Overemphasis on revenue can negatively affect profits.
Advertising and sales promotions both impact revenue, but sales promotions are more directly intended to do so quickly. Advertising is essentially in an investment in building up the value of a company's brand to improve long-term profitability. Sales promotions are price-induced, short-term messages intended to drive immediate revenue.
Value Proposition
To understand the revenue impact of advertising and sales promotions, you need to understand the two variables of the value proposition. Value is the consumer's comparison of the benefits received from a product or service relative to its costs. To increase value perception, you have to either increase the perception of worth in the product or reduce the costs. Advertising is used to do the former whereas sales promotions are used for the latter objective.
Advertising as an Investment
Accountants consider advertising an expense like any other that shows up on a company's profit and loss statement. However, marketing and advertising professionals realize advertising is an investment in your company for which return on investment is an important consideration. This is the argument of radio sales consultant Spike Santee in his July 2011 article "Advertising Is Not an Investment." He compares avoiding the "expense" of advertising as similar to avoiding the "expense" of insurance. Advertising conveys brand messages intended to increase consumer willingness to pay for your products. Advertising is typically more focused on long-term effect versus revenue generation.
Sales Promotions
Sales promotions increase value by lowering the cost side of the value equation. The simple idea is if you pay less your value is greater. Sales promotions are more short-term oriented, and quick revenue is the primary goal as opposed to long-term benefits. Companies use sales promotions for various reasons. Some need quick cash flow to cover short-term expense and debt obligations. Others want to clear out excess inventory to get whatever revenue they can.
Integrated Brand Promotion
Companies should not simply use advertising and sales promotions as mutually exclusive marketing activities. Integrated brand promotion is about consistency and coordination across all brand messages. Advertising and sales promotions can actually conflict if they are not well coordinated. Advertising drives up the value perception of your brand. Sales promotions can potentially degrade your brand's value if overused because they create a price orientation and limit your consumer's willingness to pay higher prices.
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