"We've long suspected that repeated exposure to short bursts of special price reductions and promotional activity such as couponing and special offers would weaken brand loyalty among consumers and eventually harm long-term profits within individual categories," says Doug Bowman, assistant professor of management at Purdue's Krannert Graduate School of Management. "But it's been only recently that we've had enough data to confirm our suspicions."
A category is a specific product type such as laundry soap or furniture polish.
Bowman and Carl F. Mela, assistant professor in the College of Business Administration at the University of Notre Dame, and Kamel Jedidi, associate professor in the Graduate School of Business at Columbia University, collaborated on the consumer behavior research. Their study examined the purchasing behavior of more than 1,500 Midwestern households over an eight-year period. The results will be published in an upcoming issue of the Journal of Marketing Research.
Bowman says past research has typically held that years of consumer exposure to promotions had not changed buying behavior.
"Our research finds the contrary," he says. "We find that consumers now 'lie-in-wait' for a good sale on a product before they buy. They may buy more of an item during the sales period, or stockpile items, and that makes a short-term spike in product revenue, but when the item returns to regular price, it's likely to sit on the shelf."
For example, instead of purchasing an item at regular price during each shopping trip, consumers now wait for a sale to buy two or three of that item during one shopping trip. Although the consumer is buying more of the product, the discounted rate and decrease in buying frequency hurts the manufacturer's bottom line.
"We're not sure why companies continue to spend millions of dollars on short-term gains," Bowman says. "Nonstop promotions only encourage consumer price sensitivity and can possibly work to devalue a product or category over the long haul."
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