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Marketing Letters I:I.

(1989): 81-97
6 1989 Kluwer Academic Publishers, Manufactured in the Netherlands.

Sales Promotion: The Long and the Short of It


ROBERT C. BLATTBERG
Utlivrrsity of Chicago

SCOTT A. NESLIN
Dartmorrth College

Abstract

This article presents a framework for organizing and discussing how sales promotion affects sales
and how to use this framework to delineate major generalizations and to identify issues in need of
resolution. This framework consists of data used to measure the sales impact of promotions and
the time frame of that impact.

1. Introduction

The growing managerial importance of sales promotion has generated a great deal
of recent research on how sales promotion affects sales. Our purpose is to 1)
present a framework for organizing and discussing these sales effects, and 2) use
this framework to delineate major emerging generalizations and to identify the
issues that need to be resolved.
Our framework consists of two factors: the data used to measure the sales
impact of promotions and the time frame of that impact. The types of data we
consider are household level and market level. The time frames we consider are
immediate term, intermediate term, and long term. These correspond to the week
or weeks in which the promotion occurs (immediate), the weeks or months sur-
rounding the promotion (intermediate), and the years after several promotions are
implemented (long term). Our main conclusion is that several generalizations are
emerging concerning the immediate effects of promotion, and these effects are
found using both household- and market-level data. In the intermediate term,
there has been an abundance of research, but no clear generalizations. The long-
term effects have barely been researched, so it is not clear how easily generali-
zations will emerge. The net result is that there is much more work to be done to
understand the effects of sales promotion.

2. Immediate effects of sales promotion

2.1. Emerging generalizations about the immediate effects of sales promotions

2.1 .I. Sales promotions have a dramatic immediate impact on brand sales. The dra-
matic immediate impact of sales promotion on brand sales was demonstrated by
82 ROBERT C. BLATTBERG AND SCOTT A. NESLIN

Sales (In thousands)


25r

1
1.2
‘_ : ,. ,,
1

15 i P
0.8 r
20

10 0.6 :
e
0.4
5
0.2

0
40 60 80 100 120

Time (In weeks)

- Sales (In thousands) Price (In dollars)

Figlrrr I. Sales and Price Plot.

early experimental work (Chevalier, 1975). In recent years, these effects have
been researched more extensively using scanner data at the household level
(Guadagni and Little, 1983: Krishramurthi and Raj, 1988; Gupta, 1988) or market
level (Moriarty, 1985; Wittink et al., 1987; Blattberg and Wisniewski, 1988). Fig-
ure 1 shows a plot of the sales of a brand of bathroom tissue in a chain with each
store using the same pricing policy. The figure shows the frequent price promo-
tions used by this retailer and the corresponding immediate increase in brand
sales. The price cuts were accompanied by a special display and a major feature
ad. The increase in sales can be as much as 10 times the normal level. Graphs
such as figure 1 are common for packaged goods (Schultz and Robinson, 1982;
Totten and Block, 1987). As a result, for many brands of packaged goods the
majority of retail sales are associated with some kind of promotion. Studies of
durables are less common, but there is some evidence of similar dramatic in-
creases observed in these types of products (Doyle and Saunders, 1985; Dhebar,
Neslin, and Quelch, 1987; Thompson and Noordewier, 1988).

2.1.2. Brand-switchers account for a significant portion of the immediate increase in


volume due to sales promotion. Household-level data offer the opportunity to ana-
lyze the source of the immediate volume increase generated by sales promotion.
The potential sources of volume include switching, purchase acceleration of both
quantity and timing, and increased category consumption. The general consensus
appears to be that brand switching is a major source of volume (Gupta, 1988;
Totten and Block, 1987; Johnson, 1984, p. 10; Blattberg and Neslin, 1989, Chapter
5). For example, Totten and Block show an example from The Marketing Fuct
Book (a summary of panel data produced and sold to manufacturers by Informa-
tion Resources, Inc.) where 83.2% of the incremental volume due to a promotion
SALES PROMOTION 83

comes from switchers. Gupta (p. 352) found that switching accounted for 84% of
the increase in coffee brand sales generated by promotion.
Putting together the facts that sales promotions generate dramatic immediate
sales increases and that brand switching accounts for a large percentage of this
increase, we can conclude that sales promotions are strongly associated with
brand switching. Note this can mean that sales promotions induce brand switching
or that brand switchers buy the brand being promoted. The question of causality
has not been sorted out (see section 4.2).

