time and effort. Information

influences consumers’ beliefs about the
brand or product category. The affective approach arouses
favorable feelings and emotions and associates
them with the promoted brand.
The best way to increase success for a promotion is to structure
it to supply all three motivations. An
example of this kind of “triple threat” is the promotion for
Procter & Gamble Co.’s Pampers Feel ’n Learn
Advanced Trainers, described by P&G as the next step up from
disposable diapers for children ready to
“graduate” to toilet training. P&G set out to “empower” these
toddlers “as they learn to anticipate a potty
urge” with cutting edge technology that allows children to
actually feel when they are wet.
12
13
The sales promotion mechanism was to declare August “We Can
Do It” month. A partnership with five
other toddler brands included special offers and store displays
including “I’ve Got the Power” motion-
activated “talking shelves.” Stores offered training kits in
English and Spanish, and 417 day-care centers in
the Chicago test market received kits along with potty training
tip booklets and discount coupons for
parents.
Thus, the promotion combined the economic impact of saving
money with information on training toddlers
out of diapers and the emotional “plus” of toddler empowerment
— all magnets to speed trial of the brand

by the mothers whom P&G targeted. Also, the promotion’s
linkages with third party providers increased its
complexity, deterring imitation. Results included a reported 4.9
share point increase for Pampers and a
product trial rate that was 7 percentage points higher among
day-care test respondents versus a control
sample.
Some promotions can be very successful by employing only one
or two types of motivation. Often, an
informational approach seems unnecessary, for instance, and a
sponsor simultaneously offers a “deal” while
communicating to produce an emotional link between the
company’s brand and the consumer.
One such mechanism is to invite that consumer to, in effect,
“join our exclusive club,” with the assumption
that customers who establish such a bond to a product or service
provider will see no need to shop
elsewhere. Among recently reported successes:
An Italian restaurant offered “valued members” a pint jar of the
house spaghetti sauce annually in
return for a $15 membership fee. The sauce was presented to
them during a meal at the restaurant, so
that nonmember patrons could watch the presentation and
presumably decide they too should “join the
club.”
Pizza Hut, a subsidiary of YUM! Brands Inc. of Louisville,
Kentucky, offered a large pizza to customers
joining its VIP (Very Into Pizza) group for $14.99. The
company also provided an additional free large
pizza for every two $10 orders and a monthly order of free
bread-sticks or baked cinnamon sticks.

The Pizza Hut VIP promotion increased members’ incremental
orders by 93% in 2005 and raised
incremental net sales by 65% in stores using the program. It
therefore offers an instructive example of an
astute trade-off between complexity and simplicity. To have
announced “VIP members get free pizza” would
have been simpler, but that would not have explained the full
nature of the Pizza Hut offer and would have
made imitation easy. By describing the promotion more fully,
the pizza chain chose complexity and
deterrence of imitation over simplicity of communication, with
successful results.
Winners Benefit Disproportionately
14
15
The third principle we infer from examining successful
promotions is the disproportionate benefit accruing
to brands that have some other “plus” factor besides the
promotion itself. One such factor is the perceived
quality level of the brand sponsoring the promotion.
Researchers have found that consumer switching is
not symmetrical, but that promotions of brands with greater
brand equity bring about more switching than
do promotions of less distinguished brands. In other words,
promotions accentuate perceived quality
advantages rather than overcoming quality disadvantages.
However, these same researchers caution that
market share should not be used as a proxy for perceived
quality. If a firm has “bought” market share
through its pricing strategy or distributional advantages, there is

no reason to attribute share leadership to
perceived quality and therefore no reason to expect a
differential advantage from even the best sales
promotion efforts. Still, a well-planned promotion can build
brand equity while making “buy now” an
attractive proposition.
An example is a trade promotion directed to truck fleet owners
by Cummins Inc., a global supplier of diesel
engines based in Columbus, Ohio. In 2003 and 2004, the
company responded to stepped-up U.S.
Environmental Protection Agency emission regulations by
developing a new technology, while its largest
competitor lobbied to delay implementation of the regulations,
claiming that the new technology would
cause problems. Cummins offered an “uptime guarantee” to
build confidence in the reliability of its engines,
publicized at major trucking trade shows and through trade
publications, but implemented through
channel partners. If a customer had a problem with a Cummins
engine, the Cummins dealer or distributor
would reimburse the customer for a rental truck for up to three
days so the delivery could be completed.
The Cummins promotional program boosted this already well -
respected firm to record sales and an
industry-leading share in North America for the first time in
five years. Clearly, that successful outcome
required no particular complexity to achieve, but it required an
astutely designed promotion that its largest
competitor could not imitate without a complete “about face” on
its stance concerning the EPA regulations.
Cummins’ success illustrates the double payoff from a
pioneering promotion that upgrades a brand’s image.
A company that pioneers can often exert a significant influence

