Ales Promotion
Sales promotion is a key ingredient in marketing campaigns. We define it as follows:
■ Sales promotion consists of a diverse collection of incentive tools, mostly short term, designed to stimulate quicker or greater purchase of particular products or services by consumers or the trade.47
Whereas advertising offers a reason to buy, sales promotion offers an incentive to buy. Sales promotion includes tools for consumer promotion (samples, coupons, cash refund offers, prices off, premiums, prizes, patronage rewards, free trials, warranties, tie-in promotions, cross-promotions, point-of-purchase displays, and demonstrations); trade promotion (prices off, advertising and display allowances, and free goods); and business- and sales force promotion (trade shows and conventions, contests for sales reps, and specialty advertising).
Sales-promotion tools are used by most organizations, including manufacturers, distributors, retailers, trade associations, and nonprofit organizations. Churches, for example, often sponsor bingo games, theater parties, testimonial dinners, and raffles.
A decade ago, the advertising-to-sales-promotion ratio was about 60:40. Today, in many consumer-packaged-goods companies, sales promotion accounts for 65 to 75 percent of the combined budget. Sales-promotion expenditures have been increasing as a percentage of budget expenditure annually for the last two decades.
Several factors contribute to the rapid growth of sales promotion, particularly in consumer markets.48 Internal factors include the following: Promotion is now more accepted by top management as an effective sales tool; more product managers are qualified to use sales-promotion tools; and product managers are under greater pressure to increase current sales. External factors include the following: The number of brands has increased; competitors use promotions frequently; many brands are seen as similar; consumers are more price-oriented; the trade has demanded more deals from manufacturers; and advertising efficiency has declined because of rising costs, media clutter, and legal restraints.
The rapid growth of sales-promotion media has created a situation of promotion clutter similar to advertising clutter. Consumers might start tuning out, in which case coupons and other promotion media will weaken in their ability to trigger purchase. Manufacturers will have to find ways to rise above the clutter—for instance, by offering larger coupon-redemption values or using more dramatic point-of-purchase displays or demonstrations.
PO EOF ALE P OMO ION
part five
Managing and Delivering Marketing Programs
Sales-promotion tools vary in their specific objectives. A free sample stimulates consumer trial, whereas a free management-advisory service aims at cementing a long-term relationship with a retailer.
Sellers use incentive-type promotions to attract new triers, to reward loyal customers, and to increase the repurchase rates of occasional users. New triers are of three types—users of another brand in the same category, users in other categories, and frequent brand switchers. Sales promotions often attract the brand switchers, because users of other brands and categories do not always notice or act on a promotion. Brand switchers are primarily looking for low price, good value, or premiums. Sales promotions are unlikely to turn them into loyal users. Sales promotions used in markets of high brand similarity produce a high sales response in the short run but little permanent gain in market share. In markets of high brand dissimilarity, sales promotions can alter market shares permanently.
Today, many marketing managers first estimate what they need to spend in trade promotion, then what they need to spend in consumer promotion. Whatever is left they will budget for advertising. There is a danger, however, in letting advertising take a back seat to sales promotion because advertising typically acts to build brand loyalty. But the question of whether or not sales promotion weakens brand loyalty is subject to different interpretations. Sales promotion, with its incessant prices off, coupons, deals, premiums, and blaring quality, may devalue the product offering in the buyers' minds. Buyers learn that the list price is largely a fiction. But before jumping to any conclusion, we need to distinguish between price promotions and added-value promotions. These examples show how certain types of sales promotion can actually enhance brand image:
■ The makers of Pine-Sol, a general liquid cleaning agent, ran a "Pine-Sol in Pine Valley" sweepstakes in which Pine Valley was the habitat of the TV soap opera All My Children. Sweepstake winners would travel to Los Angeles to meet the stars and watch four days of filming. This association of an ordinary cleaning agent with glamorous stars enhanced the brand image of Pine-Sol.
■ Toro, a major manufacturer of lawn mowers and snowblowers, wanted to sell its snowblowers in early September. Knowing that most people would wait to buy until the first snow, Toro offered to include Toro Snow Insurance: The company promised to send a rebate of $50 to each September buyer if it didn't snow before January. This sales promotion did not hurt, and may have helped, Toro's brand image.
■ Haagen-Dazs ran a cents-off sales promotion called Sweet Charity where the price savings would be contributed to support public television. This offer enhanced the Haagen-Dazs image by making Haagen-Dazs "a patron of the arts."
■ Akai, a Japanese manufacturer of stereo equipment and TV sets, managed to become a TV set market leader in India by running value-added sales promotions. It offered good trade-in value on black-and-white TV sets at the purchase of a new color TV set. At other times, it would offer a free watch, or calculator or radio, along with the purchase of a new TV set. This steady promotion made Akai a very popular brand in India, and competitors such as Sony were not free to compete in the same way.
But usually, when a brand is price promoted too often, the consumer begins to devalue it and buy it mainly when it goes on sale. So there is risk in putting a well-known brand leader on promotion over 30 percent of the time.49 Dominant brands offer deals less frequently, because most deals only subsidize current users. Brown's study of 2,500 instant coffee buyers concluded that:
■ Sales promotions yield faster and more measurable responses in sales than advertising does.
■ Sales promotions do not tend to yield new, long-term buyers in mature markets because they attract mainly deal-prone consumers who switch among brands as deals become available.
■ Loyal brand buyers tend not to change their buying patterns as a result of competitive promotion.
■ Advertising appears to be capable of deepening brand loyalty.50
There is also evidence that price promotions do not build permanent total category volume.
Small-share competitors find it advantageous to use sales promotion, because they cannot afford to match the market leaders' large advertising budgets. Nor can they obtain shelf space without offering trade allowances or stimulate consumer trial without offering incentives. Price competition is often used by a small brand seeking to enlarge its share, but it is less effective for a category leader whose growth lies in expanding the entire category.51
The upshot is that many consumer-packaged-goods companies feel they are forced to use more sales promotion than they wish. Kellogg, Kraft, and other market leaders are trying to return to "pull" marketing by increasing their advertising budgets. They blame the heavy use of sales promotion for decreasing brand loyalty, increasing consumer price sensitivity, brand-quality-image dilution, and a focus on short-run marketing planning.
Farris and Quelch, however, dispute this conclusion.52 They counter that sales promotion provides a number of benefits that are important to manufacturers as well as consumers. Sales promotions enable manufacturers to adjust to short-term variations in supply and demand. They enable manufacturers to test how high a list price they can charge, because they can always discount it. They induce consumers to try new products instead of never straying from current ones. They lead to more varied retail formats, such as the everyday-low-price store and the promotional-pricing store. They promote greater consumer awareness of prices. They permit manufacturers to sell more than they would normally sell at the list price. They help the manufacturer adapt programs to different consumer segments. Consumers themselves enjoy some satisfaction from being smart shoppers when they take advantage of price specials.
MAJO DECI ION IN ALE P OMO ION
In using sales promotion, a company must establish its objectives, select the tools, develop the program, pretest the program, implement and control it, and evaluate the results.
Continue reading here: Sales Force Objectives and Strategy
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