Sales Promotion Management

Business 9318, Winter 2005

Dr. Katherine Gallagher

Objectives

• To introduce sales promotion• To describe the unique functions of sales

promotion• To describe the role of sales promotion in an

integrated brand communications program• To examine some of the more subtle issues

about sales promotion

Scope and Role of Sales Promotions

• Extra incentive to buy• Acceleration tool• Targeted to different parties

– trade– consumers

The Growth of Sales Promotions

• Communication dollars have moved away from advertising to sales promotion, due to: – Increased power of retailers– Brand proliferation and parity; decreasing brand

loyalty– Increased promotional sensitivity– Increased fragmentation of mass media audiences– Short term focus in corporate rewards– Increased accountability– Competition

Trade Promotions

• Directed at wholesalers, retailers, and other marketing intermediaries

• First step in the sales promotion effort• Theoretically, incentives passed on to

consumers

Trade Promotions• Objectives

– Obtain distribution for new products– Maintain trade support for established brands– Encourage retail display– Build retail inventories

• Success factors– Financial incentive– Correct timing– Minimal retailer effort and cost– Quick results– Improve retailer performance

Consumer Promotions

• Objectives– Obtaining trial and repurchase– Increasing consumption of an established brand– Defending current customers– Targeting a specific market segment– Enhancing IBC and building brand equity

Profitability

• Trade-off:– incremental sales volume– reduced margin

• Profitability depends on consumers’ responsiveness to deals within a product category

Consumer Responsiveness to Deals

Non-Deal-ProneLoyalists (S1)

Deal-ProneLoyalists

Non-Deal-ProneSwitchers (S5)

Deal-ProneSwitchers

Stockpiling-ExceptionistLoyalists (S4)

ExceptionistLoyalists (S3)

StockpilingLoyalists (S2)

NonstockpilingSwitchers (S6)

StockpilingSwitchers (S7)

Loyalists Switchers

On- and Off-DealConsumers

On-Deal OnlyConsumers

(S8)

All Consumers

Deal Profitability by Consumer Responsiveness Segment• Promotion insensitives

– no additional sales on deal– unprofitable

• Stockpiling loyalists– sales on deal borrowed from future sales– unprofitable

• Nonstockpiling promotion sensitives– sales depressed when there are competitive promotions– profitable iff

MD(SD/SN) > MN

Deal Profitability by Consumer Responsiveness Segment

• Stockpiling promotion sensitives– sales depressed due to own deals and competitive deals– even more profitable than NPS if

MD(SD/SN) > MN

• On-deal-only consumers– profitable by definition

л = SD x MD

Deal Profitability by Consumer Responsiveness Segment

• Putting a brand on deal is:– unprofitable if consumers are promotion-insensitive or

stockpiling loyalists– profitable if consumers are on-deal-only– either profitable or unprofitable if consumers are

nonstockpiling or stockpiling promotion-sensitive

Considerations in Developing a Sales Promotion

• Short term impact– Sales

• Long term effect on the brand– Brand equity– Profitability

• Competitive reaction– Retaliatory promotions

• Quick fix?

Franchise-Building and Nonfranchise-Building Promotions

• CFB promotions– communicate distinctive brand attributes– reinforce brand identity– encourage repeat purchase and brand loyalty– convert consumers to loyal customers

• Non-FB promotions– accelerate purchase decision process– generate immediate increase in sales– borrow customers from other brands

Sales Promotion and Brand Equity

• A brand has equity if consumers have positive, unique, and accessible associations

brand equity desirability

marcom costs

trade leverage

prices

brand extensions

price competition

profits

Sales Promotion and Brand Equity

• Requirements for successful branding– Consistent quality– Differentiable advantage– Communication of the differentiable advantage

• The problem: commoditization– Difficult to make a product that is truly different– Difficult to sustain a differentiable advantage

• Widely held technical expertise• Ever faster dissemination• Reverse engineering

Sales Promotion and Brand Equity

• The usual response to commoditization– Compete on price– Shift marcom $ from advertising to sales

promotion

• The result– Increased price sensitivity– Decreased brand loyalty– Decreased brand equity

Sales Promotion and Brand Equity

• But…– Consumers still need the information that brands

convey– Consumers may no longer be loyal to one brand,

but they are loyal to brands– Successful brand differentiation is still possible,

through marketing communications

Research Findings

• Above average price brands (nonprice message)

– Advertising ?? differentiation

?? price competition

– Sales promotion ?? differentiation

?? price competition

Research Findings (2)

• Lowest price brands (price message)

– Advertising ?? differentiation

?? price competition

– Sales promotion ?? differentiation

?? price competition

Research Findings (3)

• Avg./lower price brands (non-price/price message)

– Advertising ?? differentiation

?? price competition

– Sales promotion ?? differentiation

?? price competition

Implications

• Communicating a unique and valued position leads to an increase in brand differentiation.

• Communicating a non-unique position leads to a decrease in brand differentiation.

• Non-unique price messages are dangerous.• Especially for above-average price brands,

advertising seems more valuable and sales promotion seems less valuable than previously thought.

Sales Promotion Trap

OUR FIRM

ALL OTHER FIRMS

Cut back promotions

Maintain promotions

Cut back promotions

Maintain promotions

Summary• Sales promotions provide a short term incentive to

purchase NOW.– Trade promotions can get dealer support for both new and

established brands– Consumer promotions can increase trial and/or repurchase

and can be used either offensively or defensively.

• Profitability depends on deal responsiveness• CFB promotions are usually superior• Overuse or inappropriate use of sales promotions

may harm brand equity• Don’t fall into the sales promotion trap!