Sales Promotions

Chapter 12

Chapter Objectives

1.

2.

3.

4.

5.

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

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

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

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

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

Chapter Overview

 Consumer promotions  Individuals that use product  Trade promotions (read on your own)  Directed to channel members  Possible erosion of brand equity  Can differentiate a brand  Use varies – product life cycle

O O

Promotions

Sales promotion is any initiative undertaken by an organization to promote an increase in sales, usage or trial of a product or service Sales promotions are varied.

Consumer Promotions

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

O

Three Steps to Effective Sales Promotions

When 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 effort

O O Promotions can spur purchases by O O O O established customers, reel in new customers, draw customers from competitors, get current customers to buy differently, and stimulate business during slow periods. 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 O O O O O purchase more frequently, buy in greater volume, or be attracted to new or different offerings Lure new customers into your business?

Lapsed customers to give your business another try?

Boost business during slow hours, weekdays or particular seasons?

2. Plan Your Incentive

O Price savings, including discounts, coupons or added value offers O Samples or trial offers to provide a low risk way to try new products or services O

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

Coupons

 323 billion distributed  3 billion redeemed (0.93%)  Average value was 89 cents  Savings of $3.47 billion  Coupon usage   78% of households use 64% willing to switch brands

Coupons

Influencing Brand Purchases

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

  Sampling Word-of-mouth  Coupons   Advertising Contests 7.78

7.18

5.91

5.61

1.24

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 revenues  Used by brand preference consumers (80%)  “Necessary evil”  $500 million illegally redeemed  Mass cutting  Counterfeiting  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

 Contests  Require skill  Sweepstakes  Random chance

Sweepstakes

Refunds and Rebates

 Refunds – soft goods  Rebates – hard goods  Hassle to redeem  Now expected by consumers  Redemption rates  30% overall  65% for rebates over $50

12-26

Sampling

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

Benefits of Sampling

 Introduce new products  Generate interest  Generate leads  Collect information  Internet sampling  Boost sales

Sampling Programs

 Problems  Cost  Distribution  Effective sampling  Component of IMC plan  Stimulate trial usage  Target 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

 Temporary price reduction  Stimulating sales  Reduces financial risk  Brand switching  Stockpiling

12-35

Price-offs

 Proven to be successful  Appeal of monetary savings  Reward is immediate  Problems  Can have a negative impact on profit  Encourages consumers to become more price-sensitive  Potential image on brand image

Planning Consumer Promotions

   Types of consumers  Promotion prone  Brand loyal  Price sensitive Retailer incentives  Increase store traffic  Increase store sales  Attract 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 2 nd largest expense Accounts for 17.4% of gross sales

Trade Allowances

 Off-invoice allowance  Price discount  35% of all trade dollars  Slotting fees  Exit 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 Allowance Complications

    Failure to pass allowances on to retail customers  Only occurs 52% of the time  Retailers like only one brand on-deal at a time Retailers can schedule and promote on-deal brands Forward buying  Pass savings on or pocket higher margin  Additional carrying costs Diversion  Pass savings on or pocket higher margin  Additional 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 agreement  Popular with manufacturers    Retailer must perform marketing functions Manufacturer maintains control Longer-term commitments  Benefit retailers  Schedule calendar promotions

Cooperative Advertising

 Manufacturer pays part of retailer’s ad costs  Retailer must follow specific guidelines  No competing brands  Retailers accrue monies  Amount is based on sales  Allows retailers to expand advertising  Manufacturers gain exposure in local markets

Trade Shows

 Few deals finalized at trade show  International attendees want to make deals  Increase in international trade shows  National shows being replaced by regional and niche shows  Niche shows  Provide better prospects  Lower costs

Trade Show Attendees

     Education seekers Reinforcement seekers Solution seekers Buying teams Power buyers

Concerns of Trade Promotions

 Corporate reward structure  Used for short-term sales goals.

 Tend to be used outside of IMC Plan.

 Costs  Over-reliance to push merchandise.

 Difficult to reduce – competitive pressures  Potential erosion of brand image.