Chapter 12
SALES PROMOTION
Chapter Overview
In this chapter we turn our attention to sales promotion and its role in a firm’s integrated marketing communications program. We examine how marketers use both consumer- and trade-oriented promotions to influence the purchase behavior of consumers as well as wholesalers and retailers. The chapter begins with a discussion of the scope and role of sales promotion and a discussion of the reasons for its increasing importance. Attention is also given to sales promotion objectives including a discussion of consumer franchise-building versus non-franchise-building promotions and specific promotional objectives. Much of the chapter is devoted to an examination of the various consumer- and trade-oriented sales promotion techniques used by marketers and considerations involved in their use. The chapter concludes with a discussion IMC issues as they relate to sales promotion.
Learning Objectives
1. To understand the role of sales promotion in a company’s integrated marketing communications program and to examine why it is increasingly important.
2. To examine the various objectives, strategy, and tactical components of a sales promotion plan. To examine the types of consumer and trade-oriented sales promotion tools and factors to consider in using them.
3. To examine the consumer and trade promotion strategy options and the factors to consider in using them.
4. To understand key IMC issues related to sales promotion decisions.
Chapter and Lecture Outline
I. SALES PROMOTION PLANNING
A. Characteristics and Types of Sales Promotion
For many years advertising constituted the major part of the promotional budget of most consumer product firms. Over the past decade, however, many marketers have come to the realization that advertising alone often is not enough to stimulate demand for their products and are increasingly turning to sales promotion methods targeted at both consumers and the trade. Many companies are developing fully integrated marketing programs that include consumer and trade promotions that are coordinated with advertising, publicity/public relations, and Internet marketing programs as well as sales force efforts. It is important to note these trends and emphasize to students the important role sales promotion plays in the marketing of most consumer products. The chapter opening vignette discusses how the so-called “below the line” IMC discipline areas such as sales promotion are being used to build brand equity and are taking center stage alongside advertising.
Sales Promotion has been defined as “a direct inducement that offers an extra value or incentive for the product to the sales force, distributors or the ultimate consumer with the primary objective of creating an immediate sale.” There are several important aspects to sales promotion that should be noted:
· sales promotion involves some type of inducement that provides an extra incentive to purchase the product or service
· sales promotion is essentially an acceleration tool that is designed to speed up the selling process and maximize sales volume
· sales promotion programs and activities can be targeted to different parties in the marketing channel including wholesalers, retailers and consumers.
Sales promotion can be broken down into two major categories:
· Consumer-oriented sales promotion which are promotions directed at the consumers who are final purchasers of goods and services
· Trade-oriented sales promotion which includes promotional programs and activities designed to motivate distributors and retailers to stock and promote a manufacturer’s products
The various activities included under each sales promotional category are shown in Figure 12-1 of the text. It should be noted that this chapter focuses on both consumer- and trade-oriented promotions.
B. The Growth of Sales Promotion
The role and importance of sales promotion in companies’ integrated marketing communications programs has increased dramatically over the past decade. Spending has been growing at between 5 and 7% annually with trade promotion accounting for most of this growth.
There are a number of factors that have led to the shift in marketing dollars from media advertising to sales promotion. These include:
1. The growing power of retailers—In recent years several developments have helped to transfer power from the manufacturers to the retailers. With the advent of optical checkout scanners and sophisticated in-store computer systems, retailers gained access to data concerning how quickly products turn over, which sales promotions are working and which products make money. Retailers use this information to analyze sales of manufacturers’ products and then demand discounts and other promotional support from manufacturers of lagging brands. Consolidation of the grocery store industry has also resulted in larger and more powerful retailers who can use their purchasing power to demand more trade promotion deals.
2. Declining brand loyalty—Consumers have become less brand loyal and are purchasing more on the basis of price, value, and convenience. They are also looking for more deals and will buy whatever brand is on sale or for which they can use a coupon.
3. Increased promotional sensitivity—The percentage of purchases made in conjunction with some sort of promotional offer has increased sharply over the past decade. The text discusses a survey with interesting results and the reasons for consumers’ increasing sensitivity to sales promotion. This study found that 42 percent of the total unit volume of 12 packaged-good products was purchased with some type of incentive.
4. Brand proliferation—Consumer product companies are launching more and more new products each year. Sales promotion tools such as samples and coupons are often used as part of the process that leads consumers from trial to repeat purchase at full price. Supermarkets now carry more than 30,000 products compared to 13,000 in 1982. Promotions play an important role in securing and maintaining shelf spaces for new and existing products.
5. Fragmentation of the consumer market—The consumer market is becoming more fragmented and traditional mass-media advertising is being replaced by promotional tools that can target specific market segments. Sales promotion tools have become one of the primary vehicles for tailoring promotional efforts to specific regional markets as well as specific demographic and lifestyle segments.
6. Short-term focus—The increase in sales promotion in motivated by marketing plans and reward systems geared to short-term performance and the immediate generation of sales volume. Marketing and brand managers use sales promotions routinely, not only to introduce new products or defend against the competition, but also to meet quarterly or yearly sales and market share goals.
7. Increased accountability—Many companies are demanding to know what they are getting for their promotional expenditures. They feel that sales promotion programs are more economically accountable than advertising since they often generate a quick and easily measured jump in sales.
8. Competition—Many companies are turning to sales promotion to gain or maintain a competitive advantage. A major development in recent years is the use of account-specific marketing (also referred to a comarketing) whereby a marketer collaborates with customizes promotions for individual retailers.
9. Clutter—The increasing problem of advertising clutter has lead to the need to use consumer promotions as a way of attracting attention and interest to advertising. Sales promotion offers such as coupons, contests and sweepstakes are often used to attract attention to ads and increase consumers’ involvement with a marketer’s IMC program.
