Nerd Alert: Do Discounts Damage Brands? The Truth About Price Promotions

Summary

Podcast Summary: The Marketing Architects – Episode: "Nerd Alert: Do Discounts Damage Brands? The Truth About Price Promotions"

Release Date: April 24, 2025
Host: Alena Jasper & Rob Demar
Title: Nerd Alert: Do Discounts Damage Brands? The Truth About Price Promotions

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Introduction to Price Promotions

In this episode of The Marketing Architects, hosts Alena Jasper and Rob Demar delve into the intricate dynamics of price promotions and their long-term effects on brand health. Alena introduces the central study discussed in the episode, titled "The Long Term Effects of Price Promotions on Category Incidents, Brand Choice, and Purchase Quantity" by Kuhn Powell and Dominique Hansens. This research evaluates whether temporary discounts foster lasting consumer behavior changes or merely induce fleeting sales spikes.

Understanding the Study: Categories and Metrics

Alena outlines the study's focus on two distinct grocery categories: soup and yogurt. These categories were chosen due to their differing purchase dynamics—soup being storable and often bought in bulk, while yogurt is perishable and typically purchased more frequently. The study measures three key aspects of brand sales:

1. Category Incidents: The number of consumers purchasing within the category.
2. Brand Choice: The selection frequency of a specific brand.
3. Purchase Quantity: The volume of products bought.

The promotional effects were analyzed across three time frames:

• Immediate Effects: During the promotion period.
• Adjustment Effects: The weeks following the promotion.
• Permanent Effects: Long-term impacts post-promotion.

Notable Quote:

Alena Jasper [01:04]: "This paper is about price promotions and how they impact your brand in the long run."

Discussion: Soup vs. Yogurt Performance

Rob and Alena engage in a light-hearted prediction game regarding which category—soup or yogurt—would perform better during promotions. Rob opts for yogurt, attributing his choice to its perishability and the inherent urgency it creates.

Notable Quote:

Rob Demar [01:29]: "I have no idea why, but I'm gonna say yogurt because it's perishable. So there's like urgency baked into the product." [02:29]

Alena reveals that soup actually outperformed yogurt during promotions by driving more consumers into the category and increasing purchase quantities. Conversely, yogurt experienced more brand switching, but these effects were short-lived and did not result in lasting gains.

Key Findings: Short-Term Boosts vs. Long-Term Impact

The study highlights that while promotions generate immediate sales increases, their influence wanes swiftly—within two weeks—for both categories. The primary driver for the sales spike is brand switching, where consumers try the promoted brand rather than increasing overall spending or entering the category anew. However, this often leads to decreased brand loyalty post-promotion.

Notable Quote:

Alena Jasper [04:00]: "Promotions... don't tend to permanently change buying behavior, even with stockpiling." [03:00]

Furthermore, the study uncovers that the most resilient long-term effect of promotions is on category incidents, indicating that promotions are more effective at expanding the overall category rather than enhancing the market share of individual brands.

Implications for Retailers vs. Brands

Alena emphasizes that retailers aiming for category growth may find promotions more beneficial compared to brands seeking to build loyalty. Retail giants like Walmart can leverage promotions to attract more consumers into the store and increase overall sales volume. In contrast, individual brands may struggle to cultivate lasting customer loyalty through temporary discounts.

Promotions in Premium and High-Involvement Categories

Rob introduces a nuanced discussion on the use of promotions in premium and high-involvement categories, such as luxury goods or significant purchases like cars and mattresses.

Notable Quote:

Rob Demar [05:01]: "In a lot of luxury goods, it really cheapens the brand." [05:01]

Alena concurs, noting that premium brands risk diminishing their perceived value when they engage in frequent discounting—a phenomenon often referred to as the "discount doom loop." Once a premium brand starts offering discounts, it can become challenging to revert to maintaining premium pricing without eroding brand prestige.

Notable Quote:

Alena Jasper [05:50]: "That's where we hear like the discount doom loop... stuck always lowering your price." [06:01]

Exceptions: Private Labels and Store Brands

Interestingly, the study identifies private labels or store brands as exceptions to the general trend that promotions do not build loyalty. Unlike established national brands, private labels that offer promotions retain more new customers post-promotion, provided the product meets quality expectations. This suggests that for unfamiliar brands, promotions can act as a trial mechanism, lowering the barrier for consumers to try new products and potentially fostering long-term loyalty if the experience is positive.

