Business Management Blog

Betsy Gelb, Demetra Andrews and Son K. Lam argue that while most managers would think long and hard before bringing to market a product that lacked patent protection and could be easily imitated, many invest in sales promotions that are easier to imitate than the simplest new product.

Others sign off on plans so generic that they seem unrelated to the brand or company offering them, despite the fact that sales promotions may absorb a significant portion of a company’s promotional dollars and they are increasingly being used for both packaged goods and consumer durables as concern has grown about the cost effectiveness of media advertising.

Deterring Imitation but Attracting Buyers Quickly

An easily imitated promotion can result in a lose-lose outcome both for the originating company and for its imitators. Imitation can not only reduce profitability — it can even reduce per-unit sales revenue. If a temporary price promotion is more than matched by competition, an escalating price war can lower prices throughout a product category.

That danger suggests that price promotions should be adopted only with great caution. Certainly longer term price reductions can be valuable competitive tools when they expand the total market for a product category, promote trial for a brand with a distinct but hard to communicate advantage, or discourage competitors from entering a category. However, a price promotion is by definition a short-term cut, and many such promotions accomplish little more than inviting imitation and reducing profits. Their primary advantage, accounting for their frequent use, is that buyers understand price promotions easily and so can respond quickly. Ideally, promotions are designed with consideration of the time gaps between initiation of a promotion and two subsequent events: significant response by a target audience and imitation by competitors.

Realistically, maximizing the “monopoly window”– the time between consumers’ response to a promotion and competitors’ reaction to it — involves trade-offs, because the simplicity and ease of communication that speed up a consumer purchase will likewise normally speed up imitation. Conversely, promotions designed to be difficult to mimic may also be difficult for targeted individuals to understand, and thereby may delay customer response. Furthermore, promotions designed for implementation by channel partners must be simple enough so that those channel partners are motivated and able to implement them, an effort often made more complex if those partners span the globe.

Given these conflicting priorities, managers increase the likelihood of successful sales promotions when they “buy time” by employing elements that are scarce or difficult to acquire and incorporating complex linkages with third party providers that are difficult to imitate. Among the factors that predict competitive imitation of promotions, preemption of scarce resources ranks high as a way to preclude imitation.

Developing a strategy for preventing promotional imitation is of course most important when imitation of a promotion by rivals is most likely. The best clues to such a likelihood come from research on imitation of pioneering new products. Such research identifies as factors that increase imitation (1) a high degree of market dependence on the part of the competitor, (2) market power asymmetry in favor of the competitor, and (3) a high degree of perceived similarity between the competitor and the pioneer.

Speeding Consumer Response

Promotions elicit purchase by tapping into one or more of three types of motivations: economic, informational and affective. Economic incentives make a purchase less expensive in money and/or in time and effort. Information influences consumers’ beliefs about the brand or product category. The affective approach arouses favorable feelings and emotions and associates them with the promoted brand.

The best way to increase success for a promotion is to structure it to supply all three motivations. Some promotions can be very successful by employing only one or two types of motivation. Often, an informational approach seems unnecessary, for instance, and a sponsor simultaneously offers a “deal” while communicating to produce an emotional link between the company’s brand and the consumer.

Winners Benefit Disproportionately

The third principle is the disproportionate benefit accruing to brands that have some other “plus” factor besides the promotion itself. One such factor is the perceived quality level of the brand sponsoring the promotion. Researchers have found that consumer switching is not symmetrical, but that promotions of brands with greater brand equity bring about more switching than do promotions of less distinguished brands. In other words, promotions accentuate perceived quality advantages rather than overcoming quality disadvantages.

However, these same researchers caution that market share should not be used as a proxy for perceived quality. If a firm has “bought” market share through its pricing strategy or distributional advantages, there is no reason to attribute share leadership to perceived quality and therefore no reason to expect a differential advantage from even the best sales promotion efforts. Still, a well-planned promotion can build brand equity while making “buy now” an attractive proposition.

Additional Lessons

In addition to the three principles outlined above, analysis of successful promotions suggests a number of other lessons:

Avoid Imitation

Not only is it a mistake to launch a promotion that can be imitated easily, but from the perspective of the imitator, a copycat promotion also is likely to be a mistake. The originating company may counter by escalating its deal, incurring losses for the originating company and the imitators, and trapping all competitors because none wants to stop the promotion first. Also, imitators may find that potential buyers associate a copycat promotion with the original promoter’s brand.

Plan for Contingencies

Given the downsides of imitation, sensible managers will undertake contingency planning: If our competition launches Promotion X, we will launch Promotion Y. This kind of contingency planning seems particularly valuable in a business-to-business marketing context, where price promotions offered to one customer can be demanded by a competitor of that customer and matched almost instantly, eliminating the profitable “monopoly window.”

Managerial Challenges

When all of those factors are aligned, the result is a successful promotion. However, two aspects of what they have recommended work against adoption of these ideas in many organizations, posing internal challenges for managers:

Overcoming the Comfort of Imitation

In some corporate cultures, marketing managers will encounter resistance to originality and innovation from others who ask for evidence of expected outcomes. If a company re-uses last year’s promotion, there is some basis on which to forecast the results. If a company imitates what others have done, there is likewise greater certainty than with a novel approach. Thus, a manager may face opposition in attempting the kind of promotion described here, which by definition will most often lack a “track record.”

Overcoming the Resistance to Speed

The approaches advocated here often require moving fast. In some organizations, the need for speed, to preclude competition or to seize an opportunity, doubles the intra-organizational doubts: Not only is it unclear what a promotion will accomplish, but those who want to launch it are in a hurry. That alone may elicit resistance in some organizational settings.

Marketing managers in resistant organizations not only must tailor a promotion successfully to its intended market, they must also skillfully shepherd it around internal barriers. Knowing why, how and for whom sales promotions will most likely be profitable will surely help.

Source: MIT Sloan Management Review, Summer 2007

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