Magazines and promotions

Promotions work harder when accompanied by magazine advertising

In-store promotions can give an immediate boost to sales, sometimes quite dramatically - though the boost dies away almost as soon as the promotion has ended. Nevertheless “Sales Uncovered” (described earlier in section 23) has shown that promotions are more effective in the very short term when accompanied by magazine advertising.

In the “Sales Uncovered” analysis, for each advertiser who used promotions at all, the weeks during the magazine campaign period in which promotions occurred were examined.

In those weeks when there was promotional activity: among those not exposed to magazines the market share rose by 18.7% compared with the pre-campaign period. But among those exposed to magazines, market share rose by 25.7%. Thus magazine advertising was associated with an additional 7.0 % increase in share. Magazines make promotions work harder. (This conclusion was also reached by MMA, quoted at the end of the following sub-section.)

How profitable are promotions?

Promotions can certainly boost sales in the very short term, as demonstrated above. Yet in the long run they weaken the product’s branding. In addition they can often be shown to be unprofitable even in the short term. Two studies in the early 1990s, by Jones [102] and Ehrenberg [103], were particularly relevant because each covered many brands and because they examined the effect of promotional activity on both profits and long term buying behaviour.

Both studies found that promotions were bad if not disastrous for profits, and had no beneficial effect on long term sales or brand loyalty. Jones wrote in 1995 “the sales stimulus provided by promotions always succeeds in sucking profit out of a brand, despite its positive effect on short term volume” [104]. Abraham & Lodish used the IRI BehaviourScan panel to examine the marginal profitability of promotions, comparing promotions against a projected baseline derived from unpromoted periods.

They concluded [105] “Only 16% of trade promotion events were profitable based on their incremental sales of brands... For many of the promotions, the cost of selling an incremental dollar of sales was greater than one dollar!” – partly because consumers bring forward their purchases by stocking up during the promotion and thus do not need to buy at normal prices in the following period. Abraham & Lodish also found that promotions do not carry any benefits into subsequent periods as advertising does.

A large-scale Nielsen study called "Strategies of Successful Brands" [106] also concluded that sales promotion activity does not achieve brand building at all in the long term.

A 1996 analysis of the TNS Superpanel [107] reinforced this picture. It covered three major fmcg markets: instant coffee, machine wash products, and yellow fats. All purchase records for 1993 and 1995 were classified by whether the purchase was made at a normal price or a discounted price (including multibuys and free extra packs). Typically about 15% of consumers account for 60% of price-discounted purchasing. When change in market share from 1993 to 1995 was examined, it was found that in general price promotion had not been a successful strategy in growing a brand’s market share. Indeed the brands that increased their share during the two years were more likely to be brands that did not discount their prices.

Moreover very few discounting brands increased their sales to the extent necessary to make up for the loss in profit on each sale. Typically a 20% price reduction will reduce the manufacturer’s gross margin by more than half, so discounted sales need to more than double in order to make up lost profit; few brands achieved it. TNS’s conclusions were that promotions do not benefit long term sales, and usually they are not even profitable in the short term.

In 2001 Ehrenberg & Hammond reported on a fresh analysis [108]. They concluded that price promotions seldom attract new customers, lead to no extra subsequent sales, do not affect repeat-buying loyalty, seem to induce no deal-proneness, and reach relatively few people anyway. No wonder they subtitled their article “Why the true value of price promotions is virtually negligible”.

An econometric analysis conducted in 2001 by MMA for Magazine Publishers of America, “Measuring Magazine Effectiveness” [109, 110] (described in section 40), found that promotions were less sales-effective than above-the-line media, even in the short term. MMA divided their database of 186 brands into sixths according to their level of sales success. The most successful one-sixth of the brands, which had an average effectiveness index of 3.0, spent an average of 49% of their marketing budgets in media (TV, magazines and radio) and 51% on promotions and other non-media activities.

In contrast, the least successful one-sixth of brands, which had an average effectiveness index of only 0.3, spent only 25% in media, with 75% in promotions and other non-media activities. Media advertising evidently has a better pay-off than promotional and other expenditure.

MMA also pointed out [111] that media advertising (unlike promotions) may also produce long term benefits as well. In addition it can reduce price sensitivity among customers (making profit generation in the long term easier), and reduce the effectiveness of competitors’ promotions.

All this reinforces the case for switching money out of promotions and into conventional media. And since a mixed-media campaign of say television and magazines improves the efficiency of media advertising it doubly justifies larger budgets spent on above-the-line media - if necessary at the expense of below-the-line promotions.

A further analysis by MMA showed that if promotions are indeed used, the higher the proportion of expenditure allocated to magazines the higher the effectiveness of the promotions. For brands spending 0%-4% of their marketing budgets in magazines, promotions had an effectiveness index of 1.0. For brands spending 4%-10% in magazines, promotions’ effectiveness was higher at 1.4. The big jump occurred for brands spending 10%-61% in magazines; for them, the effectiveness of promotions was 2.4. Magazines not only make television work harder – they also make promotions work harder. This reinforces the evidence from “Sales Uncovered” quoted in the previous sub-section.