The Idea in Brief
The allure of brands is fading. Increasingly,
consumers would rather buy a generic product than its
pricier big-brand counterpart: From 2003 to 2005,
private-label market share jumped 13%.
To counter this trend, big brands are
increasingly 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'
unwillingness to pay a premium for your brands. If
promotions are backfiring, invest in
advertising, new-product development, and new
distribution strategies—strategies that enhance short-
and long-term sales.
The Idea in Practice
To protect your brand equity, Lodish and Mela
offer these guidelines:
Understand How Short-Term Focus Weakens Your
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 marketing
strategies with longer-term impact—such as advertising,
new product introductions, and increased distribution.
Yet these other tactics have a more positive effect on
long-term sales than promotions do. For example, 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
quarterly sales performance to value firms and advise
clients. So managers are rewarded for delivering
Construct a Long-View Dashboard
Monitor your brand's long-term health by tracking
what a product's sales would be at a constant,
nondiscounted price over months, quarters, and
price promotions. A jump in buyers' price and
promotion sensitivity reflects a decrease in the
price premium your brand can command.
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
Make marketing decisions that protect your
When General Mills acquired Lacoste, it lowered the price
on the alligator-adorned tennis shirts 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%.
- Purchase the full-length Harvard Business Review article here.
- Visit Harvard Business Online.
- See more on Strategy & Execution at HBR Online.
Copyright © 2007 Harvard Business School Publishing Corporation. All rights reserved.
Harvard Business Review
by Thomas H. Davenport
To sustain your brand, you need to gather
reliable long-term data and analyze it in new ways.
Davenport explains how leading companies 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
marketing 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.
Harvard Business Review
by Kirthi Kalyanam and Monte Zweben
The authors recommend another way to combat
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 interactions) 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 relative 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 marketing messages for each customer's
situation. 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.