Notable Quote:

Alena Jasper [07:49]: "Promotions give you short term sales boosts but rarely long term benefits unless you're a private label introducing yourself to new customers." [07:49]

Strategic Use of Promotions in Marketing

The hosts discuss strategic considerations for utilizing promotions effectively:

• For New Brands: Promotions can be instrumental in introducing the brand to a wide audience and encouraging trial purchases that may convert to loyal customers.

  Notable Quote:

  Alena Jasper [08:38]: "If you're a brand new brand, this could help people in your category like switch over and try you and stay." [08:38]

• For Established Brands: Brands with strong recognition need to weigh the risks of eroding loyalty against the benefits of short-term sales spikes. Continuous discounting can undermine brand prestige and customer loyalty.

• Alternative Offers: Beyond price reductions, brands can explore value-added offers such as free information kits, free shipping, or complimentary services that encourage customer action without devaluing the brand.

  Notable Quote:

  Rob Demar [10:19]: "If your offer is something around free information that adds real value to the customer... that can get someone to act that aren't necessarily going to punish your brand or punish your bottom line." [10:19]

Alena adds that these alternative offers can provide immediate incentives without the negative long-term consequences associated with price discounts.

Concluding Insights and Takeaways

Alena wraps up the discussion by summarizing the primary insights:

• Short-Term Gains: Promotions are effective for achieving immediate sales increases and expanding category incidents.

• Long-Term Impact: Promotions seldom foster sustained changes in consumer behavior or brand loyalty, particularly for established national brands.

• Strategic Application: Promotions are most advantageous when used by new or private label brands aiming to induce trial and adoption.

• Brand Protection: Premium and high-involvement brands should exercise caution with promotions to preserve brand integrity and prevent the discount doom loop.

Metaphor for Price Promotions:

Alena Jasper [11:44]: "Price promotions are like cramming for a test... you just got a spike in performance that fades fast." [11:44]

Final Thoughts

The episode concludes with actionable advice for marketers:

• Use Promotions Judiciously: Tailor promotional strategies based on brand maturity, category dynamics, and long-term brand objectives.

• Explore Alternative Incentives: Consider non-price-related offers to drive customer action without compromising brand value.

• Monitor Promotion Effects: Continuously assess the impact of promotions on both short-term sales and long-term brand health to inform future marketing strategies.

Notable Quote:

Rob Demar [11:01]: "There’s all sorts of offers that don’t necessarily punish your brand or your bottom line." [11:01]

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• LinkedIn: Marketing Architects
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Special Thanks:
Taylor Delos Reyes for producing the show.

Closing Remark:
"Now go forth and build great marketing." – Marketing Architects

Transcript

[Rob Demar]

Nerd Alert. Learning is important, right?

[Alena Jasper]

Yes, exactly. What a bunch of nerds.

[Rob Demar]

Nerd alert.

[Alena Jasper]

That's right. Marketing Architects. Hello and welcome to the Marketing Architects, a research first podcast dedicated to answering your toughest marketing questions. I'm Alena Jasper. I run the marketing team here at Marketing Architects. And I'm joined by my co host. Rob Demar is the chief product architect of misfits and machines.

[Rob Demar]

Hello, Elena.

[Alena Jasper]

Hello. We are back with your weekly Nerd Alert. Every week I'll take a deep dive into academic marketing research and translate its complex ideas into simple and understandable language for Rob and of course, for all of you. Are you ready to nerd out, Rob?

[Rob Demar]

My propeller head hat is well oiled and ready for takeoff. Elena.

[Alena Jasper]

All right, let's do it. As always, we'll link the research we cover in the episode notes. This week I read a study titled the long term effects of Price Promotions on Category Incidents, Brand choice and Purchase quantity. This is by Kuhn Powells and Dominique Hansens. But before I get into things, Rob, I wanted to ask you this. How do you feel about temporary discounts, you know, sales price promotions as a marketing strategy?

[Rob Demar]

Well, as a consumer, I love them. I mean, especially when it involves pizza and fish sandwiches at McDonald's. The two for one. Fantastic. As a marketer, I think they're interesting, I think they're powerful. I don't think there's a one size fits all use case for them, but they're, it's a, it's definitely a lever to be respected.

