Sales promotions include a variety of price discounts used to entice customers to buy products or services immediately. As with other types of advertising, a business must understand the needs of targeted customers to succeed in attracting buyers and generating sales. Additionally, a company needs to weigh the lure of promotional discounts against the need to develop long-term profitability.
A primary driver of sales promotions is the need to attract customers in the midst of a competitive marketplace. If 10 or more companies all present basic ads explaining what makes their brands superior, only a few will usually succeed at convincing customers to pay attention. However, price-off deals, coupons, buy-one-get-one deals and rebates all may attract the attention of price-conscious customers looking for the best value.
Understanding Value Proposition
When customers buy, they do so to address a functional or emotional need. People buy food to satisfy hunger or a television to satisfy a desire for entertainment. In trying to address a particular need, a customer typically looks for the best value proposition, which is the comparison of a product's benefits to its price. Companies that have the best quality, best service, organic or nutritional value or all-in-one solution can often focus heavily on their distinct attributes to convey value. When customers are skeptical, though, a sales promotion that reduces the price relative to competing options can also swing the scales of value in favor or a particular brand.
Removing the Risk
Whenever a customer opens his wallet to make a purchase, he takes on a risk. In general, the risk is that the product or service underdelivers and he wasted his money. Sales promotions are often intended to minimize or remove the risks. Some companies offer free trials or product samples to let customers experience a brand to see if they like it. Steep discounts and coupons also reduce the risks by minimizing the cash outflow for the customer. The less expensive the product or the more significant the discount, the more willing a buyer is to give it a try.
Understanding customer needs and interests is also helpful in avoiding risks of excessive sales promotions. If you regularly discount products, customers become price-oriented and their need for a great bargain may prohibit their willingness to buy the goods at its regular price. This hurts long-term profitability. Additionally, customers seek a hassle-free experience. Sales promotions sometimes lead to mistakes where products ring up at the regular price, frustrating customers.
Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.