ASSOCIATION FOR CONSUMER RESEARCH
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Do Sales Promotions Necessarily Erode Brand Equity? Maybe Not
Joshy Joseph, Indian Institute of Technology Madras, India
Sivakumaran Bharadhwaj, Indian Institute of Technology Madras, India
The ratio of advertisements to sales promotion in the IMC budget, which was heavily skewed towards ads earlier, has now shifted
towards promotions despite the research evidence that promotions erode brand equity. This widespread usage of sales promotions by
the industry, despite the conflicting research findings forms the background for this paper. The study finds that under certain situations
(high involvement/deal proneness and at high levels of advertising support), even non CFB promotions (e.g. discounts) help in
improving brand equity. Thus the rise in promotional budgets could be attributed to these factors being present in several product
markets.
[to cite]:
Joshy Joseph and Sivakumaran Bharadhwaj (2008) ,"Do Sales Promotions Necessarily Erode Brand Equity? Maybe Not", in NA
- Advances in Consumer Research Volume 35, eds. Angela Y. Lee and Dilip Soman, Duluth, MN : Association for Consumer
Research, Pages: 823-823.
[url]:
http://www.acrwebsite.org/volumes/13422/volumes/v35/NA-35
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This work is copyrighted by The Association for Consumer Research. For permission to copy or use this work in whole or in
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Do Sales Promotions Necessarily Erode Brand Equity? Maybe Not
Joshy Joseph, Indian Institute of Technology Madras, India
Bharadhwaj Sivakumaran, Indian Institute of Technology Madras, India
EXTENDED ABSTRACT
Introduction
Sales promotions are generally seen as detrimental to brand
equity, even though they produce positive impact on sales and
revenue (Winer 1986, Mela, Gupta and Lehmann 1997). Contrary
to research evidence that sales promotions erode brand equity, the
ratio of advertisements to sales promotion in the IMC budgets of
companies, which was heavily skewed towards ads earlier, has now
shifted towards promotions (Spethman 1998, Joyce 2006). This
widespread usage of sales promotions by the industry, despite the
conflicting research findings forms the background for this paper.
Conceptual Framework
One way of classification of promotions is into consumer
franchise building (CFB) and consumer non-franchise building
(Non CFB) promotions (Belch and Belch 2004). CFB promotions
communicate distinctive brand attributes and contribute to the
development and reinforcement of brand identity while non CFB
promotions try to generate immediate sales or shorten the buying
decision.
CFB promotions would thus contribute to the development of
brand equity, while non CFB promotions could reduce it as the
focus is to provide incentives for buying now, without considering
brand development. However, this need not be true always, as
different customer groups have different individual characteristics
and purchase intentions and thus may not always be influenced by
the above logic. In addition to customer-related factors like personality traits and purchase motivations, there are other factors too that
make the customers develop positive evaluations of the brand,
leading to higher brand equity during non CFB promotions.
Individuals with high levels of deal proneness respond more to
deals and they are seen more appreciative of promotions than low
deal prone customers (d’Astous and Jacob 2002). Involvement is
the subjective perception of the personal relevance of an object to
an individual. Highly involved customers relate to a product as a
part of their lifestyle and are likely to learn more about the product
category and search more during their purchase processes. They
pay more attention to the product’s ads and read and cognitively
process the fine print (Lockshin and Spawton 2001). Advertising
affects brand equity through brand associations and perceived
quality. Perceived advertising spending contributes to brand equity
(Villarejo-Ramos and Sanchez-Franco 2005). Advertising also
increases product knowledge of customers. Therefore, we hypothesized that brand equity would be different in customer segments
with high and low levels of deal proneness and involvement and
when the product is supported with high and low levels of advertising.
Results and Discussion
We found that at high levels of deal proneness and involvement and at low levels of advertisement support, non CFB promotions lead to higher brand equity.
This study would be one of the pioneering efforts to investigate
the positive impacts of sales promotions on brand equity. The
reasons for increased promotional spending by companies, as
mentioned earlier, could be due the presence of large numbers of
high deal prone and high involvement customers and the high levels
of ad spending by companies.
In sum, it is the characteristics of the market and the marketing
actions taken by the company that decide whether CFB or non CFB
promotions will contribute to building brand equity, and not just the
promotion, as believed earlier.
Future Research
This research has studied sales promotions by classifying it
into CFB and non CFB promotions. Future works can find out the
effect of each type of promotion on brand equity, including at
different levels of discounts offered.
Study on the differential impact of promotions on dominant
and non dominant brands and customers with differing loyalty
levels can also be taken up. Culture could significantly influence the
results and hence the study may be replicated in different cultural
settings to find the respective effects.
References
Belch, George E. and Michael A. Belch (2004), Advertising and
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Joyce, Kathleen M. (2006), “Higher Gear,” Promo, April 1.
Keller, Kevin Lane (1998), Strategic Brand Management: Building, Measuring and Managing Brand Equity, Upper Saddle
River NJ: Prentice Hall.
Lockshin, Larry and Tony Spawton (2001), “Using Involvement
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Two experiments were conducted to test these hypotheses in
which students at graduate level participated. Brand equity, deal Spethman, Betsy (1998), “Is Advertising Dead?,” Promo, Sep 1.
proneness and involvement were measured using standard scales. Villarejo-Ramos, Angel F. and Manuel J. Sanchez-Franco (2005),
“The Impact of Marketing Communication and Price PromoExperiment 1 was based on a 2 x 2 factorial design where respontion on Brand Equity,” Journal of Brand Management, 12 (6),
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431-444.
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