While most managers would think long and hard before bringing to market a product that lacked patent protection and could be easily imitated, many invest in sales promotions — sweepstakes, coupons, time-limited price discounts, free gifts or samples, special events, displays, membership rewards, consumer-directed promotions and so on — that are easier to imitate than the simplest new product. Others sign off on plans so generic that they seem unrelated to the brand or company offering them, despite the fact that sales promotions may absorb a significant portion of a company’s promotional dollars — currently a reported 31% of marketing budgets1 — and they are increasingly being used for both packaged goods and consumer durables as concern has grown about the cost effectiveness of media advertising.2
For example, the “you pay what we [employees] pay” price promotion instituted by General Motors Corp. during the summer of 2005 was imitated after only five weeks by its two major U.S. rivals. Analysts estimate that the promotion cost GM an average of more than $5,000 per vehicle3 through its September 30 termination, contributing to a $4 billion loss on North American operations during the first nine months of 2005.4 The full year was marked by a 50% decline in GM stock value and a 4% decline... To read the complete article, login or sign-up using the form below.
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