10. Reaching a Specific Target Market – Many marketers are finding that sales promotion tool such as contests, events, sampling and coupons are effective in reaching specific geographic, demographic, psychographic and ethnic markets.
C. Sales Promotion versus Advertising
It is very important to note that the increased use of sales promotion is coming at the expense of media advertising. This has led to concern that the increased use of sales promotion is having a negative effect on brand equity. As was noted in the Chapter 2, brand equity refers to a type of intangible asset of added value or “goodwill” that results from the favourable image or differentiation that a brand has achieved. Another term used synonymously with brand equity is consumer franchise. There are many examples of situations where a company’s have hurt the brand equity of their products by placing more emphasis on consumer and trade promotions than advertising. The book discusses how Heinz allocated most of its marketing budget to trade promotion during the early to mid ‘90s which hurt the brand equity of many of its brands.
II. SALES PROMOTION PLAN
A. Objectives for consumer-oriented sales promotion—As the use of sales promotion techniques continues to increase, companies must give consideration to what they hope to accomplish through their promotions and set clearly defined objectives and measurable goals for their sales promotional programs. While the basic goal of most sales promotion activities is to induce purchase of a brand, there are a number of different objectives the marketer might have for both new and established brands. These include:
1. Obtaining trial purchase
2. Obtaining repeat purchase
3. Increasing consumption
4. Supporting the IMC Program/Building Brand Equity
B. Consumer Promotion Strategy Decisions
- Sales Promotion Strategy Options – The options identifies in Figure 12-1 are important strategic choices. In making these choices is important to make the distinction between consumer-franchise building sales promotions and non-franchise building efforts. Consumer-franchise-building promotions are designed to communicate distinctive brand attributes and contribute to the development and reinforcement of brand image and identity. Non-franchise-building promotions are designed to accelerate the purchase decision process and generate immediate increases in sales. They do very little, if any, to contribute to the brand identity and image.
An additional decision criterion relates to the incentive characteristic. As illustrated in Figure 12-2, the choice is based on the target audience and the intended behavioural response.
- Application across Product Lines – Another strategic decision is the degree to which each sales promotion tool is applied to the range of sizes, varieties, models, or products.
- Application across Specific Markets – Sales promotions can be run nationally, regionally or in select markets.
C. Consumer Sales Promotion Tactics Decisions
The value, timing and distribution of the sales promotion offer are key tactical decisions.
1. Value of Incentive – the marketer must decide on the value of the promotion in terms of any discounts offered, the value of premium offers and whether non-economic incentives will be used.
2. Timing – the marketer must decide during which months, weeks, days and/or seasons the promotion will be run.
3. Distribution – the marketer must establish the logistics with respect to how the promotion will get to the consumer and how the consumer will get to the promotion.
III. CONSUMER SALES PROMOTION STRATEGY OPTIONS
The various consumer-oriented sales promotion techniques used by marketers should be discussed along with their advantages and limitations and the role they play in meeting various promotional objectives. Figure 12-3 shows the extent to which these consumer promotions are used by package-goods companies.
A. Sampling—sampling involves a variety of procedures whereby consumers are given some quantity of a product for no charge to induce trial. Sampling is often used as a way of introducing a new brand to the market although it is also used for established products.
1. Strengths and limitations of sampling
· Samples are an excellent way of inducing trial
· Sampling allows consumers to experience a product directly and gain an appreciation for its benefits and characteristics
· Costs of sampling programs can be very high
· The benefits of a brand may be difficult to gauge from a sample
2. Sampling Methods—decisions must be made concerning the method by which the sample will be distributed. The sampling method is important not only in terms of costs, but also in terms of influencing the type of consumer who receives the sample. Some of the more widely used sampling methods include:
· Door-to-door sampling
· Sampling through the media
· Sampling through the mail
· In-store sampling
· On-package sampling
· Event sampling
There are other sampling methods available such as:
· Direct sampling
· Location sampling
· The Internet
· Creative approaches
· inserts in magazines and newspapers
· requesting samples by phone
· and the use of specialized sample distribution services. The Internet is yet another way companies are making it possible for consumers to sample their products. There are several online sampling services such as Catalina Marketing’s ValuPage.com and the Sunflower Group’s FreeSample-Club.com. The text discusses several reasons for a recent resurgence in sampling.
B. Coupons —Couponing is the oldest, yet most widely used and effective sales promotions tool. The number of coupons distributed to consumers has increased dramatically over the past decade. As Figure 12-3 shows, coupons are the most popular sales promotion technique.
1. Strengths and limitations of coupons
Pros:
· Coupons make it possible to offer a price reduction to those consumers who are price sensitive without having to reduce the price for everyone.
· Coupons allow the offering of a price reduction without having to rely on retailers.
· Couponing can be an effective promotional device for generating trial of a new brand.
· Coupons can be used to encourage trial and increase consumption of established brands.
Cons:
· It can be difficult to estimate how many consumers will redeem a coupon and when they will do so.
· Coupons targeted to attract new users of established brands are often redeemed by previous loyal users.
· Couponing programs can be expensive.
· Problems of coupon misredemption and fraud exist.
2. Coupon Distribution—Coupons can be distributed in a variety of ways including:
· media delivery in newspapers and magazines and as free-standing inserts (FSIs)
· through direct mail
· in or on packages
· in stores and at points-of-purchase
· over the Internet through online promotion sites
C. Premiums—A premium is an offer of an extra item of merchandise or service either free or at a low price that is used as an incentive for purchase. The two basic types of premiums are:
1. Free Premiums—usually inexpensive gifts or items that are included in the product package, distributed with a purchase or sent to consumers who make mail-in-requests along with a proof of purchase. One of the fastest-growing types of premiums or incentive offers being used by marketers is airline miles which have become a type of promotional currency