[Alena Jasper]

Yeah, I would agree with that. So this paper, this is going to be more about like price promotions and how that's going to impact your brand in the long run. So they want to understand whether price promotions as like temporary discounts, do they do anything beyond creating a sales spike? Because clearly, as you just said, when you see that McDonald's promotion, you're going there. We know that they can create a temporary sales spike, but do they change consumer habits in like a meaningful, lasting way? And to answer that, they looked at two common grocery categories with very different dynamics. The first was soup, which is storable, it's often bought in bulk. And the second was yogurt, which is perishable and typically bought more frequently. And they measured three parts of a brand sales. The first was category incidents, so that's how many people bought in the category at all. Then brand choice, how many chose your brand and purchase quantity, how much they bought. Then they broke the promotional effect into three time frames, immediate effects during the sale, adjustment effects the weeks right after and permanent effects. And that's what sticks over time. So, Rob, what category do you think performed better during the promotion? Soup or yogurt?

[Rob Demar]

I have no idea why, but I'm gonna say yogurt because it's perishable. So there's like urgency baked into the product. But that has no bearing on really any rational thought for why. So I'm just gonna go out and say yogurt.

[Alena Jasper]

Okay, so this was kind of a trick question. So you're, you're sort of right and sort of wrong, which is classic.

[Rob Demar]

That's my life.

[Alena Jasper]

The answer is that during promotions, soup outperformed yogurt overall. It drove more people into the category, and it raised their purchase quantity. Yogurt saw more brand switching, although those effects were shorter lived and didn't translate into lasting gains. So if your goal was overall volume and broader reach, then soup won. But if you want to steal share, yogurt looked better at first, but those gains faded faster. But let's make sure this is clear before we move forward. Promotions, they work in the short term. During the promotion, your sales go up. There's no surprise there. People buy more, they switch brands, and they stock up. Even yogurt, something you can't really stockpile, they see that big sales bump during promotions. But those effects, they fade quickly across both categories. The sales impact mostly disappeared within two weeks. So promotions, they don't tend to permanently change buying behavior, even with stockpiling. Consumers just reduce their future purchases until they catch up. So the biggest immediate driver of promotion sales is brand switching. So the majority of your gains when you do a promotion, they come from people trying the promoted brand rather than buying more overall or entering the category for the first time. And brand choice is also the most likely to decline afterward, meaning you may actually hurt your loyalty in the process. And the lasting value of promotions, it might be kind of surprising. The component with the most resilient long term effect, it wasn't brand choice, it wasn't quantity, it was category incidents, which means promotions, they're better at getting more people to buy something in the category rather than helping any one brand win long term. So that's the big implications. It means that retailers who want category growth, like a grocery store, target, Walmart, they may benefit more from promotions than the brands themselves who want to build loyalty to, like, just their specific brand. So this study, it focuses on soup and yogurt, which are two distinct categories. You know, soups, that's storable, low frequency purchase. Yogurt's perishable, high frequency. This doesn't cover all categories. So Rob, how do you think that price promotion success, do you think it differs in more premium sort of high involvement categories?

[Rob Demar]

Yeah, I think in a lot of luxury goods it really cheapens the brand. And I've heard anecdotally the stories of brands that will actually like destroy their product before they'll discount it because they just feel like that's they need to protect their premium image, their premium pricing. I think you can feel that sometimes too when you go to like a discount retailer, like a TJ Maxx and there's some premium brands that are there, it just really kind of takes the wind out of their sales. So I think that for the most part, my guess is that it hurts premium brands. What do you mean by high involvement categories?

[Alena Jasper]

Yeah, I would say I would imagine like buying a car is a high or a mattress. Like you're taking time to think about the purchase. You're not usually just going in and making a quick, like a quick purchase.

[Rob Demar]

I don't know, I feel like with a high involvement purchase it could play an important role potentially. But with a premium brand where you're just trying to protect the prestige, I feel like it would hurt it.

[Alena Jasper]

