Imagine you are a marketing manager and about to decide when to schedule your price promotions in the upcoming months.
You know that the World Soccer Cup starts at the end of this year and in February next year is the Super Bowl.
Should you target or avoid these time slots with your price promotions?
Do popular events actually matter at all when planning your price promotions?
To study the effect of price promotions on sales, researchers refer to a metric called "promotion elasticity" or "discount elasticity."
It measures the increase in sales due to a price drop of 1%.
In this study, the promotion elasticity changed on average from 1.283 to 1.402, which means in a period without popular events, a 10% price drop leads to a sales increase of 28.3%. When popular events happen, the same price decrease lifts sales by 40.2%.
This change in promotion elasticity corresponds to 9.3% higher sales when popular events happen compared to "no event" times given the same (relative) price discount.
However, price promotions during popular event times are most effective…
- if there is a high category-event fit (e.g., beer during soccer cups) or a low category-event fit (toilet refreshers during skating events). Price promotions are less effective if the link between product category and event is intermediate.
- if the brand is a premium brand demanding a price premium compared to other brands.
- if you manage the promotional clutter during popular event periods of competing brands in the respective retail environment.
By the way, the researchers only looked at the sales side of price promotions.
Higher costs for promotional activities have not been taken into account. From a sales uplift perspective, the recommendation on promotion timing is straightforward, but the actual decision requires more thinking and evaluation.
References
Keller, Wiebke, I.Y., Barbara Dellersnyder, and Karen Gedenk (2019), "Price promotions and popular events," Journal of Marketing, 83(1), 73-88.