Exhibit 17.6 Sales of a major brand reflecting the impact of promotions.
The world of promotions can be a
double-edged sword, with both benefits and drawbacks. Recurring promotions encourage
consumers to lie in wait for attractive deals and maintain high pantry stock.
Highly attractive promotions entice consumers to stockpile for future
consumption resulting in post promotion losses — i.e., dip in baseline or
regular sales in the weeks immediately succeeding the promotions.
Baseline sales are also affected by the intensity of
promotional activities. For instance, reflected in
Exhibit 17.6 is a declining trend in the baseline as the
intensity of promotions increases over the course of the year.
Losses on account of cannibalization compel competing
brands to strike back. As competitors get drawn into the battle ground of
promotions, brands retaliate in quick succession creating commotion in
the marketplace.
The growing incidence of promotions heightens
their awareness in people’s minds and induces brand switching. The resulting
erosion of brand loyalty leads to the demotion of brands. And as brands
vitiate, the market heads towards commoditization.
Theoretically if no brand promotes it is a “win-win”. In reality however
new brands need to promote to induce trial, and established brands promote to
continue to attract new or lapsed consumers as well as retain and reward
existing consumers. If they do not promote, they land on the “lose” side of the
fence in a “win-lose”
situation. And so, the vicious cycle of promotion–commotion–demotion becomes the
reality of a competitive marketplace.
