Extensive research has shown that the effects of short-term price promotions on sales are themselves short-term. Companies' hopes that promotions might have a positive aftereffect have not been borne out for reasons that researchers have been able to identify. A price promotion entices only a brand's long-term or "loyal" customers; people seldom buy an unfamiliar brand merely because the price is reduced. They simply avoid paying more than they have to when one of their customary brands is temporarily available at a reduced price. A price promotion does not increase the number of long-term customers of a brand, as it attracts virtually no new customers in the first place. Nor do price promotions have lingering aftereffects for a brand, even negative ones such as damage to a brand's reputation or erosion of customer loyalty, as is often feared.

    So why do companies spend so much on price promotions? Clearly price promotions are generally run at a loss, otherwise there would be more of them. And the bigger the increase in sales at promotion prices, the bigger the loss. While short-term price promotions can have legitimate uses, such as reducing excess inventory, it is the recognizable increase in sales that is their main attraction to management, which is therefore reluctant to abandon this strategy despite its effect on the bottom line.

    Although recent censure of corporate boards of directors as "passive" and "supine" may be excessive, those who criticize board performance have plenty of substantive ammunition. Too many corporate boards fail in their two crucial responsibilities of overseeing long-term company strategy and of selecting. evaluating, and determining appropriate. compensation of top management. Attimes, despite disappointing corporate performance, compensation of chief executive officers reaches indefensibly high levels, Nevertheless, suggestions that the government should legislate board reform are premature. There are ample opportunities for boards themselves to improve corporate performance.

    Most corporate boards' compensation committees focus primarily on peer-group comparisons. They are content if the pay of top executives approximates that of the executives of competing firms with comparable short-term earnings or even that of executives of competing firms of comparable size. However, mimicking the compensation policy of competitors for the sake of parity means neglecting the value of compensation as a means of stressing long-term performance. By tacitly detaching executive compensation policy from long-term performance, committees harm their companies and the economy as a whole. The committees must develop incentive compensation policies to emphasize long-term performance. For example a board's compensation committee can, by carefully proportioning straight salary and such short-term and long-term incentives as stock options, encourage top management to pursue a responsible strategy.