With the credit crunch brewing, there’s a lot of pressure to ramp up your price promotions. There certainly is a short-term argument (sales are down, consumers are increasingly price-sensitive, and price promotions are a predictable way to drive volume). But, in the long-run, I think it can start to train your consumers to only buy you on deal (like the Pavlovian response in this cartoon).
It reminds me of my time on Haagen-Dazs. Years ago, Haagen-Dazs and Ben & Jerry’s had a good thing going. They co-existed peacefully (promotion-wise), rarely promoting like the less premium ice cream brands in the category. They didn’t have to. They were superpremium brands, and people bought them for reasons other than price.
Then, an upstart superpremium brand called Dreamery came along with an aggressive price promotion strategy. It was classic game theory. Haagen-Dazs and Ben & Jerry’s ramped up their promotions so they didn’t lose volume to the new threat. Soon, they were promoting like everyone else. Dreamery eventually went away, but it was too late. Haagen-Dazs and Ben & Jerry’s had become Trade Deal Junkies. They effectively trained their consumers to wait to buy until they were on deal.
This same realization prompted this related cartoon a few years ago.