Notice How Your Discounts Help Competitors

You might offer a discount on your brand to woo customers away from a competing brand. You’d be in good company, since this is an extremely common tactic. Researchers at Texas A&M University, University of Alabama, Bentley University, and Clemson University say that price promotions constitute as much as 55% of a firm’s marketing budget.
     The researchers then document a danger: A consumer’s rejection of the promotion builds subsequent loyalty to and spending on the competing brand. In a laboratory setting, Coke drinkers offered a discount of almost 50% on a Pepsi showed a greater growth in loyalty to Coke than did participants not presented the Pepsi offer. In a field study, participants choosing an undiscounted Starbucks coffee drink over a Dunkin’ discounted by $1.00 spent more on Starbucks products than did participants not shown the Dunkin’ promotion.
     The chance of a marketer’s promotional price discount inadvertently boosting loyalty to a competitor is worth you noting. The researchers point to prior studies showing that fewer than 16% of shoppers who are presented a brand’s price promotion will switch brands to get the discount. My advice, though, is not to forgo price discounting. The basis for its popularity is that it brings in new customers.
     The better takeaway is to avoid depending solely on a price discount to change minds. An integral part of successful promotions is a compelling portrayal of the benefits of product or service use.
     Another takeaway is a better understanding of the dynamics of shoppers making selections. Researchers at University of Miami and Babson College noticed that when asked to begin the choice process by eliminating alternatives, shoppers became more likely to end up selecting one of those alternatives they were considering for rejection. This happens because attention to any item makes it more likely people notice characteristics of the item they find attractive. Along with this, the process of deciding what to reject brings concern about missed opportunities, a concern people ease by selecting rather than rejecting. But once the rejection occurs, the rejected item becomes even less likely to be subsequently selected.
     After choosing one brand over another, the consumer is now effectively neglecting the other brand. What happens if the consumer is later asked to express a preference between the previously neglected brand and a neutral brand which had not been seen before? Yes, the neutral brand is more likely to be favored.

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