Essay On Sales Promotion

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Economic rationale of sales promotions
Price discrimination
From an economic perspective sales promotions are a form of price discrimination. Price discrimination occurs when the same seller charges different prices to buyers for the same quantity and quality of products or services (Monroe, 1990). In this line of reasoning price promotions are deemed to impose a form of price discrimination referred to as demand pricing. It is similarly defined as price discrimination, namely: “charging different market segments different prices for the same product or service” (Farris & Quelch, 1987).

Effects of demand pricing
Due to the implementation of sales promotions and thereby enforcing demand pricing has caused three significant effects in the retail landscape (Farris & Quelch, 1987). Sales promotions can first of all be considered as an instrument of segmentation. It enables the marketplace to be segmented on the basis of price and promotions sensitivities. The second effect follows this segmentation development and is characterized by supermarket chains creating new retail formats designed to attract particular segments according to their price and promotion sensitivity. Lastly, the media has adapted to demand pricing by developing specialized media aimed at targeting specific segments according to the sales promotion strategy.

The same authors argue however that there are also negative trends surrounding the implementation of sales promotions (Farris & Quelch, 1987). The first of these trends is the decrease in brand loyalty. A category within which there are many sales promotions present amongst different brands can contribute to this trend. This is especially true when products are relatively undifferentiated in which case the co...

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...osed intro cross-period effects and category-expansion effects (Van Heerde, Leeflang, & Wittink, 2004). Cross-period effects are comparable with the element of the gross lift that captures category sales shifted from future periods, also referred to as lead effects (Doyle & Saunders, 1985; Kalwani, Yim, Heikke, & Sugita, 1990; Gönül & Srinivasan, 1996; Van Heerde, Leeflang, & Wittink, 2000; Macé & Neslin, 2004). There is however the addition of lagged effects as consumers anticipate an upcoming sales promotion (Van Heerde, Leeflang, & Wittink, 2000). The category expansion element of primary demand effects consist of inreased consumption (Ailawadi, Harlam, César, & Trounce, 2006; Assuncao & Meyer, 1999), deal-to-deal purchasing (Krishna, 1994), category switching (Walters, 1991) and store switching (Bucklin & Lattin, 1992). A schematic overview is shown in Figure 2.

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