Marketing Research in Marketing Research in Sales Promotion Sales Promotion

Wenmei DongWenmei DongTurgut FeyizTurgut Feyiz

Jin LiJin LiPierre NoizetPierre NoizetRichard YangRichard Yang

OutlineOutline

IntroductionIntroduction Sales PromotionSales Promotion Why sales promotion needs MRWhy sales promotion needs MR MR for promotion optimizationMR for promotion optimization MR Research Measurement Tools & MR Research Measurement Tools &

ModelsModels ConclusionConclusion

What is promotion?What is promotion?Promotion The coordination of all seller initiated efforts to set up channels of information and persuasion in order to sell goods and services or promote an idea.

Promotion MIXAdvertising Advertising Direct MarketingDirect MarketingInteractive/Internet MarketingInteractive/Internet MarketingPublicity/Public RelationsPublicity/Public RelationsPersonal SellingPersonal SellingSales PromotionSales Promotion

Sales PromotionSales Promotion

Sales promotion

Marketing activities that provide extra value or incentives to the sales force, the distributors, or the ultimate consumer and can stimulate immediate sales.

Sales PromotionSales Promotion

ConsumerSales Promotion

ConsumerSales Promotion

Trade Sales Promotion

Trade Sales Promotion

Sales PromotionSales PromotionTargetsTargets

Sales PromotionSales PromotionTargetsTargets

Uses of Sales PromotionUses of Sales Promotion

Immediate PurchasesImmediate Purchases

Increase TrialIncrease Trial

Boost consumer inventoryBoost consumer inventory

Encourage repurchaseEncourage repurchase

Increase ad effectivenessIncrease ad effectiveness

Encourage brand switchingEncourage brand switching

UsesUsesofof

Sales Sales PromotionPromotion

UsesUsesofof

Sales Sales PromotionPromotion

Encourage brand loyaltyEncourage brand loyalty

Objectives of Sales PromotionObjectives of Sales Promotion

Type of BuyerType of Buyer Type of BuyerType of Buyer

Loyal CustomersLoyal Customers

Competitor’sCustomersCompetitor’sCustomers

Brand SwitchersBrand Switchers

Price BuyersPrice Buyers

Desired ResultsDesired Results Desired ResultsDesired Results

•Reinforce behavior• Increase consumption•Change timing

•Reinforce behavior• Increase consumption•Change timing

•Break loyalty•Persuade to switch•Break loyalty•Persuade to switch

•Persuade to buy your brand more often

•Persuade to buy your brand more often

•Appeal with low prices

•Supply added value

•Appeal with low prices

•Supply added value

Sales PromotionSales PromotionExamples Examples

Sales PromotionSales PromotionExamples Examples

•Loyalty marketing•Bonus packs•Loyalty marketing•Bonus packs

•Sampling•Sweepstakes, contests, premiums

•Sampling•Sweepstakes, contests, premiums

•Price-lowering promotion

•Trade deals

•Price-lowering promotion

•Trade deals

•Coupons, price-offpackages, refunds

•Trade deals

•Coupons, price-offpackages, refunds

•Trade deals

Sales Promotion - Double-edged Sales Promotion - Double-edged SwordSword

Why we need MR in sales Why we need MR in sales promotionpromotion

Frequent failures of Promotion

• Waste resources Waste resources • Half of the promotion expenditures go to wasteHalf of the promotion expenditures go to waste• High promotion spending, low ROIHigh promotion spending, low ROI• Cross-product cannibalization, cross-channel dilution and Cross-product cannibalization, cross-channel dilution and

halo effectshalo effects• Promotion-driven stock-out, excess inventoryPromotion-driven stock-out, excess inventory

Why we need MR in sales Why we need MR in sales promotion - cont.promotion - cont.

Marketing Research can help to

Create Create

Optimized PromotionOptimized Promotion

Optimized PromotionOptimized Promotion Predict incremental profit , revenue, Predict incremental profit , revenue,

and associated costs for various and associated costs for various promotional alternatives , before we promotional alternatives , before we commit marketing dollarscommit marketing dollars

Reduce promotional costs, while Reduce promotional costs, while simultaneously boosting market simultaneously boosting market responseresponse

Optimized Promotion – cont.Optimized Promotion – cont.

Avoid cross-product cannibalization, cross-Avoid cross-product cannibalization, cross-channel dilution and halo effectschannel dilution and halo effects

Forecast expected impacts on inventory levelsForecast expected impacts on inventory levels

Set optimal mix of promotions to maximize Set optimal mix of promotions to maximize return, while protecting sales, margin, and return, while protecting sales, margin, and market share targetsmarket share targets

How MR Serves PromotionHow MR Serves Promotion

Test the ideal promotional vehiclesTest the ideal promotional vehicles• Discount, displays or features for each Discount, displays or features for each

brand/productbrand/product• Single Vehicle (e.g., discount)Single Vehicle (e.g., discount)• Mixed Vehicles( e.g., discount and display)Mixed Vehicles( e.g., discount and display)

Test which product/brand will profitable Test which product/brand will profitable to run promotional activitiesto run promotional activities

How MR Serves Promotion – cont.How MR Serves Promotion – cont.

Identify cannibalized products mix and the Identify cannibalized products mix and the bundled products mixbundled products mix

Survey the Price Elasticity. Help us to make Survey the Price Elasticity. Help us to make decision on Production Capacity and the decision on Production Capacity and the Discount LevelDiscount Level• Marginal Revenue = P(1+1/E)Marginal Revenue = P(1+1/E)• Marginal Cost Marginal Cost

Others: test the effectiveness of promotions Others: test the effectiveness of promotions with specific targetswith specific targets

How MR Serves Promotion – cont.How MR Serves Promotion – cont.