Yeah. So what I was able to find, so this study, they didn't get into that obviously. Cause they were focused on soup and yogurt. But for premium brands you're totally right. The concern is the negative impacts it's gonna have on your brand perception and long term profitability. That's where we hear like the discount doom loop. Like once you start discounting as a premium brand, it's hard to get out of that. Like how are you not stuck always lowering your price? It would be very interesting to look into like high involvement versus low involvement though I didn't look into that in particular. So this study, like I said, it only focuses on soup and yogurt. But they did find some exceptions to the rule. So the overall takeaway from this study is that promotions don't build loyalty. So that's true. Most of the time people switch brands for a deal and then they switch back when it's over. That's especially true for established national brands. So ones that people already know, they're especially susceptible to that happening to them. But there is an exception which are private labels or store brands. They actually retained more of their new customers after a promotion than the national brands did when they ran this study to contradict the broader promotions hurt loyalty idea. But there's nuance. It's not about loyalty being built, it's about trial leading to stickiness. So for brands people already buy and like a promotion, it just attracts those deal seekers so they'll take the discount and then they'll leave. That's disloyal switching. But for private labels or unfamiliar brands, a promotion acts as sort of a trial opportunity. So if the product is good enough, people may not switch back afterward. So it's not loyalty being built through the promotion, it's that the barrier to trying something new was price. And once people try, they stick. So the big lesson is that promotions give you short term sales boosts but rarely long term benefits unless you're a private label introducing yourself to new customers. So I think it's fair to say price promotions are most beneficial but and least risky when your brand is unfamiliar to the shopper.

[Rob Demar]

Yeah, that makes a lot of sense. If I'm a yogurt and I'm going to come out with hamburger flavored yogurt, that sounds pretty nasty. But if I highly discount it in the beginning to get people to try it and they're like wow, I can't believe it. Hamburger yogurt's actually delicious. You know, you've inspired that trial. But yeah, if you're a long term staple brand, makes sense. That can ultimately not produce the same level of benefit.

[Alena Jasper]

Yeah. Cause people are probably already familiar with you and your brands. Yeah. They're going just for the low price and then they'll go back. This reminds me of we've launched quite a few brands onto TV that are relatively unknown. And I know that we've had success sometimes using some sort of offer for them. And that makes a lot of sense why that works. Because especially when you go on something like tv, you're reaching a ton of people that have never heard of your brand before.

[Rob Demar]

Totally.

[Alena Jasper]

So if you're like a brand new brand, this could help people in your category like switch over and try you and stay. But if you're already well known, if you've been on TV for years, it's. You have to kind of weigh the risks and rewards to it.

[Rob Demar]

Yeah. I would argue a little bit of a contrarian point of view when it comes to television. I think offer can be underutilized lever on television because you don't tend to see offer being used a lot yet it's a great way to when you're in those moments when you're a new product and you're trying to produce trial or if you're trying to measure the potential success of that ad in a period of time where you can potentially ab test creative using an offer that will inspire that near term response that you might be trying to measure. I think there's powerful use cases still for offer but I think sometimes it gets a little bit of a bad rap when it comes to oh, it hurts your brand. Totally true. I believe all the things in the study but I also think done well it can be a really inspiring tool to have in your toolbox.

[Alena Jasper]

Yeah. Especially if you're trying to grow and like I think I agree with you with tv. I think it can be an exception because tv, first of all, it's so great with reaching new audiences. So it is often introducing your brand to a new audience. And you're right, it's hard enough to measure as is and it's an isolated incidence of a promotion. I think that you start to see brands where like they're constantly discounting and that's where like you probably really need to be careful because you're having these short term gains. But in the long term you could actually be hurting your loyalty if you're always, always discounting.

[Rob Demar]

Right. I think the other opportunity to discuss with your marketing team is what is offer? How do you define offer? So if you're a package good company and you're offering a 20% discount, well that's a real dollars and cents offer that you have to budget for. But if your offer is something around free information that adds real value to the customer, that's a great offer. That's a reason for someone to act now or, or a free quote or things that are just part of your value proposition already, like free shipping, things like that that are worth talking about, that can get someone to act that aren't necessarily going to punish your brand or punish your bottom line.

[Alena Jasper]

That's a really good point and good nuance too because this study was just looking at price promotions. So they're not. I know we've had success with clients offering like free information kits and things like that. Nothing to do with cheapening your product or lowering your price. You're right, there's other options for offers. These are just like purely looking at discounting your price and what that does the quick. I wanted to share the rob GPT because it's kind of fun. Price promotions are like cramming for a test. You pull an all nighter load up on Red Bull and maybe ace the quiz the next day. But you didn't actually learn the material. You didn't build understanding. You just got a spike in performance that fades fast. That's what most promotions do. They give you a nice looking sales curve for the week. But once the deal ends, everything goes back to normal.

[Rob Demar]

Thank you for also defining my education history in in college and high school.

[Alena Jasper]

And I was going to say that might work out fine for certain people. That's it for this episode of the Marketing Architects. We'd like to thank Taylor Delos Reyes for producing the show. You can connect with us on LinkedIn and if you like the podcast, please leave us a review. Now go forth and build great marketing Marketing Architects.