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It means you should never mix price promotion effects and advertising effects into a single econometric modelling attempt to quantify the relative sales effects of advertising and price changes.
reach is more important than frequency of exposure; continuous
advertising is more effective than bursts followed by long gaps, because it counteracts memory decay.
'I will pay attention to this'. Therefore, the primary task of advertising agencies is to generate outstanding creative ideas that viewers will notice and will be willing to process over and over.
Emotion is a primary source of human motivation, and exerts substantial influence on attention, memory and behaviour;
Memory is the link between an ad and brand choice.
Remember consumers don’t see most things in store, and its terribly difficult for new brands to be seen, let alone understood. Advertising’s crucial role is in shaping people’s brains so that the brand can be seen.
Marketers need to understand the memory structures that have already been built for their brand. They need to use these, and ensure their advertising refreshes these structures.
factors driving purchase in the category)
persuasion (changing opinions) and mental availability
These other mechanisms include bond, status signals and priming, which are discussed below.
Corporate reputation advertising is a prime example. The
Price promotions have an immediate and positive effect on sales. But the effect does not last; it ends when the price discount ends. This
Most categories have price/quality tiers: the cheap/basic, no-added-frills level; the mainstream level; and the level of higher priced products that have added luxury or functionality.
What has been found is that a price promotion pulls in a large proportion of infrequent buyers (i.e. buyers who have a low propensity to buy a brand).
brands before, either on special or at normal price.
'reference price effect'.
The idea of a reference price is that 'past prices matter' and if consumers encounter a price above their reference price, this dampens their propensity to buy.
that price recognition is also rather poor.
In terms of deal spotting, approximately 50% of the time shoppers appear to be able to spot a 'good deal' for a particular brand based on being shown a (discounted) price for it.
consumers do seem to be aware of relativities between brands (i.e. X is usually more expensive than Y), rather than absolute price levels, and that comparison between available brands is more important.
So, will a temporary price promotion have negative after-effects for a brand? The answer is no, but repetitively doing it may have negative after-effects.
found that more frequent promotions result in heightened sensitivity to price among consumers, as well as slightly longer interpurchase times and slightly higher purchase quantities. That is, consumers learn to not only buy on deal, but to also buy a little more during the price promotion, which results in less frequent purchases.
average price elasticity of -2.3 across 26 categories, with almost all the price changes examined being for temporary promotions.
These results suggest that on average we can expect an increase in sales volume of approximately 25% from a 10% price cut.
show that price increases have a bigger effect on volume than cuts do – if we consider the sole effect of a price change, divorced from extra effects of signalling or in-store support.
This differential effect of price increases appears to be even more marked for private label brands: their downward price elasticity tends to be quite low (because they are already often cheaper), but if their price is put up, their sales loss is quite pronounced.
There are three other category characteristics that lead to larger price elasticities. These are (1) categories with fewer brands, (2) goods that consumers buy very regularly and (3) categories that can be stockpiled
If the contribution margin is low to begin with, a massive increase in sales is needed to break even. If the contribution margin is high, a price cut can earn more profit, even from a modest increase in sales. This is because every extra unit still carries enough contribution to pay for the price cut.
Empirical evidence suggests a trough can occur in sales after a promotion (Mace & Neslin 2004; van Heerde, Leeflang & Wittink 2000). If this happens, the promotion has borrowed some full-price, full-margin sales from the future; this dissipates its potential profitability. Managers should allow for this effect when evaluating promotions.
It is certainly true that in-store price promotions are highly targeted: they only reach the buyers who are in the market for that category in that week. It would therefore seem they should be very efficient. However, this targeting through price promotions is very expensive – 10% or 20% off the price of every item sold! Price cutting gives a lot away to people who would buy the brand anyway.
'end-of-aisle' display.
A commonly cited reason for manufacturers to run promotions is to please or placate the retailer.
Loyalty programs are still big business. One of the problems with large-scale consumer loyalty programs is that they are difficult for firms to exit from them.
So a loyalty program might or might not grow a brand’s share much but it should make that share be an unusual combination of penetration and loyalty.
As you have probably suspected, loyalty programs are good at recruiting existing buyers of a brand (both heavy and light category buyers) but lousy at recruiting heavy category buyers who are not current buyers of a brand.
Loyalty programs are not good at affecting loyalty. They are more suited to being used to build a database of consumers, creating a new channel to talk to consumers and a way of monitoring their buying in-store.
a mere 16% of viewers noticed the average commercial and correctly named the advertised brand.
Rather than working hard to find the best
product for us, we settle for something that we consider good or satisfactory. Some economists rightly point out that such behaviour is optimal, considering the full cost of gaining the necessary information to make a better buy. 87
This lack of evaluation and consideration of alternatives can occur even when a consumer is standing in front of a supermarket shelf that is filled with choices.
how to build mental availability.
The lesson is clear, physical and mental availability need to go hand in hand, advertising falls flat when the brand isn’t physically available, and brands sit on shelves when consumers don’t notice them.
Continuously reach all buyers of the brand's service/product category, with both physical distribution and marketing communication. 2.Ensure the brand is easy to buy. 3.Get noticed. Often. 4.Refresh and build brand-linked memory structures that make the brand easier to notice and buy. 5.Create distinctive communication assets.
Be consistent, yet fresh and interesting. 7.Stay competitive, keep up the mass appeal; don't give customers reasons not to buy the brand.
The potential longevity of brands is considerable. Compared with the lifespan of companies, or the professional lifespan of managers, brands seem immortal. The brands that have dominated for decades have done so by being consistent, not by repositioning.
large part of the art of advertising is telling the same story, over and over, but in new and entertaining ways (e.g. the hero saves the day and the bad guy loses).
branding, media strategy and distribution – there is a great deal of research, development and experimentation that needs to be done in these areas to improve marketing effectiveness.
NBD-Dirichlet model of brand choice and purchase rates (usually simply called 'the Dirichlet') developed by Gerald Goodhardt, Andrew Ehrenberg and Chris Chatfield (see Ehrenberg, Uncles Goodhardt, 2004; Goodhardt, Ehrenberg Chatfield, 1984).
The Dirichlet is 30 years old and has survived 30 years of testing. It is one of marketing science's greatest achievements; for more information, see www.MarketingScience.info.