on consumer learning and preference
formation because that company temporarily monopolizes
buyers’ attention. While its competitor’s back
was turned, Cummins was able to dramatize the association of
its engines with reliability. More generally,
the monopoly window that exists before competitors imitate a
promotion lets the pioneer foster both
familiarity with and preference for the benefits and associations
that the promotion creates.
Additional Lessons
In addition to the three principles outlined above, analysis of
successful promotions suggests a number of
other lessons:
Avoid Imitation
16
17
Not only is it a mistake to launch a promotion that can be
imitated easily, but from the perspective of the
imitator, a copycat promotion also is likely to be a mistake. The
originating company may counter by
escalating its deal, incurring losses for the originating company
and the imitators, and trapping all
competitors because none wants to stop the promotion first.
Also, imitators may find that potential buyers
associate a copycat promotion with the original promoter’s
brand.
Plan for Contingencies

Given the downsides of imitation, sensible managers will
undertake contingency planning: If our
competition launches Promotion X, we will launch Promotion
Y. This kind of contingency planning seems
particularly valuable in a business-to-business marketing
context, where price promotions offered to one
customer can be demanded by a competitor of that customer and
matched almost instantly, eliminating the
profitable “monopoly window.”
Managerial Challenges
The discussion presented here simply advocates considering
how customers will react and how competitors
will react to any promotional effort, as well as the message
delivered and the stature in the marketplace of
the brand delivering it. When all of these factors are aligned,
the result is a successful promotion. However,
two aspects of what we have recommended work against
adoption of these ideas in many organizations,
posing internal challenges for managers:
Overcoming the Comfort of Imitation
In some corporate cultures, marketing managers will encounter
resistance to originality and innovation
from others who ask for evidence of expected outcomes. If a
company re-uses last year’s promotion, there is
some basis on which to forecast the results. If a company
imitates what others have done, there is likewise
greater certainty than with a novel approach. Thus, a manager
may face opposition in attempting the kind
of promotion described here, which by definition will most
often lack a “track record.”
Overcoming the Resistance to Speed

The approaches advocated here often require moving fast. In
some organizations, the need for speed, to
preclude competition or to seize an opportunity, doubles the
intraorganizational doubts: Not only is it
unclear what a promotion will accomplish, but those who want
to launch it are in a hurry. That alone may
elicit resistance in some organizational settings.
Marketing managers in resistant organizations not only must
tailor a promotion successfully to its intended
market, they must also skillfully shepherd it around internal
barriers. Knowing why, how and for whom
sales promotions will most likely be profitable — the kind of
strategic approach recommended here — will
advertisement
surely help.
ABOUT THE AUTHORS
Betsy Gelb is the Larry J. Sachnowitz Professor of Marketing
and Entrepreneurship and director of Ph.D.
Programs, Bauer College of Business, University of Houston,
whereDemetra Andrews andSon K. Lam are
doctoral candidates in marketing and entrepreneurship.
Comment on this article or contact the authors
through [email protected]
Copyright © Massachusetts Institute of Technology, 1977-2019.
All rights reserved.

