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Evidence · Pricing

Price promotions: what they do to sales, buyers and profit

Price promotions produce large immediate sales spikes but almost no lasting effect: once the deal ends, sales return to their previous level. Most promotion buyers already buy the brand and are no more loyal afterwards, so a promotion has to pay for itself in immediate profit. Promotions also lower the price buyers expect to pay, which can cost margin later.

Definition

Price promotions are temporary price reductions, such as discounts, multibuys and price-off deals, offered by manufacturers or retailers. Their effects are usually split into the immediate sales lift, any lasting change in sales afterwards, and side effects such as a shift in buyers' reference price, the price they expect to pay.

What the research finds

The spike does not last

Across 25 established grocery brands, sales after price-related promotions returned to pre-promotion levels, with no lasting gain. Persistence models of weekly scanner data, which separate category incidence, brand choice and purchase quantity, confirm that permanent promotion effects are virtually absent: promotions do not change the structure of a brand's sales.[1][2]

Promotions mostly reach existing buyers

Across 18 consumer-goods categories in the UK and US, on average 77% of promotion buyers had bought the brand within their last five category purchases, close to the 81% for regular-price buyers, and their share of category requirements was very similar. Buyers were no more likely to buy the brand after a promotion than before, which leaves little support for try-it-then-stay effects.[3][1]

Promotions move volume, not long-run sales

Sales respond strongly to price: a meta-analysis of 1,851 price elasticities from 81 studies finds a mean of about -2.62, far larger than advertising elasticities. The long-run picture differs. For 70 mature French packaged-goods brands, discounting had the smallest total sales effect of any marketing tool studied (.04), and its long-term effect was one-third of the short-term effect.[4][5]

Promotions reset the price buyers expect

Three generalizations about reference prices are well supported: consumers compare observed prices with an internal reference price, that reference price is formed partly from past prices, and prices above it hurt more than prices below it help. A promotion therefore lowers what buyers expect to pay next time, so its gain in the promotion period has to outweigh the loss in later periods; with careful timing, recurring promotions can still be profitable for a retailer.[6][7]

Longer promotions earn less

Point-of-sale data show that a price promotion's contribution to product profit shrinks steadily as the promotion runs on, which explains why small and mid-sized retailers rationally stop promotions after a certain duration.[8]

How strong is the evidence?

The absence of lasting promotion effects is one of the better replicated findings in marketing, supported by panel and scanner data across many brands and by different research traditions. It concerns permanent effects: short-run category expansion, for example for perishables, can be real. The evidence is heavily weighted toward grocery and packaged goods; promotions for durables, services and subscriptions are much less studied. The buyer-mix evidence comes mainly from one research group and appears in second-tier journals, and the reference-price profit model is illustrated for a single brand rather than tested across markets.

Claims tested against the evidence

References

  1. A. S. C. Ehrenberg, Kathy Hammond, G. J. Goodhardt (1994). The After-Effects of Price-Related Consumer Promotions. Journal of Advertising Research.
  2. Koen Pauwels, Dominique M. Hanssens, S. Siddarth (2002). The Long-Term Effects of Price Promotions on Category Incidence, Brand Choice, and Purchase Quantity. Journal of Marketing Research.
  3. John G. Dawes (2017). Price Promotions: Examining the Buyer Mix and Subsequent Changes in Purchase Loyalty. Journal of Consumer Marketing.
  4. Tammo H. A. Bijmolt, Harald J. van Heerde, Rik G. M. Pieters (2005). New Empirical Generalizations on the Determinants of Price Elasticity. Journal of Marketing Research.
  5. M. Berk Ataman, Harald J. van Heerde, Carl F. Mela (2010). The Long-Term Effect of Marketing Strategy on Brand Sales. Journal of Marketing Research.
  6. Gurumurthy Kalyanaram, Russell S. Winer (1995). Empirical Generalizations from Reference Price Research. Marketing Science.
  7. Eric Greenleaf (1995). The Impact of Reference Price Effects on the Profitability of Price Promotions. Marketing Science.
  8. Zhen Li, Katsutoshi Yada, Yusuke Zennyo (2020). Duration of price promotion and product profit: An in-depth study based on point-of-sale data. Journal of Retailing and Consumer Services.

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Related topics

A synthesis of 8 studies, written by ScholarSignal. Last reviewed 2026-09-26.

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