That's because building a premium brand and meeting short-term sales objective are often at odds. A premium brand brings along the benefit of equity that allows companies to charge a premium price while providing insulation from competitors. But equity doesn't come overnight; it requires an investment in brand-building activities over a long period of time and many companies just don't have the patience to wait or are unwilling to invest.
As pressure continues to mount from shareholders and senior management to "make the numbers," marketers may surrender to the quick fix of promotion-driven marketing. The result is the downward spiral of eroding brand equity and the creation of a consumer base that is trained to buy on deal and extremely price-sensitive.
For many brands, not promoting is not an option, but there is an opportunity to optimize promotional cadence and better manage discounts. The key is striking a balance between brand building and discounting/promotion. Enter price elasticity analysis.
This form of statistical analysis allows you to understand the optimal price points for your products, the ideal price gap between your brands and that of competitor brands, and the optimal promotional cadence required to achieve sales goals. Leading companies today are doing price elasticity analysis to answer questions such as:
For example, one Fortune 500 retailer was caught up in the trend of constantly placing entire categories of products on deal. What this retailer found was its consumers were not as price sensitive as it might have thought. It discovered that it didn't need to price promote all items equally in a category, and it didn't need to promote as often as in the past.
This retailer was able to reduce the number of promotions for key products within a category during the back half of the year and use those dollars to fund incremental brand-building activities. As a result, the retailer was able to maintain sales, improve its margin during this period and invest in the long-term health of its brand.
This analytical approach can be used to help many companies to:
Rishi Bhandari and Doug Brooks are vice presidents of Marketing Management Analytics.