Ad Hoc Promotions Can’t Buy Customer Loyalty

Most of us are familiar with constant bombardment from retailers, telecommunication companies, airline companies etc. The big question in business owners and other stakeholders is, do short term promotions provide lasting growth to the company? Viffa Consult reckons that Short-term promotions by companies that is disconnected from their overall strategy will not give the business lasting growth.

“You have to give to get” seems to be the motto of many companies looking to raise demand for their products or services. They often pour big budgets into short-term giveaways in the hope that the resulting growth will justify the cost.

In addition to the conventional approach of offering customers price rebates, campaigns involving cause-based marketing in the hope of building customer loyalty are also being aggressively used. In such campaigns, companies try to stake out a “socially responsible” positioning partner with charities – offering to donate money to a worthy cause with each purchase.

Whether using discounts or philanthropic campaigns, companies usually share the same motive—to spark consumer interest, which should theoretically outlast the promotional period and boost long-term business. The problem is that there has been little rigorous real-world experimentation to verify whether, and under what conditions, such short-term promotions actually work.

Our Studies show that when promotional participation is compared to a company’s pre-existing purchase data, the study show that the promotions typically spurred purchases over and above those that would have been placed anyway. However, this effect did not persist and there was little evidence of a net increase in non-promotional purchases following a promotion.

Most intriguingly, we found robust evidence supporting that participation in charity-linked promotions should be less sensitive to Shilling (Ksh) amounts, compared to discount-linked promotions.

One of the greatest risks of discount-based promotions is that consumers can become more price-sensitive as a result leading to price wars.

Our hypothesis is that charity-linked promotions possibly represented a better investment, as brands associating themselves with a cause worth supporting would conceivably win greater loyalty than companies offering temporarily low prices.

We believe that short-term promotions may not always produce the expected long-term benefits. Managers and investors should recognize that promotional campaigns may appear to have significantly increased market share (in the form of immediate take-up) without actually creating any durable value for the company in the form of persistent demand. At a minimum, this means that managers should ensure—and investors should demand proof—that a marketing strategy is feasible before committing money to it.