Binet and Boyd urge marketers to "kick the promotion habit"

The findings are based on a new study of 250 senior marketing and insight leaders from UK consumer goods businesses, conducted by Censuswide on behalf of Boyd and Binet. The research, which included board-level and C-suite decision-makers across food and drink, durables and other consumer goods sectors, explored why organisations continue to rely on price promotions, how they assess their effectiveness and what would encourage a shift towards more profitable growth. Respondents were all directly involved in promotional decision-making, planning or evaluation.

Marketing's biggest investment

The research shows that spending on price promotions has grown significantly over the past four decades and now exceeds investment in paid media advertising, making promotions the largest single component of marketing spend and around twice the size of paid media advertising.

Yet while promotions can generate substantial short-term sales uplifts, the research also shows that much of this volume is often not incremental. Sales can be brought forward, shifted between channels or generated from consumers who would have purchased anyway. As a result, brands can end up selling the same products at lower prices.

The wider body of evidence reviewed in the research also shows that nearly two-thirds of price promotions lose money.

The profit blind spot

The research found that profit and revenue growth are the most common objectives brands want promotions to deliver, chosen at roughly twice the rate of any other objective.

Despite this, 75% of respondents could not estimate what percentage of their promotions were profitable across the previous year. At the same time, 82% believed their most recent promotion was profitable, despite more than 60% of those assessments being based on personal judgement or partial analysis rather than formal event-level profit-and-loss measurement.

Together, the findings reveal what Dom Boyd and Les Binet describe as a significant promotional profit blind spot.

Why the cycle continues

The study found that 76% of marketers repeat promotions even when profitability has not been assessed.

The research also found that 81% of marketers evaluate promotions over periods of less than 13 weeks. While these shorter evaluation periods capture the immediate sales uplift created by promotions, the research suggests they may be too short to identify longer-term effects.

Respondents cited factors including consumer expectations, short-term volume and revenue targets, market-share defence, retailer pressure, organisational habit and lack of reliable evidence as reasons promotions continue to be repeated.

Boyd and Binet argue that these factors can contribute to a "promotion dependency spiral", in which repeated discounting increases reliance on promotions over time.

Marketers want to change

The research shows many marketers are already aware of the risks associated with over-reliance on promotions, revealing:

• 68% would prefer to run fewer promotions.
• 80% believe many promotional buyers would have purchased anyway.
• 79% believe promotions overstate their long-term impact.
• 75% believe repeated promotions increase price sensitivity.
• 91% say it would be easy or very easy to shift funds from price promotions into brand advertising if it were shown to be more profitable in the long term.

Underestimating the alternatives

The research also suggests marketers may be underestimating two of the most important drivers of profitable growth: brand strength and pricing power.

Respondents rated brand strength as 1.3 times less effective than lowering prices at driving revenue and profit growth, while pricing power was viewed as 1.5 times less effective than promotions. Yet separate analysis presented by Boyd showed that brands with the strongest pricing power achieve margins around 1.5 times higher than the weakest-performing brands.

How to kick the promotion habit

The research sets out a six-step programme for reducing reliance on promotions: improve marketing training; learn promotional best practice; use econometrics to evaluate price, promotions and advertising consistently; measure both short and long-term effects; assess pricing power; and reinvest money from ineffective promotions into brand building.

The research argues that the goal is not to eliminate promotions altogether, but to stop using promotions that subsidise demand the brand already owns, are repeated without proper assessment and/or that divert investment away from long-term brand growth. Instead, promotions should be used more selectively and with a clearer understanding of their commercial impact.

Discussing the findings:

Says Dom Boyd, Global CSO, Kantar:

"Brands are using promotions because they want to drive profit and revenue growth. But what we see is that when it comes to actually delivering that profit and revenue, most brands have a blind spot. Many are measuring promotions on gut feel or partial analysis, not really knowing what the impact on profit is, and then repeating the cycle."

Says Les Binet, Visiting Professor, Ravensbourne University:

"Price promotions are like class A drugs: expensive, dangerous and addictive. Yes, they give you an immediate volume high. But the high wears off quickly. Sales slump as soon as the offer ends and soon you need another fix. The opportunity is to identify which promotions lose money, cut them out, and reinvest the money in brand advertising."

Says Laurence Green, Director of Effectiveness, IPA:

"This research reinforces the importance of evaluating marketing activity through the lens of profitability and long-term effectiveness, rather than short-term sales uplift alone, helping marketers make more informed decisions about how pricing, promotions and brand investment work together to support growth."