Special Session Summary Monetary Promotions Vs. Non-Monetary Promotions, Which Is More Effective?

France Leclerc, University of Chicago
[ to cite ]:
France Leclerc (1997) ,"Special Session Summary Monetary Promotions Vs. Non-Monetary Promotions, Which Is More Effective?", in NA - Advances in Consumer Research Volume 24, eds. Merrie Brucks and Deborah J. MacInnis, Provo, UT : Association for Consumer Research, Pages: 220-221.

Advances in Consumer Research Volume 24, 1997      Pages 220-221

SPECIAL SESSION SUMMARY

MONETARY PROMOTIONS VS. NON-MONETARY PROMOTIONS, WHICH IS MORE EFFECTIVE?

France Leclerc, University of Chicago

SESSION OVERVIEW

Over the past decade, marketers have steadily allocated almost 30% of their marketing budget on consumer promotions, an allocation that was roughly equivalent to advertising expenditures in 1993 (Donnelley 1994). As a marketing tool, the primary objective of consumer promotions is to create an immediate sale by offering consumers an extra incentive to buy the product. This incentive can be monetary (such as price-off, cents-off coupons, rebates) or non-monetary (such as premiums, sweepstakes, sampling) or a combination of both (cents-off coupons with a premium). It is generally believed that 1) monetary incentives are more effective than non-monetary ones; 2) the fewer constraints around the incentives, the better it is from a consumer perspective and 3) non-monetary incentives are more franchise building than monetary incentives. These beliefs, however, haven’t been tested empirically. The purpose of this session was 1) to test these premises and; 2) to propose some new theoretical ways to think about what makes a consumer promotion effective.

SUMMARY OF INDIVIDUAL PAPERS

 

"THE EFFECTS OF PRICE VS. SAMPLING PROMOTIONS ON SHORT-TERM SALES AND BRAND LOYALTY"

Karen Gedenk, University of Kiel

Scott A. Neslin, Dartmouth College

The question addressed by this research is how price and non-price promotions differ in their short-term effects on sales and their long-term effects on brandloyalty. Economic utility theory predicts a positive short-term effect for both types of promotions, which should be stronger for price than for non-price promotions. The effect of promotion on brand loyalty, however, is not that easy to predict. According to behavioral learning theory (Rothschild, Gaidis 1981) and self-perception theory (Dodson, Tybout, Sternthal 1978) buying on promotion may enhance, detract, or have no effect on brand loyalty compared to non-promotion purchasing. Whatever the direction, however, price promotions should be less favorable than non-price promotions because, in the language of behavioral learning theory, price promotions are more likely to become primary reinforcement, or in the language of self-perception theory, price promotions are more likely to be attributed by the consumers as the reason they buy the brand. In summary then, the authors hypothesize that price promotions are more favorable than non-price promotions in the short term while being less favorable in the long term.

To measure the short and long-term effects of promotions, Gedenk and Neslin use a logit model of brand choice where purchase probability is a function of price, price promotions, non-price promotions and brand loyalty. Brand loyalty is modeled as an exponentially smoothed average of past purchases (Guadagni, Little 1983). The long-term effects of promotions are captured by an augmentation of the Guadagni/Little brand loyalty model in which the build-up and decay of brand loyalty over time depend on the promotion status of a household’s purchases. The model is estimated with scanner panel data from the German market for mineral water and the yogurt market in the US. Non-price promotions investigated are features, displays, and in-store sampling.

Results indicate that, in accordance with the hypotheses, price promotions are slightly more effective in the short term than non-price promotions. In the long term, however, price promotions are less favorable. They are associated with lower brand loyalty compared to non-promotion purchases, while non-price promotions have either no effect on brand loyalty or a slightly positive effect. A two-period simulation show that the magnitude of the effects is managerially meaningful.

 

"A PENNY SAVED IS NOT A PENNY EARNED: RESPONSES TO DIFFERENT TYPES OF PROMOTIONS"

Sue O’Curry, DePaul University

Using experiments, O’Curry shows that not all price promotions are equivalent and more importantly that factors other than the magnitude of the deal affect consumer preferences for a type of promotions. From a normative perspective, consumers would be expected to prefer price cuts to all other forms of promotion because the savings are immediate, completely fungible and there are no transaction costs. O’Curry conducted a series of five studies to explore the effects of time delay, transaction costs and fungibility on preference for promotions. One study demonstrated that in some cases, consumers are happier with non-fungible promotional premiums to cash savings, even though cash savings, rebates, and gift certificates were all perceived to be a better deal than premiums.