2.1.3. Immediate-term promotional cross-elasticities are asymmetric. Since promo-


tions are associated with brand switching, it is natural to examine the nature of
promotional cross-elasticities. A general conclusion is that these elasticities are
asymmetric (Blattberg and Wisniewski, 1989; Wittink, et al, 1988; Allenby, 1988;
Cooper, 1987); that is, the effect of Brand A’s promotion on Brand B’s sales is not
the same as the effect of Brand B’s promotion on Brand A’s sales. This is a very
important finding because it implies that one brand may fare better than another
in a “prisoner’s dilemma” promotion war. The managerial challenge suggested by
these findings is to implement long-term policies that result in favorable cross-
elasticities for a particular brand.

2.1.4. Various forms of promotion have separate impacts, which may or may not inter-
act and are usually difficult to disentangle. Promotions often are composed of two
or more promotional tools. For example, a price cut, feature, and display may be
used together; a coupon and a contest or self-liquidating premium may be used
together; or a durable good rebate may be used in conjunction with promotional
advertising. These promotional tools each have a separate effect, as is illustrated
in table I .I For example, only offering a 10% price discount (with no display or
feature ad) increases sales by 77%, (index value of 177), a display alone increases
sales by 13%, and a major feature ad alone increases sales by 85%. This means
that the modeler might be omitting major sources of variation in sales unless all
these promotional tools are quantified and included in the model. For example,
couponing activity has often been omitted from promotion analyses (see Neslin,

Trrhle I. Sales effect of deal discount, feature advertising. and displays

Discount

No merchandising IO0 I77 313 555


Display 113 201 356 63 I
Major ad I85 327 580 I028
Display and line ad 254 451 799 1414
Display and major ad 309 548 971 1719

100 = Base Sales when no oromotions occu,


84 ROBERT C. BLATTBERG AND SCOTT A. NESLIN

1989). One problem in including all promotional tools in a model is that they
can be highly correlated because they are often used together. As a result, one
runs into multicollinearity when trying to estimate the separate effects of these
tools.
To compound the issue, the various promotion tools can potentially interact;
that is, the total increase in sales when implementing several promotional tools
may be different than the sum of the impacts if these tools are implemented
separately. This is a very important phenomenon because if the interaction is pos-
itive, it supports a “big bang” strategy of designing sales promotions. The moti-
vation behind this strategy is that a threshold promotional level must be present
in order to be noticed by consumers.’ The interaction effect has been demon-
strated by experimental research (e.g., Woodside and Waddle, 1975) and econo-
metric models (Moriarty, 1985). It has also been captured by multiplicative and
semi-log functional forms in market-level data research (Blattberg and Wis-
niewski, 1988) and is implicitly captured by the S-shaped logit model used with
household level data (e.g., Guadagni and Little, 1983). In table 1, we see, for
example, that the effect of a 30% price discount alone is 555 (5.5 times normal
sales increase), while the effect of a major ad alone is 185. However, the effect
when both a major ad and 30% price discount are used together is 1028. This
means there is an interaction, because summing the two effects would result in an
index value of 740 or an increase of 7.4 times normal sales.
In summary, modelers must consider interaction effects and problems with mul-
ticollinearity. These phenomena may not always occur, but model-builders must
consider them when researching the sales effects of promotion, and managers
must consider them when designing promotions.

2.2. Some importarzt immediate term issues that need fkrther research

2.2.1. Are the results of market-level econometric models biased? Market-level data
are collected at the store unit and aggregated up to the chain, regional, or national
level. Many manufacturers and retailers use these data for analyzing promotions.
The impetus for aggregating the data is that the number of models to be estimated
can be enormous if we stay at the single store level. For a market with 40-60
stores providing scanner data and with 100-150 observations per item and 20 items
within a category, the number of models and observations begin to stretch the
computing and cognitive limits of the model-builders.
The problem with aggregation is the possibility of bias; the estimated coeffi-
cients do not pertain to any particular store or even to the average effect across
all stores (see Theil, 1971). The bias is alleviated if the values for the independent
variables are identical in all stores, but this is unlikely to happen even within a
given chain of stores.
We need to determine how badly promotional elasticity coefficients are biased
by aggregation and develop methods for alleviating this bias.
SALES PROMOTION 85

2.2.2. To what extent is the immediate impact of promotion a category expansion effect?
Very little research has examined the possibility that sales promotions can in-
crease primary demand (see Ward and Davis, 1978, for an exception). This issue
is especially relevant for durable goods and services that may be discretionary
purchases and for retailers who will be more apt to promote a brand that will
expand total category sales than a brand that merely steals sales from another
brand. Much of the recent logit choice model research disregards the category
expansion issue because these models are conditional on a choice being made.
Regression models that analyze category demand as well as market share
can be used (e.g., Clarke, 1973; Neslin and Shoemaker, 1983b) to overcome this
problem.

