The Effect of Tangible Promotions on an Intangible Environment

Abstract

Promotions are frequently deployed by firms in service intensive industries like tourism as a way to boost numbers like visitation and occupancy in times when excess capacity may be anticipated. While promotions may indeed augment revenues and other accounting measures commonly used by tourism firms to assess the success of marketing interventions, the impact of these sales tools on long-run finance-based indicators remains largely unexplored. Exploiting a rich dataset consisting of over 300 corporate level hotel promotions spanning nearly three decades, this study shows that promotions can be detrimental to long run performance of tourism firms. This erosion of the market value is particularly acute for promotions that involve tangible monetary components, such as price discounts. While this result supports the tenets of the hierarchy-of-effects theory and prospect theory, the observed effects of the tangible component of sales promotion entail an extension of these theoretical approaches to an intangible environment.