Sales Promotion Objective to be tested

Promotional Type

Increase Repeat Buying Testing in-pack coupon, continuity programs( e.g., frequent flyer, “N for” retail promotions)

Increase market share among brand switchers

FSI coupons, Coupons targeted to users of other brands, retail promotion

Increase category switching Retail promotions, FSI coupons, large rebate

How MR Serves Promotion – cont.How MR Serves Promotion – cont.

Sales Promotion Objective to be tested

Promotional Type

Increase category consumption Retailer promotions, promotions tied to events (e.g., back to school)

Increase trial among nonusers Crossing-coupon , free samples, trial packs, direct-mail coupons

Increase retailer’s promotion frequency Trade deals, combination of consumer promotions and trade deals (big-bang theory)

How MR Serves Promotion – cont.How MR Serves Promotion – cont.

Sales Promotion Objective to be tested

Promotional Type

Enhance the product image Coop image advertising with image-oriented retailers.

Target deal-sensitive consumers Coupon, “N for” retail promotions

Liquidate short-term inventories Trade deals, rebates, inventory financing

Increase distribution FSI coupons (increase demand), trade deals (increase DPP)

Problems to be solved by MR on Problems to be solved by MR on sales promotionsales promotion

What item?What item? What type of promotion?What type of promotion? When to promote?When to promote? For how long?For how long? Where to promote?Where to promote? At what price?At what price? How?How? Results?Results?

MR Measurement ToolsMR Measurement Tools

Measuring Promotion Measuring Promotion Effectiveness, Estimation and Effectiveness, Estimation and Evaluation of ModelsEvaluation of Models

Retail Store AuditRetail Store Audit Consumer Purchase PanelsConsumer Purchase Panels Scanner DataScanner Data

• Nielsen’s SCANTRACK – Nielsen’s SCANTRACK – Largest oneLargest one

Sample Scanner-Panel DataSample Scanner-Panel DataCustomer ID Date Brand Quantity Regular Price Discount Display Feature

1001 03/01/02 Tide 50 oz $ 3.55 $ 0.43 No No

1001 03/29/02 Tide 64 oz $ 3.99 $ 0.54 Yes Yes

1001 04/25/02 Tide 50 oz $ 3.55 $ 0.45 No No

1001 05/28/02 All 50 oz $ 2.99 $ 0.50 Yes No

1001 06/27/02 Tide 50 oz $ 3.60 $ 0.45 No No

1001 07/22/02 Tide 50 oz $ 3.60 $ 0.20 No No

1001 08/29/02 All 64 oz $ 3.15 $ 0.60 Yes Yes

1001 09/24/02 Tide 50 oz $ 3.65 $ 0.42 No No

1001 10/28/02 All 100 oz $ 4.99 $ 1.00 Yes Yes

1001 11/25/02 Tide 50 oz $ 3.99 $ 0.50 No No

Retail Store AuditRetail Store Audit

Retail Store AuditRetail Store Audit Beginning inventory + deliveries –ending Beginning inventory + deliveries –ending

inventory = sales for the period inventory = sales for the period Observable information such as shelf prices, Observable information such as shelf prices,

display space, the presence of special displays display space, the presence of special displays and in-store promotion activitiesand in-store promotion activities

Nielsen Retail Index and Audits and SurveysNielsen Retail Index and Audits and Surveys

AdvantageAdvantage: Know the overall sales change : Know the overall sales change DisadvantageDisadvantage: No details about customers and : No details about customers and

their purchasing behaviortheir purchasing behavior

Consumer Purchase PanelsConsumer Purchase Panels

Main categoriesMain categories• Home AuditHome Audit• Mail DiaryMail Diary

AdvantagesAdvantages• Provide changes in behaviorProvide changes in behavior

LimitationLimitation• Selection bias Selection bias • Mortality effect Mortality effect • Testing Effect Testing Effect

Scanner DataScanner Data

Tools : Tools : Laser Scanner Laser Scanner Universal product codeUniversal product code Generates huge amounts of dataGenerates huge amounts of data Main suppliers: IRI, NielsenMain suppliers: IRI, Nielsen Kraft Food spends more than $30 million per year on Kraft Food spends more than $30 million per year on

scanner datascanner data In comparison to survey research: scanner data reveal In comparison to survey research: scanner data reveal

actual consumer behavioractual consumer behavior

Advantage:Advantage: High degree of accuracyHigh degree of accuracy Time saving Time saving Possible to study short period of salesPossible to study short period of sales

ModelsModels

Choice ModelChoice Model• Likelihood (Prob.) going to buy in response to promotionLikelihood (Prob.) going to buy in response to promotion• P (buy) = F (promotion, feature, etc)P (buy) = F (promotion, feature, etc)

Quantity ModelQuantity Model• Number of units of a brand a consumer will buyNumber of units of a brand a consumer will buy• Q (buy) = F (price cut, inventory, consumption rate, etc)Q (buy) = F (price cut, inventory, consumption rate, etc)

Promotion ModelPromotion Model• Profit = Sum (Profit margin*P*Q)Profit = Sum (Profit margin*P*Q)

Tools to solve the Model problemsTools to solve the Model problems

Linear ProgrammingLinear Programming• Objective function ( ROI, Sales, etc)Objective function ( ROI, Sales, etc)• Constraint Constraint

BudgetBudget InventoryInventory TimingTiming

• Optimal Solution Optimal Solution Excel SolverExcel Solver Various Software (SAP, PeopleSoft, etc)Various Software (SAP, PeopleSoft, etc)

ConclusionConclusion

MR is like a car light MR is like a car light for the marketers for the marketers to see clearer to see clearer about the future about the future and and know what know what really works.really works.

Questions?Questions?