Abstract

In today's market place, customers tend to rely more on the established brands to simplify their brand selection and reduce their purchase risk. Creating and maintaining a strong brand brings companies many competitive advantages and long term profitability. Although price promotions have become a common marketing practice, little research has been done on their effects on brand equity and profitability in the long run. This study examines the potential negative impact of price promotions from the perspective of customer-based brand equity by assessing how different levels of frequency and depth of sale promotions influence consumers in terms of acquiring knowledge about a brand, establishing price-related associations, and changing their response to the brand as a result. We hypothesize that overuse of temporary sale promotions might create some 'discount' associations with the brand in customers' minds and influence a company's brand equity and future benefits. The results reveal that exposure to previous discount information induced customers to expect the retail price to be the sale price for the next period as well as to anticipate brand promotion before purchasing. Consequently, they become more reluctant to pay the regular price for the brand. Furthermore, the findings show that the expected price that customers are willing to pay for the brand has a sigmoid relation with the frequency of price promotions while it also has a concave relation with the depth of price discounts. These findings are particularly useful in guiding marketers to design optimal price promotion programs