Sales PromotionsChapter 12

Chapter Objectives

1. What are the two main categories of sales promotions and how do they differ?

2. What are the advantages and disadvantages of the various types of consumer promotions?

3. What are the major categories of trade promotions and how are they used?

4. How can a marketing team tie consumer promotions to trade promotions and other elements of the promotional mix?

5. What are the potential limitations when sales promotions programs are being developed for international customers?

Chapter Overview

Consumer promotionsIndividuals that use

productTrade promotions (read on your

own)Directed to channel

membersPossible erosion of brand equityCan differentiate a brandUse varies – product life cycle

PromotionsO Sales promotion is any

initiative undertaken by an organization to promote an increase in sales, usage or trial of a product or service

O Sales promotions are varied.

Consumer Promotions Coupons Premiums Contests and sweepstakes Refunds and rebates Sampling Bonus packs Price-offs

Three Steps to Effective Sales Promotions

OWhen done correctly, promotions get customers out of a holding pattern by giving them an incentive to take action before a limited-time offer expires.

1. Target your effortO Promotions can spur purchases by

O established customers, O reel in new customers, O draw customers from competitors, O get current customers to buy differently,

and stimulate business during slow periods. O Rarely can one promotion accomplish all of

those objectives at once. O As a result, advertisers must decide which of

the following is most important so that they can target efforts

What do you want customers to do?

O purchase more frequently, O buy in greater volume, or O be attracted to new or different offeringsO Lure new customers into your business?O Lapsed customers to give your business

another try?O Boost business during slow hours,

weekdays or particular seasons?

2. Plan Your Incentive

OPrice savings, including discounts, coupons or added value offers

OSamples or trial offers to provide a low-risk way to try new products or services

OEvents or experiences to generate crowds, enthusiasm, sales, publicity

3. Know what you want to Achieve

O Work well when consumers are in need of a jolt to take buying action. O Set the number of sales you want to ring

up, dollars you want to bring in, customer names you want to collect, buying patterns you want to change, or any other objective you want your promotion to achieve.

O Then determine what your desired change will mean financially to your business.

Coupons

323 billion distributed3 billion redeemed (0.93%)Average value was 89 centsSavings of $3.47 billionCoupon usage

78% of households use 64% willing to switch brands

Coupons

Influencing Brand Purchases

Sampling 7.78 Word-of-mouth 7.18

Coupons 5.91 Advertising 5.61 Contests 1.24

On a scale of 1 to 10, the following are the top five influences on the brand purchased by a consumer.

Source: The Second Annual Survey of Consumer Preferences for Product Sampling, Santella & Associates (Http://www.santella.com/marketing.htm).

Coupon Distribution Print media (90%)

FSI (88%) Direct mail On- or in-package In-store Sampling Scanner-delivered Cross-ruffing Response offer Internet Fax Sales staff

Types of Coupons

Instant redemption Bounce back Scanner-delivered Cross-ruffing Response offer

Problems with Coupons

Reduced revenuesUsed by brand preference

consumers (80%)“Necessary evil”

$500 million illegally redeemedMass cuttingCounterfeiting

Misredemption

Premiums

Free-in-the-mail In- or on-package Store or manufacturer Self-liquidating

12-18

In-Mail/Proof of Purchase

Keys to Successful Premiums Match premium to target

market Carefully select the premium Pick premium that reinforces

product and image Integrate premium with other

IMC tools Don’t use premiums to

increase short-term profits

Contests and Sweepstakes

ContestsRequire skill

SweepstakesRandom chance

Sweepstakes

Refunds and Rebates

12-26

Refunds – soft goodsRebates – hard goodsHassle to redeemNow expected by consumersRedemption rates

30% overall65% for rebates over $50

Sampling

In-store distribution Direct sampling Response sampling Cross-ruffing sampling Media sampling Professional sampling Selective sampling

Benefits of Sampling

Introduce new productsGenerate interestGenerate leadsCollect informationInternet samplingBoost sales

Sampling Programs

ProblemsCostDistribution

Effective samplingComponent of IMC planStimulate trial usageTarget audience of sample

Bonus Packs Increase usage of product Match or preempt competition Stockpiling of product Develop customer loyalty Attract new users Encourage brand switching

12-32

Bonus Pac Tie-In with Coupon & Reward Program

Disney

Price-Offs

12-35

Temporary price reduction

Stimulating sales

Reduces financial risk

Brand switching

Stockpiling

Price-offsProven to be successful

Appeal of monetary savingsReward is immediate

ProblemsCan have a negative impact

on profitEncourages consumers to

become more price-sensitivePotential image on brand

image

Planning Consumer Promotions Types of consumers

Promotion proneBrand loyalPrice sensitive

Retailer incentives Increase store traffic Increase store salesAttract new customers Increase basket size

IMC Plan

End

Trade Promotions

Types of trade promotions Trade allowances Trade contests Trade incentives Trade shows

For manufacturers, trade promotions Accounts for 70% of marketing budget Often 2nd largest expense Accounts for 17.4% of gross sales

Trade Allowances

Off-invoice allowancePrice discount35% of all trade dollars

Slotting feesExit fees

Slotting Fees

Retailer justification Cost to add new products to inventory Requires shelf space Simplifies decision about new products Adds to bottom line

Manufacturer objections Form of extortion Divert money from advertising and

marketing Detrimental to small manufacturers

Trade AllowanceComplications

Failure to pass allowances on to retail customersOnly occurs 52% of the timeRetailers like only one brand on-deal at a

timeRetailers can schedule and promote

on-deal brandsForward buying

Pass savings on or pocket higher marginAdditional carrying costs

DiversionPass savings on or pocket higher marginAdditional shipping costs

Trade Contests

Used to achieve sales targets.Funds known as “spiff money.”Rewards can be prizes or cash.Can be designed for various channel

members.Some organizations do not allow

trade contests because of possible conflict of interests.

Trade Incentives

Cooperative merchandising agreement

Premium or bonus pack

Co-op advertising programs

Cooperative Merchandising Agreement

Formal agreementPopular with manufacturers

Retailer must perform marketing functions Manufacturer maintains control Longer-term commitments

Benefit retailers Schedule calendar promotions

Cooperative AdvertisingManufacturer pays part of retailer’s ad

costsRetailer must follow specific guidelines

No competing brandsRetailers accrue monies

Amount is based on salesAllows retailers to expand advertisingManufacturers gain exposure in local

markets

Trade Shows

Few deals finalized at trade showInternational attendees want to

make dealsIncrease in international trade showsNational shows being replaced by

regional and niche showsNiche shows

Provide better prospectsLower costs

Trade Show Attendees

Education seekers Reinforcement seekers Solution seekers Buying teams Power buyers

Concerns of Trade PromotionsCorporate reward structureUsed for short-term sales goals.Tend to be used outside of IMC Plan.CostsOver-reliance to push merchandise.Difficult to reduce – competitive

pressuresPotential erosion of brand image.