Sales promotions are discounts or inducements used to get customers to buy products more quickly or in greater volume than they otherwise would. Companies use sales promotions for various purposes, including generating revenue or cash flow, clearing out excess inventory or encouraging brand switching. Sales promotions can impact the long-term value of brands.

Understanding Brands

To appreciate the effects sales promotions can have on brands, you have to understand brands and what companies try to achieve with them. A brand is the meaning behind a name, logo, symbol, words or images commonly associated with the company or product. Brands are reputations developed over time through investment in quality products and services and marketing, which is used to convey benefits of the brand to targeted customers. Strong brand value can lead to customer loyalty and greater profit margins.

Price Orientation

The value equation suggests customers see value as the correlation between a product's price and the benefits it offers. Brand building is generally intended to strengthen customer perception of quality benefits to enable the company to charge higher prices. Sales promotions emphasize reduced prices as the reason for increased value in a purchase offer. Getting customers to focus on price versus quality impacts their perception of your product's worth. In essence, a sales promotion or price inducement suggests you can't sell the product at the prescribed regular price because demand for your brand was limited.

Minimizes Investment

Not only do sales promotions possibly instill a price orientation in customers, they can also serve to counter your ongoing investment in brand development or management. Over time, companies invest in advertising to build and maintain a brand image. Consistently dropping prices can severely undercut your promotional efforts and limit your returns. On one hand, your ads tell customers how incredible and valuable your brand is; on the other, your sales promotions imply that you must offer discounts to attract interest.

Loyalty Issues

Part of branding is connecting with targeted customers and getting them to feel loyalty to your company or product. Creating sales through discounts may attract price-conscious consumers, but price alone rarely leads to a strong bond with your brand. Struggling fashion retailer JC Penney found this out when it tried to change from a heavy emphasis on regular sales promotions to a more value-oriented approach with no sales beginning in 2011. As of late 2012, the company was still struggling to generate customer traffic and sales because of the lack of interest from previous customers who were primarily motivated by price and not loyalty to the store.