Promotion through the marketing channel

1. Promotion through the marketing channel Week 11 Instructor: Jungwan Lee

2. Coupon • 1900’s –Atlanta druggist Asa Chandler-Handwritten notes-a free glass of Coca-Coal • Coupon face value-180billion/year • Coupon-2 % redeemed by customers-3.6 billion/year • Coupon issuing and distribution costs-6.5 billion/year • P&G-coupon test: elimination??

3. What is promotional strategy? • ..controlled, integrated program of communications methods and materials designed to present a company and its products to prospective customers. • ..to communicate need-satisfying attributes of products toward the end of facilitating sales and thus contributing to long-run profit performance.

4. Major tools for manufacture’s promotional strategy • Advertising • Personal selling • Channel member support • Publicity • Sales promotion

5. Factors influencing trade promotional support • Item importance (16.3%) • Promotion elasticity (9.3%) • Manufacturer brand support (8.2%) • Manufacturer reputation (7.3%) • Promotion wearout (6.4%) • Sales velocity (5.4%) • Item profitability (4.5%) • Incentive amount (4.2%) • -Source: Ronald C. Curhan and Robert J. Kopp, “Obtaining retailer support for trade deals: Key success factors,” Journal of Advertising Research, Dec.1987-jan.1988: p.54

6. Variables of Item importance • Item is significant enough to warrant promotion. • Category responds well to promotion. • Closest trade competitor is likely to promote item. • Item regular sales volume. • Deal meshes with trade promotional requirements.

7. Variables of manufacturer brand support • Manufacturer’s brand support in form of: • Coupons. • Radio and television advertising. • Newspaper advertising. • Point-of purchase promotion (e.g., display)

8. Variables of promotion elasticity • Buyer’s estimate of sales increase on the basis of: • Price reduction and display. • Display only. • Price reduction only. • Price reduction, display, and advertising

9. Pull strategy ..by building strong consumer demand for a product, the manufacturer will force channel members to automatically promote the manufacturer’s products. Push strategy ..requires more direct involvement by the manufacturer with channel members in the use of promotional strategies to secure strong channel member promotional support. Pull versus Push promotional strategies

10. Pull promotions and channels coordination • Some manufacturers rely almost entirely on promotion in the form of advertising to their target markets, to “pull” their products through the channel. • Hence, indirectly secure channel member cooperation. • The belief underlying this pull strategy is that by building strong customer demand for a product, the manufacturers will force channel members to automatically promote the manufacturer’s products. • -source: Eitan Gerstner and James D. Hess, “Pull promotions and channels coordination,” Marketing Science, Winter 1995, pp.43-60

11. Basic push promotional strategies in marketing channels • Cooperative advertising • Promotional allowances • Displays and selling aids • In-store promotions • Contests and incentives

12. “kinder and gentler” push promotion strategies • Training programs • Quota specification • Missionary selling • Trade shows

13. Examples • Cooperative advertising-50:50, 3% allowance of purchases. • Promotional allowance-cash back payment. • Displays and selling aids-promotional kits, special in-store displays, and mailing pieces • In-store promotions-short-term events, Vidal Sassoon haircare • Contests and incentives • Special promotional deals-catch-all category promotional deals: discounts, (buy one get one free, rebates, coupons)

14. Training program • ..are more common for wholesale channel members than for retail. • But,…should not be narrowly confined to being merely a “sales pitch” for the particular manufacturer’s product. • Rather, …worthy of the name should help the channel members not only sell more but to improve their overall businesses as well.

15. Quotas • …are often used by manufacturers as a device to increase channel members’ sales efforts. • The key to using such sales quotas successfully is to present them in a constructive and informative manner rather than in a coercive way.

16. Missionary salespeople • …often used by manufacturer to help focus channel member’s attention on the manufacturer’s product and to assist the channel members in their selling efforts. • The use of missionary salespeople can be very effective if channel members want the help that is offered. • But, if the missionary salespeople do not take up too much of the channel member’s time.

17. Trade show • …have a chance to exhibit their products and to show off the caliber of their organizations provide an opportunity to interact with channel members. • … foster a sense of pride in channel members who carry the manufacturer’s products.

18. Push marketing strategies • Not “down the throats” • Push strategy is one of mutual effort and cooperation between the manufacturer and channel members in the development and implementation of promotional strategies. • In this sense, the manufacturer does not push channel members into promoting its product, but instead seeks their participation and cooperation to provide effective promotional strategies that will be mutually beneficial to the manufacturer and the channel members. • -source: Donald R. Glover, “Distributor attitudes toward manufacturer-sponsored promotions,” Industrial Marketing Management, 1991, pp.241-249

19. Shortcomings with push promotions • Frequent promotion deals erode consumer franchises for existing manufacturer brands, add to the expense of establishing new brands, and increase consumer price sensitivity. • Frequent discounts to channel members offered on products used in trade deals result in deal-to-deal purchasing by channel members and hence uneven factory shipments and increased production costs. • Trade buyers often take advantage of discounts but fail to provide the merchandising support called for and do not pass all price reductions through to consumers. • Some channel members respond to deals by purchasing well above their own requirements and reselling the excess deal merchandise to other retailers at a profit.

20. Rule of thumb • The effectiveness of the manufacturer’s overall promotional strategy is dependent upon how skillful the manufacturer is in securing cooperation from independent channel members in the promotion of products.

21. Channel Member Relationship Management: CMRM • Any marketing mix strategies calling for channel member cooperation should not be haphazard one-shot, quick-fix approaches. • Rather, strategies that involve channel members stand a higher probability of being favorably received by the channel members when they are part of an overall program of manufacturer support of channel member needs. • Distribution programming and the partnerships/strategic alliances can be very valuable in this regard.