2.2.3. Why are promotional price cut elasticities larger than regular price elasticities?
A common finding is that promotional price cut elasticities are larger than those
for regular price elasticities (e.g., Guadagni and Little, 1983; Blattberg and Wis-
niewski, 1988). This finding emerges by including two variables in a sales or
choice model - a regular shelf price variable and a promotional price cut variable
that equals zero until there is a short-term price cut. These variables correspond
to the acquisition and transaction components of price evaluation as enunciated
by Thaler (1985).
There are several possible explanations for the difference in elasticities. The
first is transactional utility. Transactional utility is driven by whether the con-
sumer perceives he or she is getting a bargain. Since the consumer is informed
promotional price cuts are temporary, the consumer is more likely to have this
perception (see Hooda, 1988).
The second is inventory behavior of the consumer. When a temporary deal is
offered, the consumer may stockpile the brand, hence increasing the quantity
bought on deal. Because a regular price reduction is long term, the consumer does
not need to forward buy to take advantage of the promotion. Hence, the regular
price elasticity is lower.
Other explanations also exist. One is that because of a threshold effect, the
shape of the demand curve follows an S-shape. If too small a reduction is offered,
then there is very little sales impact. Since permanent price reductions tend to be
small whereas deals have large price reductions, the elasticities reflect the relative
position of the two price cuts on the demand curve. Another is that in-store pro-
motional cues such as “specials” may serve as Pavlovian conditioned stimuli that
induce the consumer to “salivate” in anticipation of a good deal.
It is clear from the above discussion that the effect is known but the cause needs
to be studied. Researchers need to try to develop theories explaining the differ-
ence between price elasticities and promotional elasticities.

2.2.4. What effects do retailer promotions have on store traffic? Retailers are not
interested in generating profit for a particular brand, but rather in measuring total
store profit. One key consideration is: Does the promotion increase store traffic?
86 ROBERT C. BLATTBERG AND SCOTT A. NESLIN

Profit for a retailer is a direct consequence of store traffic. Kumar and Leone
(1988) found that retailer promotions of diapers were associated with consumers
switching between stores. Walters and MacKenzie (1988) found only a weak link
between retailer promotions and store traffic. In conclusion, very little is known
about the impact promotions have on store traffic and more empirical studies must
be undertaken before we can make any generalizations.

3. Intermediate term issues

3.1. Repeat purchase effects

Promotions can affect repeat purchase sales in two ways: 1) purchase reinforce-
ment and 2) promotion usage effect. The purchase reinforcement effect refers to
the learning and habit formation that occurs any time a brand is purchased. Since
sales promotions induce many additional purchases of a brand, it indirectly causes
more learning and habit formation. The promotion usage effect refers to the ram-
ifications of purchasing a brand using a promotion. Purchasing a brand on pro-
motion may result in negative attribution regarding the reasons the company is
promoting the brand, may fit the expectation of the consumer who expects prod-
ucts to be promoted periodically, or may serve as a reward encouraging further
repeat purchasing.
There is an extensive literature about whether brand purchasing reinforces re-
peat buying rates. Stochastic brand choice modelers have attempted to determine
the order of the choice process. If the process is zero order, then there is no
purchase reinforcement. If the order is first order (Markov) or higher, then there
may be purchase reinforcement depending on the structure of the transition ma-
trix (Markov) or the effect of prior purchases on the current purchase.3
The empirical results on the order of the process are mixed. Blattberg and Sen
(1976) and Givon and Horsky (1979) found that it varies by consumers. Some
suggest it is zero order (Bass, 1979; Bass, et al, 1984) while others show it as a
higher-order process (Guadagni and Little, 1983). Unfortunately, the results are
conflicting. Further, most of the models built to analyze this question have not
included marketing mix variables, meaning no adjustment for nonstationarity has
been included. Thus, further research is required to answer this question.
There have been a number of studies on the promotion usage effect. Table 2
presents a summary of findings regarding the promotion usage effect, broken
down by type of analysis. In general, choice models find negative effects, labo-
ratory experiments find negative and positive effects, and one panel data study
analysis finds no effect. Market level analysis have not explicitly looked for repeat
purchase effects. However, based on the experience of the authors, a repeat pur-
chase effect would not be clearly detectable in market-level data for nondurables.
A major task for researchers is to reconcile these discrepancies. One step in
this.direction was taken by Neslin and Shoemaker (1989) who discuss the possi-
bility that negative effects of promotions found in choice models and panel data
SALES PROMOTION 87

