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Sales Promotion Overview and the Role of Trade Promotion. Chapter Objectives. After reading this chapter you should be able to : Understand the nature and purpose of sales promotions.
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Chapter Objectives After reading this chapter you should be able to: • Understand the nature and purpose of sales promotions. • Know the factors that account for the increased investment in promotions, especially those that are trade oriented. • Recognize the tasks that promotions can and cannot accomplish. • Appreciate the objectives of trade-oriented promotions and the factors critical to building a successful trade promotions program.
Chapter Objectives (cont’d) • Explain the various forms of trade allowances and the reasons for their use. • Be aware of forward buying and diverting and how these practices emerge from manufacturers’ use of off-invoice allowances. • Appreciate the role of everyday low pricing (EDLP) and pay-for-performance programs as means of reducing forward buying and diverting. • Understand nine empirical generalizations about promotions.
The Nature of Sales Promotion What Exactly is Sales Promotion? • All promotional activities (excluding advertising, public relations, personal selling, direct marketing, and online marketing/social media) that stimulate short term behavioral responses from consumers, the trade (i.e., distributors, wholesalers, or retailers), and/or the company’s own sales force. • Incentives in addition to the product’s basic benefits.
Examples of Sales Promotion Techniques Consumer Samples Coupons Price-offs In/on pack premiums Self-liquidating premiums Bonus packs POP materials Contests Sweepstakes Games Trade Buying allowances Push money Merchandise allowances Advertising allowances Display allowances Specialty advertising Trade shows Sales Force Sales contests Bonuses Meetings Sales aides Training materials POP displays
Baseball Promotions: The Good , the Bad, and the Ugly • Taco Bell, Steal a Base – Free Taco, World Series Promotion • True Value – MLB Opening Day Free Baseball Promotion • Ten Cent Beer Night, Municipal Stadium, Cleveland, OH • Disco Demolition Night, Comiskey Park, Chicago, IL
A Shift in Accounting Rules • Promotions expenditures are now treated as reductions in sales revenue instead of as current expenses • Under the “new” rules, price-discounting promotions are appropriately treated as direct reductions from revenue rather than as indirect expense reductions • This can motivate brand managers to allocate relatively more money into advertising or into other forms of sales promotions other than price discounts
Sales Promotions Can … • Stimulate sales force enthusiasm for a new, improved, or mature product • Invigorate sales of a mature brand • Facilitate the introduction of new products to the trade • Increase on- and off-shelf merchandising space • Neutralize competitive advertising and sales promotions • Obtain trial purchases from consumers • Hold current users by encouraging repeat purchases • Increase product usage by loading consumers • Preempt competition by loading consumers • Reinforce advertising
Sales Promotions Cannot ….. • Compensate for a poorly trained sales force or a lack of advertising • Give the trade or consumers any compelling long-term reason to continue purchasing a brand • Permanently stop an established brand’s declining sales trend or change the basic nonacceptance of an undesired product
Problems with an Excessive Emphasis on Sales Promotion It can: • Damage image of product • Diminish brand loyalty • Reduce consumption
Specific Decisions to Be Made in All Sales Promotion Programs • Size of the incentive (e.g., 15-20% savings) • Conditions for participation • Distribution vehicle • Duration of promotion (e.g., repurchase cycle) • Timing of promotion • Total sales promotion budget
Trade Promotions Scope and objectives: • Introducing new or revised products • Increasing distribution of new packages or sizes • Building retail inventories • Maintaining or increasing the manufacturer’s share of shelf space • Obtaining displays outside normal shelf locations • Reducing excess inventories and increasing turnover • Achieving product features in retailers’ advertisements • Countering competitive activity • Selling as much as possible to final consumers
Ingredients for a Successful Trade Promotion Program Key Ingredients to Success • Financial incentive • Correct timing • Minimize retailer’s effort/cost • Quick results • Improve retailer performance
Examples of Trade Promotion Types • Trade Allowances • Off-invoice allowances • Bill-back allowances • Slotting allowances and exit fees • Cooperative advertising and vendor support programs • Trade contests and trade incentives • POP materials • Training programs • Specialty advertising • Trade shows
Major Forms of Trade Allowances • Most frequently used form • Free goods or price reductions (e.g., “on deal”) for purchases of specific quantity of goods (e.g., 5 free cases or 5% off if purchase 50 cases) • Retailers do not necessarily pass along the discounts to consumers
Major Forms of Trade Allowances • Retailers receive allowances for featuring the manufacturer’s brand in advertisements or for providing special displays. The retailer bills back the manufacturer for services rendered.
