Sales Promotions

Chapter 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 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

Promotions

O 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.

PromotionsO Special short-term techniques

to persuade members of a target market to respond or undertake certain activity.

O As a reward, marketers offer something of value to those responding O generally in the form of lower

cost of ownership for a purchased product (e.g., lower purchase price, money back) or the inclusion of additional value-added material (e.g., something more for the same price).

Consumer Promotions

Coupons

Premiums

Contests and sweepstakes

Refunds and rebates

Sampling

Bonus packs

Price-offs

Three Steps to Effective Sales Promotions

O 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 Efforts -- What do you want customers to do?

O Purchase more frequently

O Buy in greater volume

O Be attracted to new or different offerings

O 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

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 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 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 O A coupon is a ticket or document that

can be exchanged for a financial

discount or rebate when purchasing a

product.

O Issued by manufacturers of consumer

packaged goods or by retailers, to be

used in retail stores as a part of sales

promotions.

O They are often widely distributed

through mail, coupon envelopes,

magazines, newspapers, the Internet

(social media, email newsletter),

directly from the retailer, and mobile

devices such as cell phones.

Coupon Facts

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

Premium Promotions

O Sales promotion technique in which two or more

complementary products are sold together

(bundling) at a price lower than their combined

price.

O Simply stated, consumer premium promotions

use merchandise to get buyers to sample,

purchase, or remain loyal to a brand or product.

Consumers get a value-added offer in one of

several promotional vehicles.

Premiums

Free-in-the-mail

In- or on-package

Store or manufacturer

Self-liquidating

12-20

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

O Promotional scheme in which prizes are given to winners selected only by chance (at random) from the entries received.

O Sweepstakes do not require a purchase (consideration) otherwise they would become a lottery (which requires a license to operate).

Refunds and Rebates

12-30

Refunds – soft goods

Rebates – hard goods

Hassle to redeem

Now expected by consumers

Redemption rates30% overall

65% 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 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

12-36

Bonus Pac Tie-In with Coupon & Reward Program

Disney

Price-Offs

12-39

Temporary price reduction

Stimulating sales

Reduces financial risk

Brand switching

Stockpiling

Price-offs

Proven to be successfulAppeal of monetary savings

Reward is immediate

ProblemsCan 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 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 time

Retailers like only one brand on-deal at a time

Retailers can schedule and promote on-deal brands

Forward buyingPass savings on or pocket higher margin

Additional carrying costs

DiversionPass 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 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 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.