Tub/~ 2. Summary of empirical research on promotion usage repeat purchase effects

Type of data Article Effect

Market level No studies


Household level choice Jones and Zufryden (1981) Negative
models Guadagni and Little (1983) Negative
Household level Scott (1976)’ Negative and positive
laboratory experiments Scott and Yalch (1980)’ Negative and positive
Scott and Tybout (1979)’ Negative and positive
Tybout and Scott (1983)’ Negative and positive
Kahn and Louie (1988) Negative and positive
Household level panel Dodson. et al. (1978) Negative
data Shoemaker and Shoaf (1977) Negative
Bawa and Shoemaker (1987) Slightly positive

‘These studies examine post-trial attitudes rather than actual repeat purchase rates.

analyses are the result of combining deal and nondeal buyers who have different
purchase probabilities.
In our opinion, it seems doubtful that a promotion usage effect would take place
on the purchase occasion after use of a promotion. Behavioral learning theory
posits learning as a longer-term phenomenon requiring several instances of re-
warded behavior. The attribution theorists do not attach a time frame to their
concepts, but common sense suggests that except for the case of a new brand,
consumer attitudes toward an established brand are not going to change apprecia-
bly with one promotional purchase.
Irrespective of whether the repeat purchase effects of a promotion are inter-
mediate or long term, a major question is how the purchase reinforcement effect
and the promotion usage effect balance out. Guadagni and Little (1983) investi-
gated this issue. Their choice model contains lagged variables incorporating pur-
chase reinforcement effects as well as promotion usage effects. Their findings
were that the purchase reinforcement effect was positive but the promotion usage
effect was negative. They were able to calculate the net effect of the use of a
promotion and found that two periods after purchasing on promotion, the con-
sumer is more likely to purchase a brand than if it were not purchased at all, but
less likely than if the first purchase had not been on promotion.
While their article is an important first step, their analysis needs to be expanded
to incorporate the fact that a promotion attracts many customers who otherwise
would not have purchased the brand. Even if the promotion usage effect is nega-
tive, it is applied to a larger base of purchasers, resulting in more repeat purchases.

3.2. Purchase acceleration effects

A second important intermediate-term phenomenon is purchase acceleration.


Purchase acceleration is the potential of sales promotions to induce larger pur-
chase quantities and tu alter purchase timing. Purchase acceleration is important
88 ROBERT C. BLATTBERG AND SCOTT A. NESLIN

Table 3. Summary of empirical research on purchase acceleration

Type of data Article Effect

Durables Doyle and Saunders (1985) Purchase deceleration


Market Level Thompson and Noordeweir (1988) Timing acceleration
Household Level Bayus (1988) Timing acceleration
Non-Durables Blattberg and Wisniewski (1988) No acceleration
Market Level Leone (1987) Timing acceleration
Moriarity (1985) Limited acceleration
Neslin and Shoemaker (1983) No acceleration
Wittink, et al. (1988) No acceleration
Household Level Shoemaker (1979) Quantity acceleration
Wilson, et al. (1979) Quantity and timing acceleration
Blattberg, et al. (1981) Quantity and timing acceleration
Neslin, et al. (1985) Quantity and timing acceleration
Gupta (1988) Timing acceleration

because the calculated profitability of a sales promotion will be inflated unless


this phenomenon is taken into account (Neslin and Shoemaker, 1983a; Doyle and
Saunders, 1985). Table 3 summarizes several studies in this area. Acceleration
effects have been measured for durable goods using market-level and household-
level data. For nondurables, several studies have detected acceleration using
household-level data, but only one study found a clear effect using market-level
data.
In analyzing purchase acceleration, the critical issue that needs to be under-
stood is: Why are acceleration effects for nondurable goods found at the house-
hold level but not at the market level? This is a critical issue because many
promotions are being evaluated using market-level data and they do not capture
the acceleration effect. There are several possible explanations for this phenom-
enon

