Why Do Sales Promotions Eat Their Young?

Increasing sales are supposed to beget increasing sales. But too often a business’ struggle to build near-term purchases stifles future purchases. I’m thinking of promotions at U.S. automakers in the 1990s, and of a popular national men’s clothing store today.

In the ’90s and early 2000s, American auto makers habituated their public to cash-back and zero-percent interest sales. On just about any weekend, such customer incentives could be easily found. Buyers became so accustomed to such promotions that when a week came without an announced sale, would-be buyers simply waited – and they were soon rewarded. Sure enough, another announcement about no interest or cash back appeared on the television.

These financing costs were, of course, paid by the automakers, reducing their profits. During this period, U.S. automakers increased quality and features. But instead of increasing prices in keeping with quality leader manufacturers from Asia, they increased prices much more modestly. Coming into the present recession, U.S. automakers were already suffering.

Now, in men’s clothing, it’s the “Buy One, Get One Free Sale.” Everyone doubtlessly sees and hears this promotion on television: “Buy one men’s suit, and get a second suit absolutely free.” A week does not go by without the announcement of a similarly unbelievable deep discount: “Sports coats 75 percent off.” The content of the promotions change, and there is always a limited time to respond.

The problem is the predictability. What consumer would purchase from this clothier without waiting for a sale? The result is permanent erosion in price and profitability, just as in the U.S. automobile industry.

This lesson applies to businesses of all sizes, particularly small businesses. Sales promotions are key to increasing a business’ volume, but do you want to train your prospects, who are teetering between buying and not buying, simply to wait for the next sale?

Are you a leader on the loose or on the noose?

For additional small business leadership ideas visit the Small Business Advocacy Center.

on Facebook on LinkedIn