Use Promotions with Lasting Payoffs

Do your sales promotions have legs and do they draw in the right kinds of footsteps? By promotions with legs, I mean those that continue to be effective in generating profitability for you for a while rather than having effectiveness limited just to the time of the promotion. And the right kinds of footsteps are those of shoppers who buy not just the low-margin items you're featuring, but also items which carry higher profit margins.
     Your best sales promotions will be based on data you've gathered in the past about the shopping habits of your customers. When they buy the type of item you're thinking of promoting with a price cut, what other types of items do they purchase in the same trip? With this information, order those other products in adequate quantities and enough in advance so you're unlikely to run out. Then stock the items in places where they're easy to find for the person buying a promoted product.
     On the other hand, the worst sales promotions lower the perception of item value in the minds of the shoppers. BOGOs—Buy one, get one for free—carry this risk. Researchers at University of California-Berkeley, University of Southern California, Stony Brook University, and Indiana University found that if a product is offered for free, the shopper becomes less likely to buy the product at full price afterwards.
     Prolonged price wars are also risky. You lower a price as a promotion. Your competitor lowers it further. You respond by meeting the competitor's price and then lowering it even more, at which point the competitor meets your additional reduction, and so on. Your customers can find themselves expecting prices to continue to move downwards. When you can't maintain the drops, your customers' disappointment might cause them to take their footsteps somewhere else.