1. Acceleration effects for nondurables are very weak. The household-level re-
sults summarized in Table 2B may be statistically significant but may not be
managerially significant. The magnitude of the household-level effects must be
translated to a market-level incremental sales analysis.
2. Quantity and timing acceleration spread out the acceleration effect and make
it difficult to measure. Timing acceleration draws sales from periods immedi-
ately following the promotion, while quantity acceleration affects sales roughly
one normal interpurchase time later because that is when the household begins
to consume its extra quantity (see Neslin, et al, 1985). The result is that it takes
several periods after the promotion before market-level sales reach normal
levels.
3. Consumers decelerate as well as accelerate their purchases. Consumers
develop expectations regarding promotional events (Krishna, Currim, and
Shoemaker, 1989). This causes sales before a promotion to be depressed by a
SALESPROMOTION 89

segment of consumers holding out for the promotion resulting in a lower base-
line prior to the deal.
4. Deal frequency is so high that the consumer merely buys from deal to deal. As
a result, the apparent sales baseline will be artificially lowered both before and
after the promotions.
5. Competitive promotions continually decrease a brand’s nonpromoted sales
through a combination of current period and accelerated switches.
6. Household interpurchase times may be highly heterogeneous both across con-
sumers and for a given consumer over time. As a result, purchase acceleration
does not explain much of the variation in interpurchase times (Neslin, et al.,
1985) and is not visible in market-level data.4

Unfortunately it is possible that all of these explanations may be at work, and


therefore, it may be virtually impossible to separate these effects using market-
level data. If the household-level acceleration effect is significant, this means that
household-level data, possibly in combination with market-level data, is necessary
for promotion evaluation. This is clearly an issue that needs to be resolved.

3.3. Are sales promotions profitable?

The question of promotion profitability, even in the intermediate term, still has
not been answered. We know that promotions generate dramatic immediate in-
creases in sales, but we need accurate estimates of acceleration and repeat pur-
chase effects in order to calculate net incremental sales. The key issue becomes
the estimate of “baseline” sales, which is defined as sales for the brand that would
have occurred even if the promotion had not been available. Using market-level
data, acceleration or repeat purchase effects are usually not evident, so regression
models will infer a baseline equal to the level of sales in nonpromotion periods
(see figure 1). If, as household-level data often reveal, there are acceleration and
repeat purchase effects, these will affect nonpromotion period sales and contam-
inate the regression-estimated baseline. For example, the baseline will be biased
downward (hence profitability overestimated) if there are strong acceleration ef-
fects and negative repeat purchase effects.
Calculating the profitability of a trade promotion is particularly challenging.
The manufacturer offers trade promotions to the retailer as an inducement to pro-
mote the brand. This trade promotion is a cost to the manufacturer, and as table
1 suggests, the particular combination of feature/display/price-cut the retailer uses
is critical for determining incremental sales, and hence the net profitability of the
manufacturer’s investment. However, the retailer may decide not to promote the
brand at all (e.g., Chevalier and Curhan, 1976; Curhan and Kopp, 1986), but
merely take advantage of the trade deal to stockpile for future use. In fact, retailer
stockpiling, also called “forward buying,” is an important source of profit for the
retailer, and many retailers make rational economic calculations to decide the
90 ROBERT C. BLATTBERG AND SCOTT A. NESLIN

extent of forward buying (Blattberg and Neslin, 1989, chapter 12). Forward buy-
ing may become so extensive that it is impossible to infer a baseline from whole-
sale sales data (e.g., Blattberg and Levin, 1987, figure 2). As a result, manufac-
turers may need good models of both consumer response to retailer promotions
as well as retailer response to trade promotions in order to evaluate the profit-
ability of their investment in trade promotions (See Blattberg and Levin, 1987;
Abraham and Lodish, 1987).

