The Difficulty of Developing Profitable and Unique Sales Promotions

A Universitiy of Houston professor, Betsy Gelb, and two of her doctoral candidate students, Demetra Andrews and Son K. Lam, set off to provide a most intriguing hypotehesis – sales promotions that are easy for consumer to adopt but difficult for competitors to imitate, would be disproportionately profitable.

The development and discussion of this hypothesis is reported in the MIT Sloan Management Review May 15, 2007, online exclusive article entitled “A Strategic Perspective on Sales Promotion.”

The authors point out that a key problem with sales promotions is they can’t be legally protected like trademarks and at the same time they are easily imitated. What makes this situation so frustrating is that sales promotion activity currently absorbs 31 percent of marketing budgets.

Example: GM Promotion

They cite as an example the General Motors promotion – “you pay what we (employees) pay” promotion that came out in the summer of 2005. After only five weeks, both Chrysler and Ford replicated the promotion. The authors cite that analysts estimate the promotion cost GM about $5,000 per vehicle sold before it was ended in September, 2005. The authors report that this promotion was a contributor to GM’s North America operations loss of $4 billion during the first nine months of 2005. The year 2005 was marked by a 4 percent decline in sales and a 50 percent decline in GM’s stock value.

“The unhappy outcomes for GM – and similar ones for imitators Daimler-Chrysler and Ford – illustrate the negative consequence of easy-to-copy promotions, but this example is hardly unique,” write Gelb/Andrews/Lam. “An analysis of 20 years of research evaluating sales promotions indicates that most such promotions do not pay off, and even studies painting a happier picture find no more than 60 percent earning back their costs.”

Successful Unique Promotions

In contrast, Gelb/Andrews/Lam point out two unique General Motors’ sales promotions that delivered successful results.

The first was the Pontiac’s use of an episode of the Donald Trump “Apprentice” series where teams competed to produce brochures for the 2006 Pontiac Solstice, a new compact convertible. Viewers were brought into this promotion by being offered an early chance to purchase the Solstice, and with ties to supplementary Web promotions. Pontiac ended up pre-selling more than 7,000 cars and quickly became the market share leader in the compact convertible category.

A second unique promotion involved Cadillac’s Super Bowl advertising touting the ability of its V-series cars to hit 60 miles per hour in less than 5 seconds. Cadillac developed a special Web site promoting a “Five Second Film Competition,” and invited participant visitors to shoot and upload a five-second film on any topic. More than 2.5 million consumers visited the Web page and some 2,600 submitted entry films. According to Gelb/Andrews/Lam, “Cadillac reported in its award-winning “Reggie” entry that in the four months following the promotion, sales of the Cadillac V-series jumped by 25 percent.”

Gelb/Andrews/Lam further write: “Any sales promotion worth its salt will increase sales, but creating a profitable promotion is more difficult.”

Features of Successful Promotions

The authors then present what they believe are the three key features inherent to successful promotions:

It provides the sponsor with a period of exclusivity because it precludes or delays imitations but encourages quick buyer response. They write: “This criterion is the most critical in avoiding promotional losses. Difficulty of imitation may occur either because of a unique association of the promotion with its sponsor or because some hard-to-duplicate resource makes imitation difficult. Quick buyer response is encouraged by a promotion that is simple to understand, ideally with informative elements or emotionally appealing components of both.”

It does not rely on discounting alone, but communicates something about the company, the brand, or the specific goods or services offered. Gelb/Andrews/Lam write: “It informs potential purchasers or creates an emotional bond, even if the message connecting the brand to the potential buyer is conveyed indirectly.”

It is launched by companies that have some differential advantage in the marketplace already. “Sales promotions don’t create that advantage as much as they exploit it,” according to Gelb/Andrews/Lam.