REFERENCES (17)
1. The Promotion Marketing Association issued its “7th Annual
State-of-the-Promotion Industry” report in 2005; however, its
numbers, the most recent
available, extend only through 2004. It published two methods
of calculating spending; we have used the more conservative.
The alternative allocates $515
billion in promotional spending among consumer promotion
(44%), trade promotion (27%) and advertising (29%).
2. J.A. Quelch, S.A. Neslin and L.B. Olson, “Opportunities and
Risks of Durable Goods Promotion,” Sloan Management Review
28 (winter 1987): 27–38.
3. J.B. White and J. McCracken, “Auto Industry, at a
Crossroads, Finds Itself Stalled by History,” Wall Street
Journal, Jan. 7, 2006, A1, A5.
4. M. Maynard, “Kerkorian Aide Tells G.M. to Be More Like
Nissan,” New York Times, Jan. 11, 2006, C1, C4
5. M. Maynard and J. Brooke, “Toyota Closes in on G.M.,”
New York Times, Dec. 21, 2005, C1, C14.
6. D.M. Ruch, “Effective Sales Promotion Lessons for Today:
A Review of Twenty Years of Marketing Science Institute-
Sponsored Research,” Report No. 87-
108 (Cambridge, Massachusetts: Marketing Science Institute,
1987).
7. Both Pontiac and Cadillac were 2006 “Reggie” w inners.
8. P. Raghubir, J.J. Inman and H. Grande, “The Three Faces of
Consumer Promotions,” California Management Review 46, no.
4 (summer 2004): 23–42.

9. L.S. Simpson, “Enhancing Food Promotion in the
Supermarket Industry: A Framework for Sales Promotion
Success,” International Journal of Advertising
25, no. 2 (2006): 223–245.
10. M.J. Chen and I.C. MacMillan, “Nonresponse and Delayed
Response to Competitive Moves: The Roles of Competitor
Dependence and Action
Irreversibility,” Academy of Management Journal 35, no. 3
(1992): 539–570.
11. K.G. Smith and C.M. Grimm, “A Communication-
Information Model of Competitive Response Timing,” Journal
of Management 17, no. 1 (March 1991): 5–
23.
12. Promotion Marketing Association (PMA) “Reggie” awards
(2005). Reggie awards are named for the cash “regi”ster,
emphasizing the point that sales
promotions are intended not simply as image builders but as
builders of sales. The annual awards are made jointly by the
Promotion Marketing Association and
Brandweek magazine. Other promotion awards can be accessed
at
http://promomagazine.com/resourcecenter/campaignshowcase.
13. Raghubir, Inman and Grande, “Three Faces.”
14. PMA “Reggie” awards.
15. S. Coomes, “Meaningful Rewards,” Dec. 22, 2005,
http://www.pizzamarketplace.com/article.php
?id=4565&prc=149&page=135.
16. R.C. Blattberg, R. Briesch and E.J. Fox, “How Promotions

Work,” Marketing Science 14, no. 3 (1995): G122–G132.
17. Cummins was another 2005 “Reggie” awards winner.
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FROM OUR PARTNERS
The Three Faces of
Consumer Promotions
Priya Raghubir
J. Jeffrey Inman
Hans Grande
C
onsumer promotions now account for almost a quarter of the
marketing budget of consumer product companies.1 From the
consumer point of view, this means that consumers are being
bombarded by consumer promotions aimed at persuading them
to purchase and purchase now. In 2001, an estimated 239 billion
coupons2 were
distributed in the U.S. and consumers redeemed 4 billion of
these—an exposure

rate of over 2,000 coupons per household per year, or nearly 6
coupons per day.
To put this in perspective, coupons are just one of a variety of
consumer promo-
tions tools used by manufacturers and retailers to induce trial,
encourage repeat
purchase, or induce brand switching. Other common forms of
promotions
include sweepstakes, competitions, price discounts around
calendar events (e.g.,
Christmas Sale, President’s Day Sale), annual discount events
by manufacturers
or retailers (e.g., semi-annual Nordstrom’s sale), free gifts, free
samples, trial
packages, and membership rewards.
Companies are becoming increasingly creative in the types of
promotions
that they are offering consumers. The range, variety, and depth
of discounts
flooding the marketplace today suggest that processing these is
far from an easy
task for consumers. Apart from the amount of money that
companies are spend-
ing on these activities, the volume of sales promotions begs the
question: How
do consumers blitzed by promotional stimuli multiple times a
day, 365 days a
year, react to these promotional stimuli? The consumer is bei ng
bombarded by
a range of promotions in almost every product category and in
every media
23CALIFORNIA MANAGEMENT REVIEW VOL. 46, NO. 4
SUMMER 2004