4. Long-term effects of promotions

4.1. How do promotions affect the brand’s consumer franchise

A brand has a consumer franchise if it has developed a loyal following and its
customers walk into a store, demand the product from the retailer, and are not
willing to take a substitute. A strong consumer franchise is one built upon favor-
able brand attitude rather than on routinized repeat purchasing. As a result of this
favorable brand attitude, the utility for the product exceeds similar products. A
strong franchise will be resilient to competitive activities, whether they include
product changes, advertising, pricing, or promotion. (See Leuthesser, 1988 for a
more detailed discussion of this issue.)

4.1 .I. Possible negative effects of promotions on the brand franchise.Many market-
ing professionals fear that sales promotion undermines the brand’s franchise. One
reason is that it diverts consumers’ attention from brand attributes and channels
attention toward finding the best deal. In the language of behavioral conditioning,
the behavior of finding a good deal is what gets rewarded by frequent promotions.
The reward of the brand usage experience is only a “secondary reinforcer” (see
for example, Rothschild, 1987; Blattberg and Neslin, 1989, chapter 2). Another
more damaging possibility is that frequent promotions directly undermine brand
attitudes. For example, the consumer questions why it is necessary to keep pro-
moting the product and concludes there is something wrong with the product. This
is a type of attribution referred to as “object perception” (Mizerski et al., 1979).
Another type of attribution that may undermine the brand franchise is called self-
perception (e.g., Dodson, et al., 1978). Under this theory the consumer attributes
his or her purchasing of the brand to the available promotion, not to any redeem-
ing qualities of the brand. This undermines favorable attitudes toward the brand
that are the foundation of a sound consumer franchise.
A related way in which promotions might undermine the brand’s consumer fran-
chise is if consumers form quality perceptions of the brand based on price. Fre-
quent price cutting may result in the consumer lowering her/his reference price
for the brand resulting in a lower quality perception of the brand. Suppose a prod-
uct regularly sells for $1.00, which is a premium price in the product category.
The high price may help to maintain its quality image. However, frequent pro-
SALES PROMOTION 91

motions to 79e may cause consumers to think of the brand as a 79$ product, which
would be interpreted as lower quality.

4.1.2. Possible positive effects of promotions on a brand’s consumer franchise. The


traditional view of sales promotion is that it cannot be used to improve a brand’s
consumer franchise (e.g., Schultz and Robinson, 1982, pp. 68-69). However, an
emerging view is that carefully designed promotions can enhance a brand’s posi-
tioning, and thus feed directly into a stronger brand franchise. For example,
American Express ran a promotion to extend the warranty of any product bought
with the American Express Card. This could have the effect of broadening the
positioning of the American Express Card from that of primarily a travel and
entertainment instrument to one also appropriate for retail purchases. The new
Chevrolet Lumina is being introduced using extensive promotional tie-ins with
Disney World. The possible effect of this might be to position the Lumina as a
family car. McDonald’s use of the Monopoly board game as a promotion might
reinforce its image as a fun place to eat and as an all-American institution. Kraft
runs “Salad Days” promotions in the summer as a vehicle for reinforcing its
wholesome image. There is virtually no research on whether this strategy can help
the positioning of a brand. If it turns out to be practical, this would validate pro-
motion as a strategic tool, and heavy emphasis should be placed on creative con-
sumer promotions (see Lodish, 1986, pp. 43-46).

4.2. Empirical evidence

The empirical evidence on how promotions affect a brand’s consumer franchise


is sparse. Strang (1975) found that brands that promote heavily had sales and
share declines when compared to brands that advertise heavily. This result has
often been cited as evidence that a brand’s consumer franchise is adversely af-
fected by promotions. A possible problem with Strang’s result is that promotions
may have been endogenous rather than exogenous. In other words, promotions
may have resulted from the brand’s declining position and the brand manager tried
to try to save the brand through heavy promotions (see Strang, 1980, p. 77).
In a IO-year study of several brands of packaged goods, Johnson (1984) found
that increased promotional spending did not have a significant negative effect on
brand loyalty. Brand loyalty was quantified using behavioral share-of-require-
ments measures (e.g., the percentage of purchase occasions on which consumers
who bought the brand at least once bought the brand). His results are important
because they come close to actually quantifying the brand franchise and observing
it over time.
An apparent contradiction emerges from this study. Earlier, we stated as a gen-
eralization that sales promotions are associated with brand switching. How, then,
could sales promotions not erode indicators of a brand franchise such as share-
of-requirements? It would seem that if sales promotions are associated with
92 ROBERT C. BLATTBERG AND SCOTT A. NESLIN

brand switching and that use of promotions is increasing over time, share-of-
requirements would have to decline, almost by definition. One possible answer
to this paradox is that consumers do not switch brands now any more fre-
quently than they used to, but rather, promotions determine the pattern of switch-
ing, whereas ten years ago switching was determined by variety seeking and
advertising.

