Sales Promotion Sales Promotion Management, Marketing-Management, Marketing-

Oriented Public Relations, Oriented Public Relations, and Sponsorshipsand Sponsorships

Chapter Sixteen

Chapter Sixteen ObjectivesChapter Sixteen Objectives

• Describe the nature and purposes of sales promotion

• Explain the factors that account for the increased investment in promotions, especially those that are trade oriented

• Explain the tasks that promotions can and cannot accomplish

Chapter Sixteen ObjectivesChapter Sixteen Objectives

• Understand nine empirical generalizations about promotions

• Discuss the circumstances that determine when promotions are profitable

Introduction to Sales PromotionIntroduction to Sales Promotion

What Exactly is Sales Promotion?

Any incentive used by manufacturers to induce the trade and/or consumers to buy a brand and encourage sales force to aggressively sell it

Introduction to Sales PromotionIntroduction to Sales Promotion

What Exactly is Sales Promotion?

The incentive is additional to the basic benefits provided by the brand and temporarily changes its perceived price or value

Introduction to Sales PromotionIntroduction to Sales Promotion

Promotion Targets

All three groups – the sales force, retailers and consumers – are targets of sales

promotional efforts

Sales PromotionSales Promotion

Pu

sh Pu

ll

En

cou

rag

eBrand-Level Advertising

and Sales Promotion Mix

RetailersSales Force Consumers

Increased Budgetary Allocations to Increased Budgetary Allocations to PromotionsPromotions

•Advertising spending as a percentage of total marketing communications expenditures has declined in recent years

•Promotional spending, however, has steadily increased

Increased Budgetary Allocations to Increased Budgetary Allocations to PromotionsPromotions

0

10

20

30

40

50

60

70

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Media Advertising Trade Promotions Consumer Promotions

Push Vs. PullPush Vs. Pull

Push Strategy

Using promotional

efforts to push

product through

the selling chain

Pull Strategy

Using Consumeradvertising to pull

product through thechannel of distribution

Push Vs. PullPush Vs. Pull

Sales Promotion to Consumers

Personal Selling to Retailers

Advertising to Retailers

Advertising to ConsumersSales Promotion

to Retailers

Sales Promotion to Retailers

Advertising to Consumers

Advertising to Retailers

Sales Promotion to Consumers

Personal Selling to Retailers

Factors Accounting for the ShiftFactors Accounting for the Shift

• Balance-of-power shift from manufacturers to retailers

• Increased brand parity and price sensitivity• Reduced brand loyalty• Splintering of the mass market and reduced

media effectiveness• Short-term orientation and corporate reward

structures• Consumer responsiveness

Sales Promotions - CanSales Promotions - Can

• Stimulate sales force• Invigorate mature brand sales• Facilitate introduction of new products• Increase merchandising space• Neutralize competitive ads• Obtain trail purchases• Hold current users• Increase product usage• Preempt competition• Reinforce advertising

Sales Promotions - Can’tSales Promotions - Can’t

• Compensate for lack of training and advertising

• Give a long-term reason for repeat purchases of the brand

• Permanently stop an established brand’s declining sales or basic non-acceptance

Generalizations About PromotionsGeneralizations About Promotions

1. Temporary retail price reductions increase

sales

1. Temporary retail price reductions increase

sales

2. The greater the frequency of deals, the lower the height

of the deal spike

2. The greater the frequency of deals, the lower the height

of the deal spike

3. The frequency of deals changes the

consumer’s reference price

3. The frequency of deals changes the

consumer’s reference price

4. Retailers pass-through less than

100% of trade deals

4. Retailers pass-through less than

100% of trade deals

5. Higher market share brands are less deal elastic

5. Higher market share brands are less deal elastic

Generalizations About PromotionsGeneralizations About Promotions

7. Feature advertising and displays operate

synergistically to influence sales of discounted brands

7. Feature advertising and displays operate

synergistically to influence sales of discounted brands

6. Advertised promotions can result in increased

store traffic

6. Advertised promotions can result in increased

store traffic

8. Promotions in one product category

affect sales of complementary and

competitive products

8. Promotions in one product category

affect sales of complementary and

competitive products

9. The effects of promoting higher-and lower-quality brands

are asymmetric

9. The effects of promoting higher-and lower-quality brands

are asymmetric

A Segmentation Model of Consumer A Segmentation Model of Consumer Response to Sales Promotion DealsResponse to Sales Promotion Deals

All Consumers

On- and Off-DealConsumers

On-Deal OnlyConsumers (S8)

Loyalists Switchers

Non-Deal-ProneLoyalists (S1)

Deal-ProneLoyalists

Non-Deal-ProneSwitchers (S5)

Deal-ProneSwitchers

Stockpiling-ExceptionistLoyalists (S4)

StockpilingLoyalists (S2)

ExceptionistLoyalists (S3)

NonstockpilingSwitchers (S6)

StockpilingSwitchers (S7)S1- S8 = Segment1 - Segment 8

Purchase PatternsPurchase Patterns

Promotion InsensitivesPromotion Insensitives

SynActive

Market Share

ShampooSales

TimeOff Deal

OnDeal

Off Deal

• Insensitive to promotional deals • Unprofitable to place SynActive on deal

Stockpiling LoyalistsStockpiling Loyalists

SynActive

Market Share

ShampooSales

TimeOff Deal On Deal Off Deal

Sales Depression Due to SynActive

Promotions

• Loyal to SynActive and will stockpile on deal • Unprofitable to place SynActive on deal• Sales increase is borrowed from future sales

Nonstockpiling Promotion SensitivesNonstockpiling Promotion Sensitives

SynActive

Market Share

Shampoo Sales

TimeOff Deal On Deal Off Deal

Sales Depression Due to SynActive

Promotions

• Loyalists and switchers but don’t stockpile• Profitable only if R x MD > MN

(R= SD/SN, M: Margin)

SD

SN

Stockpiling Promotion SensitivesStockpiling Promotion Sensitives

• Switch among brands and stockpile

• SynActive baseline sales are depressed both by its own dealing activity and by competitive dealing

• If SynActive dealing activity is profitable when consumers do not stockpile, then stockpiling behavior will lead to even greater profitability

On-Deal-Only ConsumersOn-Deal-Only Consumers

• Only buy on deal

• Profitable to place SynActive on deal

• Profit would equal the number of units(Q) sold times the profit margin(MD) : Q x MD

In ConclusionIn Conclusion

Unprofitable Promotion-insensitiveStockpiling loyalists

Profitable On-Deal-Only consumers

‘May’ or‘May not’

Nonstockpiling orStockpiling promotion-sensitive consumers