This research was funded by a grant from the Research Grants
Council of Hong Kong via the Hong
Kong University of Science and Technology: HKUST609/96H
in September 1996, and support
through the COR grants at the University of California at
Berkeley. Hans Grande was an MBA student
at the Haas School of Business prior to his appointment at
Adobe. We thank two anonymous review-
ers for their comments.
form—TV, radio, newspapers, mail, point of purchase material,
the internet,
and e-mail. Most promotions carry an economic incentive to
purchase a specific
brand, purchase it now, or purchase more of it. Despite the
economic incentives
offered by promotions, it is clear that consumers will be unable
to take advan-
tage of every offer that they receive. This article delineates
three ways though
which a promotion affects a consumer, and provides guidelines
to manufacturers
and retailers to design more effective promotions.
Promotions may no longer represent simply an economic
incentive to
purchase, but also have other effects on consumers’ deal
evaluations (positive
or negative attitudes towards a consumer promotion) and
purchase intentions—
only some of which may be intended by the manufacturer or
retailer. Other
effects, positive or negative, may be com-

pletely unintentional and managers may
not be aware of them. Conceptualizing
the multiple routes through which a con-
sumer promotion exerts an influence on
consumers allows practitioners to consider
such factors when designing a promotion.
For example, it is not entirely clear that
higher deal values necessarily lead to
higher purchase intentions. This implies
that a poorly designed deal can inadvertently exert a deleterious
effect on prof-
its, as the same (or lower) level of sales are achieved, but at a
lower margin.
This article discusses these intentional and unintentional effects
and how knowl-
edge of them allows a manager to minimize negative effects or
leverage positive
effects.
A consumer promotion is a short-term incentive targeted
directly at con-
sumers and includes coupons, rebates, free offers, patronage
rewards, and other
incentives. This is in contrast to trade promotions that are
financial incentives
offered to retailers by manufacturers in return for sales
promotions such as fea-
tures, displays, or temporary price reductions. Consumer
promotions can be
considered as “pull” promotions in that they directly entice the
consumer to
purchase the product, thereby pulling the brand through the
channel. Trade
promotions can be considered as “push” promotions in that they
provide incen-

tives for the retailer to offer special deals and push the product
through the
channel. The key managerial questions regarding consumer
promotions today
are:
▪ Are they increasing sales to their maximum potential (e.g., can
coupon
redemption rates be increased without affecting the
manufacturer’s or
retailer’s margins)?
▪ Are consumer promotions as profitable as they might be (e.g.,
can coupon
values be lowered without affecting redemption rates)?
▪ How sensitive is customer response to the design and
communication of
the sales promotion (e.g., are certain types of promotions more
appropri-
ate in certain circumstances)?
The Three Faces of Consumer Promotions
CALIFORNIA MANAGEMENT REVIEW VOL. 46, NO. 4
SUMMER 200424
Priya Raghubir is an Associate Professor at the Haas
School of Business at the University of California,
Berkeley. <[email protected]>
J. Jeffrey Inman is the Thomas Marshall Professor
of Marketing at the Katz Graduate School of
Business, University of Pittsburgh.
Hans Grande is a Product Manager, Adobe

Collections, Adobe Systems, Inc.
▪ What are the long-term effects of sales promotions (e.g., do
they lead to a
larger customer base, or may they erode brand equity by
increasing price
sensitivity)?
In the early stages of their popularity, consumer promotions
typically had
a positive short-term impact on brand sales.3 Studying the
reasons contributing
to sales increases is important not only to assess the
profitability of promotional
efforts, but also to understand the sales patterns for the brand
after the deal has
been retracted. Consumer promotions increase short-term sales
both to new and
existing customers. Nearly half of coupon redemptions are by
new customers,
with this percentage increasing as coupon face values are higher
(as higher val-
ues provide new customers a greater incentive to switch br ands)
and decreasing
with the market share of the company (as there are fewer buyers
who are avail-
able to switch).4 However, this increase may be temporary as
brand switchers
may be deal loyal and will follow the next deal that comes
along.5
Sales may also increase as a result of existing customers
purchasing more
products (stockpiling) or accelerating purchases. One study of

