Can Nike Escape the Sales Promotion Trap?

As a marketer with a limited promotion budget, would you allocate your money to sales promotion or advertising if everything else is equal?

Sales promotions, such as coupons, discounts, and special offers, drive immediate purchases. However, their impact typically fades after the promotion ends.

In contrast, advertising offers consumers compelling reasons to buy, develops consumer brand associations, and creates enduring value.

While sales promotions helps stimulate product trials, clear excess inventory, and drive seasonal sales, overusing them weakens consumer brand perceptions.

What’s your priority—quick sales with potential gradual brand erosion or creating lasting brand value? Most marketers would prefer advertising over sales promotions.

Despite this preference, aggregate spending on sales promotions in the United States has risen significantly over the years, surpassing aggregate advertising expenditures. Why is that?

Why Has Sales Promotion Spending Surged?

In crowded, mature markets where it is difficult to differentiate products, sales promotions are an effective way to attract customers.

Moreover, with digital tools and data analytics, brands deliver personalized promotions that resonate with consumers. And unlike advertising, the impact of sales promotions is more trackable, making it easier to justify the cost.

Public companies face intense pressure from investors to meet quarterly revenue and earnings targets. A single missed target can send stock prices tumbling. The pressure to meet targets often compels firms to seek quick results through sales promotions.

The Sales Promotion Trap

But not all is well in the realm of sales promotions. Marketers are increasingly unhappy with excessive and unhealthy sales promotional activity, which has weakened consumer perceptions of brands and eroded profit margins. Worse, consumers are now addicted to promotions and avoid buying without deals.

Consequently, brands are trapped in a vicious cycle of continuous sales promotions, unable to scale down or discontinue without jeopardizing sales. It’s like being on a perpetual roller coaster with no safe way to get off.

However, there is an alternative, though it has its challenges.

The Alternative: Consistent Prices

It’s straightforward! Abandon frequent sales promotions and the associated volatility of high-low pricing. Instead, determine the best price and maintain it consistently, such as what Walmart and Apple do successfully.

With stable pricing, companies save on advertising and fulfillment of sales promotion programs. Smoother historical sales data allows them to more accurately forecast sales, minimizing costly overstocking and stockouts. More importantly, they foster consumer trust and loyalty with consistent pricing.

However, while stable pricing is appealing, firms transitioning to this strategy encounter roadblocks.

Switching Strategy

If firms abandon sales promotions, they might alienate their customer base. Worse, the firm may experience steep sales declines if competitors continue discounting. Wall Street, impatient for results, is unforgiving in such situations.

Consider Procter & Gamble (P&G) and JCPenney (JCP). Both tried to shift from heavy promotions but reversed their efforts after extreme consumer backlash and plummeting sales. Their examples are cautionary for other companies, such as Nike, considering a similar approach.

Nike Under Siege

Nike, once unstoppable, is experiencing declining sales and profits. Despite a raging bull market, its stock price has decreased 30 percent, reflecting investor concerns about its future performance.

Nike’s sales in the once-hot China market have cooled.

The brand’s identity has diffused and grown muddled, losing its edge in both fashion and function. Take Hoka, for example—the brand I wear. I know what it stands for. But with Nike, I’m not so sure.

And how does Nike remain aspirational with young consumers when worn by parents and grandparents?

Nike Turnaround Strategy

Nike appointed a new CEO this past fall to engineer a turnaround. Last month, while discussing the firm’s most recent quarterly results, he outlined a three-pronged strategy to strengthen the Nike brand.

You guessed right: one of the three pillars is reducing sales promotions, particularly in digital channels and outlet stores. That’s a big deal! Many consumer marketing firms realize they have created a sales promotion monster that must be controlled. But who will bell the cat? Nike, a marketing giant, is attempting to do just that, and the implications could be far-reaching.

When P&G and JCP shifted from a heavy sales promotions model to fixed pricing, they disrupted the expectations of their core customers—frequent shoppers who had become habituated to discounts.

However, Nike’s situation is somewhat different. Given the relatively long interval between sneaker purchases, its customers are not frequent buyers and aren’t as conditioned to specific pricing and promotions. Consequently, Nike’s shift toward consistent pricing might not provoke the same backlash.

Additionally, Nike always maintained consistent pricing for its high-end and limited-edition lines. Extending this strategy to its broader range of products will make the transition less risky.

Implications of Nike’s Strategy

Nike’s strategy potentially has significant implications for the company and consumer marketing. Other firms will imitate it if it succeeds, leading to a healthier pricing environment.

But the road ahead could be bumpy. Competitors like Adidas and Under Armour will test Nike’s resolve if they continue aggressive promotions. A resulting sales decline for Nike could trigger investor anxiety, making it challenging to stay the course.

If Nike stumbles, it may confirm the fear that getting off the sales promotions roller coaster is nearly impossible.

If Nike succeeds, it could change the game. It would demonstrate that brands can thrive without constant discounts by standing firm on price and value.