Lessons on price promotions from Monty Python’s Life of Brian
They’ve bled us white, the bastards. They’ve taken everything we had, not just from us, from our fathers and from our fathers’ fathers. – Life of Brian.
This impassioned rallying cry, from a would-be rebel leader in the classic film Monty Python’s Life of Brian might equally be on the lips of revenue management teams bemoaning the impact of price promotions which trade-off brand equity for a temporary sales spike. With savvy shoppers snapping up bargains to squirrel away for the rainy days of regular prices, brands are lucky if fewer than 75% of discounted sales are cannibalistic in the long term. This leaves corporations to count the cost of deep discounts, when receipts are lower than might have been projected had no “special offers” have been offered. And that’s even before factoring in the additional costs to manufacture the extra volume and get it into stores, further impacting margin, or the erosion of brand perception that chips away at one’s ability to command a price premium.
All right, all right. But apart from better sanitation and medicine and education and irrigation and public health and roads and a freshwater system and baths and public order, what have the Romans done for us?
Corporations may wish they did not need to contend with price promotions. But for all their evils, promotions have several uses such as generating trial, growing and protecting share, monetizing spare capacity, and safeguarding distribution. They can even be useful for gleaning insights into what drives loyalty among the minority paying full price in the face of discounted alternatives. As such, promotions form an unavoidable part of pricing strategy life, though there is a limit to the pain before it outweighs the benefits. Certain discounts are sufficiently deep that they yield no net gain at all. Merely measuring the success of a promotion on breaking even over the longer term suggests that tactical objectives may be distracting from the overall strategy, if not actively undermining it.
Every night, they take me down for twenty minutes, then they hang me up again, which I regard as very fair, in view of what I done, and, if nothing else, it’s taught me to respect the Romans, and it’s taught me that you’ll never get anywhere in this life, unless you’re prepared to do a fair day’s work for a fair day’s pay!
Volume growth might be delivered through price discounting, but it should rarely be treated as anything more than a proxy for the true objective of increased value. And optimizing the depth to discount is only part of the equation. At least as important is the timing of the promotion. Or to be more precise, the timing of promotion bursts relative to those of key competitors. Shallower but staggered discounting may result in equal volume for the brands in question, but leave less money on the table from consumers just looking to buy the cheapest among brands in their consideration set on that particular day. Otherwise, an oft-used discount becomes the de facto “normal” price, above which consumers are not willing to pay. And the brand that once commanded a premium is reduced to being a price fighter, as Eric Idle concludes at the end of the film:
They’ll never make their money back, you know.