175 large-scale
promotions found that sales increases were primarily from
existing customers.6
Unless these customers who have larger inventory increase their
levels of con-
sumption,7 they would be less likely to continue to buy the
brand after the deal
was retracted. Promotions may also encourage sales of
complementary or other-
related products (e.g., a coupon for cake mix might also spur
frosting sales).8 The
various routes for sales increases from promotions are
summarized in Figure 1.
Reviews of the manner in which promotions work from the
consumer
point of view are valuable as they supplement the understanding
of the manner
in which these promotions work from the manufacturers and
retailers points of
view.9 The Chandon, Wansink, and Laurent model (CWL)
proposes that sales
promotions provide utilitarian benefits including savings,
quality, convenience,
and hedonic benefits including value expression, exploration,
and entertain-
ment. This article builds on the CWL framework, incorporating
additional
utilitarian benefits (referred to as economic benefits) and
affective benefits
(including additional hedonic benefits and negative affective
benefits). We also
explicitly address the informative effects of promotions —that
is, the ways in

SUMMER 2004 25
FIGURE 1. Main Sources of Sales Increases from a Promotion
Existing Customers New Customers
Promoted
Products
• Increase purchase quantity for stockpiling,
leading to increase in consumption
• Increase or accelerate purchase frequency
• Reduce brand switching and retain existing
customers
• Increase purchase by brand switchers
• Increase primary demand for category
• Increase purchase by store switchers
Non-Promoted
Products
• Use complements
• Spillover brand effects
which a promotion signals something about the brand or

industry to the con-
sumer. We propose that a sales promotion positively and
negatively influences
consumers through three different routes:
▪ Changing the economic utility associated with a product
purchase—the
economic route.
▪ Influencing consumer’s beliefs about the brand or industry—
the informa-
tive route.
▪ Affecting the feelings and emotions aroused in the consumer —
the affective
route.
For example, consider a $0.50 coupon for potato chips. The
coupon may
simultaneously reduce the purchase cost of a bag of chips
(positive economic
effect), simplify the consumer’s decision as to which brand of
chips to purchase
(positive economic effect of reducing information processing
costs of time and
effort to make a decision), make the consumer buy more and eat
more chips
than she or he typically would (negative economic effect), make
the consumer
believe that chips are overpriced (negative industry-related
informative effect),
make the consumer believe that she or he doesn’t really like the
taste of the
chips (negative product-related informative effect), and make
the consumer feel
smart (positive affect) but also feel irritated at having to clip

the coupon and take
it to the supermarket, an irritation that may translate to the
brand (negative
affect).
This implies that if a company wishes to encourage trial of its
brand of
potato chips, it should weigh positive effects against potential
negative repercus-
sions when deciding whether or not it should spend its
marketing budget on
consumer promotions versus other marketing tools such as
advertising or trade
promotions. If it decides to proceed with a consumer promotion,
such an analy-
sis will help it decide on its promotional tools and tactics.
Attention to the factors
discussed here can help make a promotional offering more
effective in achieving
the company’s objectives and may assist in doing so at a lower
cost. Given the
explosion of consumer promotions, the fine tuning of
promotional offers may
well be the route to make this tool an efficient tactic and allow
promotions to
realize greater profitability. By disentangling the routes through
which a sales
promotion can affect final sales, a manager should be able to
reduce its negative
effects.
The Three Routes of Promotional Effects
As mentioned above, the effect of sales promotions on brand
sales in the
short run has typically been found to be non-negative. The final

effect on sales
is a combination of positive and negative economic,
informative, and affective
effects. As the positive effects may dominate the negative
effects, the net short-
term effect may be positive, though results may differ in the
long-term, when
the strength of the positive effects diminish and the net effects
are driven by
possible continuing negative effects.
SUMMER 200426
Economic Route
Economic effects pertain to a monetary or non-monetary (time
and
effort) gain or loss that a consumer promotion provides to the
consumer.
Obviously, the most prevalent source of economic effect (and in
many cases
the only factor considered in promotion design) is the face
value of the coupon,
the amount of the rebate, or the grand prize in a sweepstakes.
However, non-
monetary benefits can accrue as well, such as decreasing the
transaction time
or effort required for a consumer to make a decision by
simplifying the decision
process (i.e., providing a good reason to buy). The CWL
framework incorporates