4.3. Does frequent use of promotion undermine response to future promotions?

It certainly seems plausible that frequent use of promotions renders future pro-
motions less effective. This is very important because it requires steeper and
steeper expenditures in order to get the same “bang” from future promotions,
resulting in lower intermediate profitability of promotions. Confirming evidence
is offered by Thompson and Noordewier (1988) who found that succeeding rebate
programs generated fewer and fewer incremental sales, and by Winer (1986) and
Lattin and Bucklin (1989) who use reference price theory to formulate a choice
model where successive promotions become less effective because consumers get
used to a low price. However, more research is needed to generalize this phenom-
enon and establish its effect on profits.

5. Summary

5.1. Immediate effects

Through the use of econometric and choice models, it has been possible to de-
velop generalizations about the immediate effect of promotions.

l Sales promotions have a dramatic immediate effect on brand sales.


l Brand switching is a significant source of volume.
l Cross-elasticities are asymmetric.
l Price reductions, feature advertising, and displays have differential effects on
sales and may interact.

There are also many issues about the immediate effects of promotions that are
unknown, including:

l How do promotions affect category volume?


l Why are promotional elasticities larger than regular price elasticities?
l What effect do retail promotions have on store traffic?

There are also methodological issues requiring research.


SALES PROMOTION 93

l What is the magnitude of aggregation bias from applying econometric models to


market level data?
l How can logit models be designed to incorporate category expansion effects?

5.2. Intermediate-term effects

Three areas need further research: 1) repeat purchase effects, 2) purchase accel-
eration measurement, and 3) promotion profitability. For repeat purchasing, re-
search is needed to answer the following questions:

l Do promotions reinforce purchase habits?


l Is the promotion usage effect positive, negative, or zero? How does it vary by
brand type?
l Can one promotion event cause a negative attribution or does it take multiple
and repeated events?
l What types of products are most vulnerable to negative attribution?
l Which is more powerful, purchase reinforcement or the promotion usage effect?
l What is the net effect of promotion on post-promotion sales?

For purchase acceleration, research is needed to answer these questions:

l What types of market-level models are needed to measure purchase acceleration


effects?
l What is the magnitude of the acceleration effects found at the household level
and what do they imply for measuring post-deal effects at the market level?
l How does the frequency of deals affect our ability to estimate purchase accel-
eration?

For the promotion profitability, research is needed to answer the following:

l How can a baseline be accurately measured?


l Are household-level data needed to estimate the baseline?
l Do econometric procedures understate the baseline, resulting in upward biased
estimates of incremental sales?
l How can baseline estimation techniques include repeat purchase and accelera-
tion effects?
l Under what conditions are retail sales models necessary for evaluating trade
promotions?

5.3. Long-term effects

Almost no research has been conducted on the long-term effect of promotions.


Yet, it is critical to a brand’s strategy. Issues that need addressing are:
94 ROBERT C. BLATTBERG AND SCOTT A. NESLIN

l What is the best way to measure a brand’s franchise?


l Do promotions depreciate a brand’s franchise, and, if yes, how?
l Is the degradation of the franchise seen through changes in brand loyalty, pref-
erence, or long-term declining sales trends?
l Does frequently promoting a brand reduce the impact of sales promotions?
l Are there strategies that can use sales promotion to strengthen the brand fran-
chise?

5.4. Concluding remark

In the last several years the volume of promotional research has exploded. For it
to continue to be of interest to both practitioners and academics, it is important
to research relevant and researchable topics. This paper has tried to assist re-
searchers by offering what we feel are some of the key managerial and methodo-
logical issues in sales promotions. This article will have served its purpose if it
assists others in developing a promotional research agenda.

Notes

1. The effects in table 1 were estimated from scanner data using an econometric model. Table 1 is
similar to the tables one sees in Wittink, et al, 1987.
2. Weber’s law (see Monroe, 1973) of “just noticeable difference” offers some theoretical justifi-
cation for this motivation.
3. Variety seeking may result in a higher-order process in which there is no purchase reinforce-
ment.
4. The authors thank an anonymous reviewer for this point.

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