The Long-Term Impact of Sales Promotions on Customer Equity

Sales promotions’ effectiveness for short-term sales is proven. However, for long-term sales, possible adverse effects have been suggested. To bridge this gap, we apply stochastic models (BG/nBD model) in 74 packaged good categories of a Danish consumer panel and measure the cumulated long-term effects of promotions at the customer portfolio level by computing purchase frequencies, attrition and customer equity. Promotions have a mitigated impact: while the effect on purchase frequencies is overall positive, the impact on retention and lifetime duration is only positive in half of the categories. Finally, the effect on customer equity is positive in 62% and negative in 38% of the product categories analyzed.