these non-monetary costs under the construct of “convenience,”
defined as the
increased shopping efficiency attributable to reduced search
costs in identifying
the product required, reminding consumers of a need, and
reducing decision
costs by providing easy to use heuristics as a decision aid.
The combined effects of monetary and non-monetary savings
not only
lower the unit cost of consumption, but also either reduce the
total outlay (over-
all expense), increase the overall amount purchased at the same
cost, or increase
the variety in the shopping basket. However, there are some
possible hidden
costs of these economic incentives as well. These include costs
of stockpiling,
increased consumption, increased search time required to find
the best deal,
or even delayed purchases in wait for a promotional offer.
Longer-term non-
monetary costs could include a reduced choice set as customers
make sub-
optimal purchase decisions to avail of loyalty type rewards or if
promotions
serve to maintain premium prices as national brands cooperate
implicitly to
defend market share versus private label competitors.10 Thus,
even economic
SUMMER 2004 27

FIGURE 2. Economic Routes of Promotion Effects
Monetary Time and/or Effort
Benefits • Reduce price of a given quantity
• Increase volume for a given price
• Upgrade brands for same price
• Provide additional product at lower cost
(“buy one, get one” type offers)
• Low cost opportunity for trial
• Reduce length of decision process
• Provide reason to buy (“free gift with
purchase” offers)
• Provide a cue for purchase quantity
Costs • Increase stockpiling costs to hold inventory
• Increase consumption due to extra inventory
• Require consumption of non-essentials to
obtain deal (for deals contingent on purchase
of another product)
• Maintain high prices via national brand
cooperation
• Reduce choice set through loyalty program
lock-in
• Increase search time to find best deal

• Delay purchases to wait for deal
• Reduce consumption to wait for deal
(forego utility)
effects may be negative. Figure 2 outlines the economic routes
through which
promotions affect sales. The monetary and time and effort
benefits are all short-
term, while the monetary costs tend to be longer-term.
Informational Route
Information effects are defined here as the communication of
direct or
inferential knowledge derived from exposure to a promotion.
Informational
effects of a consumer promotion pertain to the information
conveyed via the
promotion that signals unknown aspects of the brand or industry
to the con-
sumer. While monetary savings are relatively self-explanatory,
coupons can
also serve an advertising or awareness role. This increased
awareness has been
shown to lead to incremental purchases by households that do
not redeem the
coupon as the coupon itself serves as a reminder.11 Consumer
promotions can
also lead consumers to generate inferences that they might not
otherwise have
drawn in the absence of the promotion. This is because
consumers assign causes
for managerial actions and infer missing information from

information that is
contextually available. There is support for both processes in
the research on
promotions.12
Price expectations, quality expectations, and promotional
patterns are
the most common inference-based informational effects of
promotions. A price
promotion can affect perceptions of the price of the product by
influencing what
prices consumers expect to see,13 what they believe they did
see,14 what they
infer actual prices are,15 and what they believe is a good price.
In fact, price pro-
motions may lead to lower reference prices for that brand as
compared to one
that is not promoted and may backfire in the long run if the
promotional price
becomes the reference price against which the regular price is
viewed
unfavorably.
There is also evidence that price promotions lead to unfavorable
quality
and brand evaluations. For example, when consumers attribute a
promotion
to something about the brand, their attributions are negative and
they believe
the product is of poor quality (e.g., “there is a deal on the car
because it is infe-
rior”).16 This is most likely to happen when others in the
industry do not offer
promotions17 and is not seen in the case of frequently
purchased grocery prod-
ucts.18

In addition to price and quality expectations, consumers develop
expect-
ation of when a brand will and will not promote based on
brands’ dealing pat-
terns.19 These expectations increase the probability of purchase
when customers
encounter an unexpected price promotion on a brand while
decreasing purchase
likelihood to a greater extent if they expect the brand to be
promoted and it is
not. Figure 3 outlines the routes by which informational effects
impact sales
across types of inferences.
The informative role of price promotions may occasionally
undercut its
economic benefits, leading to a negative effect on sales. For
example, a product
that has been offered as a free gift may later find it difficult to
be a stand alone
product—consumers may be less willing to purchase it or
willing to pay less for
SUMMER 200428
it as they believe it to have a low cost of production and a high
margin.20 Sim-
ilarly, increasing the value of a coupon frequently may not
affect either deal
evaluations or purchase intentions, and in special circumstances

