As we point out in our Sales Promotion tutorial, one of the most valuable uses of sales promotion is to create demand. This is often accomplished when the promotion involves an incentive for customers to make a purchase. There are various methods for doing this. The most obvious incentive is one that lowers the price for acquiring a product, such as a coupon or special “sale pricing.” Others include an incentive that lowers the out-of-pocket expense by permitting a trade-in of an existing product; contests and sweepstakes, where skill or luck can result in a big payout to the winners; and loyalty programs, where frequent purchasing leads to future savings.
No matter which type of promotion is used to stimulate sales, there is usually some level of risk to the marketer. For instance, if the vast majority of purchasers become conditioned to only purchase a product when a coupon is available then customers are likely never going to buy at full price. This, of course, could dramatically affect marketer’s revenue.
Another example of a potential problem with sales promotions is found in this Washington Post story. As explained, a Texas furniture retailer offered a special promotion that gave customers, who spent more than $6,000, their money back if the Seattle Seahawks won the Super Bowl. The result, the retailer must now give back over $7 million.
While the result of this promotion may seem hard to believe, what is really surprising is that the retailer did not purchase insurance just in case this was the outcome. As the story notes, in 2013 another furniture retailer had a Super Bowl promotion which also benefited the customer, but they had insurance which reduced their loss.