Three studies examined the impact of time delay, time to realize savings relative to purchase, and constrained fungibility on preferences between promotions, using a forced-choice paradigm. The results indicate that a majority of subjects preferred an in-store coupon to a completely fungible cash rebate at delays of one, three, and six weeks. Similarly, the majority of subjects preferred a gift certificate to a rebate at three weeks. Time to realize savings relative to purchase appeared not to be a significant factor when high transaction costs and absolute time delays were equal. Only when fungibility constraints were explicitly spelled out did a majority of subjects choose a rebate over an in-store coupon. Even with these constraints made explicit, half of subjects preferred a gift certificate to a rebate.

The last study looked at the implied discount rate for rebats by asking subjects to generate amounts that would make price cuts, rebates, and coupons equivalent in value. Discount rates for rebates ranged from 34% to 230,667%, with smaller amounts being discounted at higher rates.

Taken together, the results indicate that consumers are not thinking about money saved with promotions as "real" money.

 

"THE EFFECT OF ECONOMIC APPEAL IN FSIS ON ATTITUDES TOWARD THE PROMOTED BRAND, PROPENSITY TO CLIP AND COUPON EFFICIENCY"

France Leclerc, University of Chicago

John D.C. Little, MIT Sloan School of Management

In this paper, Leclerc and Little investigate whether the short-term effects of price promotions vary as a function of whether a price promotion (cents-off coupons) is reinforced in the print ad component of the coupon (save $0.50 on your next purchase), or combined with some brand-related information (reminder of the brand benefits, suggestions for use, etc..).

In previous work, Leclerc and Little (1996) have shown that advertising executional cues in the print ad component of an FSI can affect attitude toward the promoted brand, and coupon efficiency. Furthermore, they have shown that the effect of executional cues is a function of brand loyalty. More specifically, for brand switchers, an information-oriented ad generated higher attitude toward the promoted brand than an advertisement featuring an attractive picture. Alternatively, for loyal customers, an advertisement featuring an attractive picture generated higher attitude toward the promoted brand than an information-oriented ad. Leclerc and Little have proposed that this differential effect of executional cues was due to the fact that brand switchers are more motivated to process information than loyal customers.

In the current work, the use of an Economic appeal ("Save") was contrasted to the use of a Brand appeal. Based on the work previously reported, it was hypothesized that for loyal customers, an Economic Appeal and a Brand Appeal would have the same impact on attitude toward the promoted brand and coupon clipping. For switchers, on the other hand, given their higher motivation to process information, a Brand appeal should generate higher attitude toward the brand and higher propensity to clip than an Economic Appeal.

In a laboratory experiment, using a real brand, it was found that the effect of these two types of appeals vary as a function of the degree of brand switching as expected. For loyals, the Economic Appeal and the Brand Appeal had the same effect on attitude toward the promoted brand and on propensity to clip. For switchers, however, a Brand Appeal was more effective than an Economic Appeal. Furthermore, in a cross-sectional analysis of coupon events using IRI effectiveness measures, the authors found that when the coupon ad is used primarily to reinforce the price deal (e.g., Save $0.50 by using this coupon), it has a negative effect on incremental sales.

To summarize, if a price promotion is used, providing information about the brand has a more positive impact on switchers than providing a reminder of the money saved by using the coupon.

DISCUSSION SUMMARY

Linda Stone, from University of Minnesota was the discussion leader. After summarizing the main contributions of the session, she suggested the three following directions for future research: 1) The process that underlies price promotions’ negative impact on loyalty (self-perception theory, attribution theory, behavioral learning theory) is still unclear. 2) Response to price versus non-price promotion seem to be governed by different mechanisms. What are they and how can managers make use of the information? and 3) Consumers have distinct preferences for different types of promotion. Do these preferences correspond to promotion effectiveness/profitability?

REFERENCES

Dodson, Joe A., Alice M. Tybout and Brian Sternthal (1978): Impact of Deals and Deal Retraction on Brand Switching, Journal of Marketing Research, 15 (February), 72-81

Guadagni, Peter M. and John D. C. Little (1983): A Logit Model of Brand Choice Calibrated on Scanner Data, Marketing Science, 2 (Summer), 203-38

Leclerc, France and John D.C. Little (1996): Can Advertising Copy Make FSI Coupons More Effective? Working Paper. University of Chicago.

Rothschild, Michael L. and William C. Gaidis (1981): Behavioral Learning Theory: Its Relevance to Marketing and Promotions, Journal of Marketing, 45 (Spring), 70-8

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