Unpacking the Behavioral Dimensions of Promotions and Sales Performance: Do Real-Life Promotions Drive More Sales?

Introduction

Running promotions to encourage sales is a regular activity for retailers. Their effectiveness depends on how much they can control the sales environment to stimulate the purchases by the consumers and simultaneously generate rewards for both (Almeida et al., 2020; Larsen et al., 2020; Porto & Oliveira-Castro, 2013). In real-life, managers usually invest in promotional activities to stimulate the sale of goods, being previously decided in a “sticky plan” (Anderson & Fox, 2019). These promotions may be part of a longer-term building program and knowledge transfer in franchised companies (Khan, 2016). They are essential for firms’ survival due to their rapid implementation and quick results in sales (Raghubir et al., 2004). However, just because different incentives are “sales promotions” does not mean that the impact of all their types necessarily leads to sales (Anderson & Fox, 2019).

Marketing science has long studied how sales promotions affect brand sales (Gupta, 1988; Weber, 1963). There is evidence of positive, neutral, and negative influences on sales performance, either during promotions or after its withdrawal (Gedenk, 2019). However, the diversity and quantity of existing promotional techniques (Brito & Hammond, 2007) to evaluate the effectiveness of sales promotions turn them into a complex task (Heerde & Neslin, 2017). The main limitation is not showing the real situations when they are effective or not.

Part of the criticism goes further and involves (1) research-based on simulations and with non-experimental data, rarely been conducted in a field experiment (Gedenk, 2019), (2) the main focus of research is on consumer-level of analysis (Santini et al., 2016), rarely considering firm-level (Franses, 2006; Sunday & Bayode, 2011), (3) decomposition of sales is on consumer-level (switching, acceleration, loyalty – Bell et al., 1999), or product-level (category, brand, SKU – Heerde & Neslin, 2017) and not on firm-level, such as revenue, transactions, and average billing size (Peterson et al., 2015), (4) the focus of firm-level explanations does not adopt a behavioral explanatory approach (Larsen et al., 2020), preventing the use of tools and theoretical concepts already consolidated from traditionally experimental research (Almeida et al., 2020), (5) disregarding the set of different types of promotions (Santini et al., 2019), (6) separating the effect on sales during and after promotions (Heerde & Neslin, 2017), and (7) disregarding the current annual plans that retailers implement (Anderson & Fox, 2019).

Although there is an extensive body of research on sales promotions (Anderson & Fox, 2019; Brito & Hammond, 2007; Freo, 2005; Pauwels et al., 2002; Yi & Yoo, 2011), understanding the effect of several types of promotions and their dimensions in sales is still limited. Some problems are solved when research breaks promotions into their typologies, ascertaining their characteristics and benefits to consumers and companies. In addition, if the study unpacks promotions into their stages or dimensions (presence, duration or length, simultaneity, removal) and sales performance into their output metrics, such as revenue, the number of transactions, and average billing size (Peterson et al., 2015), it can bring more accuracy to this effectiveness, at least for the retailer.

This chapter reports an empirical investigation of the dynamic effect of the behavioral dimensions of promotions on sales performance metrics (revenue, number of transactions, and average billing size). Although managers widely use promotions, it is a subject that has been little analyzed in the academic context when related to sales with real retail data at the company’s level analysis (Anderson & Fox, 2019). The authors propose to use the theoretical framework of Operant Behavioral Economics (Foxall, 2020) to explain the relationships between business activities and the results of such activities. In this way, the knowledge coming from this research would help managers in the decision-making process for allocating investments in types of promotion, focusing on sales results.

After this introduction, this book chapter presents a theoretical review of monetary and non-monetary typology, giving contexts to sales performance according to the explanations of the Operant Behavioral Economics. The authors highlight the relationship between promotional behavioral dimensions and sales performance, including the empirical model. Then, they present the research method and the results subdivided for each time of sales performance effect. It ends with the discussion, giving the theoretical and managerial contributions of the research.