may backfire
(lowering intentions), leading to lower profits for the
company.21 The most
notable aspect of these effects is that they are contingent on
brand image, con-
sumer expertise, and presence of price information. This
suggests that if man-
agers understand the potential of an unfavorable informational
effect, they
may be able to eliminate it through promotional design and
communication
(e.g., via including price information or providing quality cues
on their promo-
tional materials).
Sometimes, the informative effect of a promotion can be
positive,
enhancing its economic value. For example, the mere presence
of a display
(end-of-aisle) can lead to consumers inferring a price cut and
buying more.22
Restricting a deal by imposing purchase limits can also increase
sales, as people
believe that the deal is a good one and will be very popular with
other
customers.23
The informational effects can carry through to managers’ profits
through
reducing purchase intentions, or the maximum price that
consumers are willing
to pay. It may erode brand equity via a deleterious effect on
quality perceptions
or via an increase in consumers’ price-elasticity (making it less
profitable for the

manager to increase prices).
SUMMER 2004 29
FIGURE 3. Informational Routes of Promotion Effects
Customer
Related
Information
• Increase awareness (an advertising effect)
• Other people will think this is a good deal
Brand
Related
Information
• Presence of restrictions signals customer demand for the deal
• Deeper discounts lead to higher perceived prices
• Deep discounts (including being offered for free) lead to
perceptions of lower costs
and higher margins
• Discounts lead to lower quality perceptions especially when
others don’t promote
• Discounts lower price expectations for the brand
• Presence of a promotion may create uncertainty about the
value of the brand

Channel
and Industry
Related
Inferences
Industry Related Inferences
• Asymmetric deal patterns may indicate quality variation
across firms
• Dealing patterns of competing firms signals the level of
competition within the industry
• Frequent industry dealing may lead to perceptions of low
industry costs and margins
Store Related Inferences
• Promotional offers will affect a store’s price and quality
reputation regardless whether
the deal is offered by the manufacturer or store
Affective Route
Affective influences of a price promotion are the feelings and
emotions
aroused by exposure to a promotion, purchase on a promotion,
or missing a
promotion. In the affective routes through which promotions
affect sales, the
positive effects are either general or specific. The general
effects include the
ambient effects of the shopping experience due to the hedonic

entertainment
and exploration effects as per CWL. More specific effects
include the inferences
consumers makes about themselves, such as feelings of being
smart or lucky.24
Promotional communications can highlight these affective states
in the manner
in which they communicate a deal to a customer.
There are also negative effects associated with purchasing on
deal. These
can be overall general feelings such as annoyance especially if
discount levels
are low and consumers are inconvenienced. There is increasing
evidence that
consumers attempt to infer why manufacturers or retailers offer
a deal (their
“motive”) to judge how “fair” or “unfair” price changes are.25
For example, a
price increase that occurs as a result of increased costs may be
perceived as fair,
but a price increase that is driven by a profit motive is
perceived as unfair. This
has also been shown to be true in a promotion context where
current customers
may feel that the policy of offering better prices to new
customers is unfair.26
The current customers feel “betrayed” when they see special
prices offered to
switchers (e.g., new customers) and feel “jealous” when they
see offers by other
firms to their current customers (e.g., Saab owners feel jealous
if Volvo offers
$1000 coupons to its current owners). This suggests that

discriminated promo-
tions may not be tenable in the long term as a greater proportion
of current
customers become aware of the punishment for being loyal.
More specific negative effects include the embarrassment of
feeling cheap
and the regret of missing out on a deal. In one study, consumers
were asked to
think about how they would feel if they did not take advantage
of a “limited
time” promotion and later found they had to pay full price.27
These consumers
ended up being more likely than control subjects to purchase
during a promo-
tion offered to them later, possibly because they focused on the
regret they
SUMMER 200430
FIGURE 4. Affective Routes of Promotion Effects
General Specific
Positive • Hedonic benefits and entertainment of buying
on deal
• Exploration and thrill of trying new things
• Feeling of being smart to buy on deal
• Feeling of being lucky to avail of the deal

Negative • Annoyance of dealing with coupons or
restrictions
• Offering targeted promotions leads to
perceptions of unfairness by those who
receive shallower discounts
• Disappointment and regret of missing out
on deal
• Embarrassment of appearing cheap
would feel if they did not avail of the promotional offer. The
potential regret
due to a missed opportunity can also explain why there is an
increase in coupon
redemptions immediately preceding the expiration as consumers
rush to redeem
the coupon before it expires.28 An overview of how the
affective route impacts
sales is given in Figure 4.
To summarize, a sales promotion influences sales through three
different
routes: the economic utility it provides, the information it
conveys (either direct
or inferred), and the feelings it arouses. A graphical
representation of this model
showing the three routes, how they interact with each other, and
how their
effects are contingent on individual and contextual differences
is provided in
Figure 5.

