In one line
A price promotion is a temporary discount. The deal lift is the extra volume while it runs; the post-deal dip is the shortfall after it, as shoppers use up what they stocked.
What it does
- Part of the lift is new buyers or switchers. Part is people who would have bought anyway, now paying less. Part is pull-forward: purchases borrowed from next month.
- Shoppers stock their pantries on deal and buy less afterwards, so next quarter dips below normal.
- Share bought with deals lasts only as long as the deals do. That is rented share: you keep paying to keep it.
Business and brand
Impact on the businessP&L, cash, share price
- Deals cut the price on every unit sold on deal, including those you would have sold at full price.
- Net sales can rise while gross profit falls.
- The dip lands in the next quarter's results, which a quarterly target can hide.
Impact on the brandMemory, loyalty, pricing power
- Frequent deep deals raise price sensitivity and wear down perceived quality.
- Shoppers learn to wait for the offer.
- Share from deals does not build memory, so it fades when they stop.
Try it
Run one deal
Pick a deal depth for half of the first quarter, with no deals before or after. Watch the lift, the dip and what it does to profit.
Q1 lift▲ 51.7%
Q2 dip▼ 23.7%
Volume over five quarters▲ 4.1%
Gross profit over five quarters−€4.10m
Notice: The deal lifts Q1 volume ▲ 51.7%, then Q2 dips ▼ 23.7% as pantries empty. Value share goes from 20.5% in Q1 to 13.2% in Q2: rented, then returned. Over five quarters gross profit is −€4.1m against no deal.
Runs Countermove's market engine: the reference soft-drinks market, three brands, rivals holding their plans so only your change moves the result.
Sources
- van Heerde, Gupta & Wittink (2003), Journal of Marketing Research: is 75% of the promotion bump due to brand switching?
- Nijs, Dekimpe, Steenkamp & Hanssens (2001), Marketing Science: category effects of price promotions
- Jedidi, Mela & Gupta (1999), Marketing Science