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The Pitfalls of Promotion

Two more pitfall examples of price manipulation and promotions:

General Motors

In order to compete with the influx of auto sales to foreign automakers in the 90’s, GM began offering cash back incentives. This incentive ranged from $500 to $7000 and had a drastic effect on their sales, leading to a dramatic increase. By 2007, GM was losing approximately $730 on every vehicle. When they attempted to stop the cash back promotions their sales plummeted. They were caught in the cyclone of what Sinek calls “price addiction”.

Xbox vs. Playstation

In a competition for the same market, often offering the same games, Sony & Microsoft began gouging at each other’s prices, $5 here, $20 there. Eventually, the two companies reached a point where they couldn’t lower their prices any further without losing profits, so they began “adding value”. Those buying one console were offered a free, cheap game. The other console would then offer a free, more popular game. This was countered by offering controllers. Now, this promotion cycle has reached such a point that one can find a console with two controllers and two popular games for the same price that the console premiered at before all the promotions began.

As consumers, we too are sucked into this cycle of addiction by expecting added value promotions. Companies see themselves as forced to participate in order to succeed at making any profit.

 

Concepts & Ideas from
Start with Why by Simon Sinek

Daniel SachsStart With Why