The model suggests:
▪ There are three ways through which promotions work: their
economic
value, their information content, and their affective appeal.
▪ The three constructs have primary effects and interactive
effects on con-
sumers’ deal evaluations, purchase intentions, and sales. This
means that
while the information content directly affects deal evaluations,
it can also
affect the way in which the economic value affects deal
evaluations. For
example, if a coupon is $3 off, this is a saving with a positive
effect on
deal evaluations (primary effect of economic value). However,
if the $3
coupon leads to perceptions of higher price, then this inference
will
undercut the economic savings associated with $3 (the
interaction
between economic value and informational content). There may
also
SUMMER 2004 31
FIGURE 5. The Three Routes of Promotion Effectiveness
Promotions
Information
Content

Economic
Value
Deal Evaluations
Purchase Intentions
Sales
Managerially Controllable Contextual Factors (Promotional
Features and Communication)
Affective
Appeal
be a direct effect of information: if consumers believe that a $3
coupon
is offered because the product is poor or old, this quality
inference would
be a direct information (primary) effect.
The extent to which the informational value and affective
aspects of a
promotion affect deal evaluations, purchase intentions, and
sales is contingent
on managers controlling both contextual factors (such as the
features and design
of a promotion) and features of the target market (e.g.,
individual differences in
customers’ expertise, deal proneness).
Consumer Promotion Profitability
The profitability of a given promotion can be characterized as

follows:
Promotion Profit = Incremental Units Sold on Deal x (MarginR
– Discount)+
Undiscounted Incremental Units x MarginR – Base Units Sold
on Deal x Discount
– Promo Cost + (Positive vs. Negative Carryover Effects)
The first two terms partition incremental sales into two parts:
the extra
profit realized from selling additional units over the baseline at
the discounted
value (i.e., via the economic route) and the extra profit realized
from incremen-
tal sales due to the non-economic effects (i.e., the informational
and affective
routes, as well as the non-monetary economic effects) at the
regular margin.
Alternatively, this term can be interpreted as capturing the
increase in profits
realized from decreasing the economic value (e.g., lower face
value). The third
term represents “subsidized sales,” baseline units sold at the
discounted margin.
The fourth term captures the costs of running the promotion
(e.g., printing
costs, sweepstakes prizes), while the remaining term represents
the net value
of the positive carryover effects versus any negative carryover
effects.
SUMMER 200432

FIGURE 6. Promotion Effect on Sales
0
50
100
150
200
Incremental Units
Sold at Reg Price
Incremental Units
Sold on Deal
Base Units
Sold on Deal
Base Units
Sold at Reg Price
t+2t+1tt–1t–2t–3
U
n
it
s
S
o
ld

(
0
0
0
s)
Figure 6 illustrates the importance of considering all three
routes. In un-
promoted weeks t–3, t–2, t–1, t+1, and t+2 the firm sells
100KU. In promoted
week t the promotion results in incremental sales (versus
baseline) of 100KU.
However, any promotion worth its salt will increase sales.
Creating a profitable
promotion is much more difficult. If we make the simplifying
assumption that
the promotion carryover effects balance, then the amount that
the firm can
spend on the promotion and still have a net profit is given by
the difference
between the profits gained from the incremental sales versus the
loss of profits
incurred from discounted sales of baseline units. To insert some
figures for the
sake of comparison, assume that the face value of the consumer
promotion was
$0.50 and that the regular margin is $0.80. Per Figure 6,
incremental sales at
the discounted price were 70KU, a profit of $21,000 (70KU x
$0.30). In contrast,
loss from baseline sales on deal is 60KU x $0.50, or $30,000.
Thus, this promo-
tion has not generated sufficient incremental lift to turn a profit

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