Large Chains Don’t Always Pass Along Deals to Consumers (Why?)
Forward Buying and Problems • Forward buying problems: • Deal savings not passed on to consumers • Retailer and distributor costs increase • Manufacturers have higher production costs • Diverting • One possible solution: billing for the deal and holding inventory/producing when needed • Forward Buying • Buying larger quantities than needed due to deals.
Diverting and Problems Diverting Occurs when a manufacturer restricts a deal to a limited geographical area rather than making it available nationally. Retailers then buy abnormally large quantities at the deal price and then sell off, at a small profit margin, the excess quantities in other higher-priced geographical areas. Diverting Problems: • Undermines regional marketing efforts • Products intended for foreign markets are diverted back into domestic markets • Product quality can suffer due to delays • Product tampering can be more difficult to trace due to diverting
Major Forms of Trade Allowances • The fees manufacturers pay retailers for access to a slot, or location in retailer’s (e.g., grocer’s) warehouse • Typically paid (in cash) by a manufacturer to get its new brand accepted by retailers • Any problems with slotting fees?
Exit Fees • In order for the brand to remain in the chain’s distribution center, an average weekly volume amount must be met. • If the brand does not meet the stipulated sales amount, the chain will issue a deslotting charge. The charge, or exit fee, is intended to cover handling costs for removing the item from the distribution center.
Category Management • Category Management: a system established by Procter & Gamble whereby each product category within a company is managed by a category manager who has direct profit responsibility (also at retail level) • Why the shift from brand mgt. category mgt.? • Different consumer preferences across regions of country • Scanner data (including competitive data) • Shift of power from manufacturers retailers • Need for a longer-term focus
Other Efforts to Try to Rectify Trade Allowance Problems • Everyday Low Pricing (EDLP) • Pay-for-Performance Programs • Account-Specific Marketing
Everyday Low Pricing (EDLP) Everyday Low Pricing: Is a form of pricing whereby a manufacturer charges the trade the same price for a particular brand day in and day out. • Introduced by P&G in the 1990’s due to its desire to compete on the basis of providing product value and not mere price savings. • Because off-invoice allowances are not offered under this pricing strategy, wholesalers and retailers have no reason to forward buy or divert. • Yet, it is rare for an item to sell at the same (low) price throughout the entire country.
Pay-for-Performance Pay-for-Performance: Rewards retailers for actually selling the manufacturer’s brand supported with a trade allowance rather than for merely buying the brand at an off-invoice price. This also is known as a “scandown.” • Agreed upon period for mfg. offer of deal price ($1.79) to retailer (vs. regular price of $1.99) • Retailer's scanning verifies 5,680 units sold at $1.79 • Mfg. reimburses retailer for: • Reduced margin .20 @ 5680 units = $1,136 • Trade allowance .05 @ 5680 units = 284 • $1,420
Account Specific Marketing Account Specific Marketing: Also called co-marketing, this characterizes promotional and advertising activity that a manufacturer customizes to specific retail accounts. • Promotion dollars are directed to specific retail customers • Manufacturer advertising and promotion programs are developed in concert with retail advertising and promotion programs • Requires a lot of effort in both development and implementation and is costly, so interest among packaged goods companies may have peaked • That said, powerful retailers benefit from well-designed account-specific programs, so account specific marketing is here to stay
Cooperative Advertising • Cooperative (co-op) advertising: An arrangement between a manufacturer and retailer whereby the manufacturer pays for all or some of the advertising costs undertaken by the retailer. It is initiated by the manufacturer. • Compare this to vendor support system (same as a co-op, but initiated by large retailers)
Cooperative Advertising Five Common Elements • Specified time period • Accrual • Payment share • Performance guidelines • Billing for reimbursement
Specialty Advertising Specialty Advertising An advertising and promotions medium that utilizes useful or decorative articles to transmit to a target audience an organization's identification and promotional message
