ALL YOU NEED TO KNOW ABOUT SALES PROMOTION

1. ALL YOU NEED TO KNOW ABOUTSALES PROMOTION BY Reshma Gala Jae-Yeon Joo Shawn Kline Amol Chopra MKTG-652 Marketing Information : Management & Research Drexel University

2. What is Sales Promotion? 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 traders.

3. Purpose of Sales Promotion • Yield faster, more measurable results in sales • Stimulate consumer trial • Attract new triers or brand switchers • Reward loyal customers • Increase repurchase rate of occasional users • Enhance Brand Image (E.g.. Toro Snow Blowers)

4. Two major categories of Sales Promotion Consumer Sales Promotion Directed to consumers of goods and service Trade Sales Promotion Directed to distributors and retailers

5. Consumer Sales Promotion • Objectives • Obtaining trial and repurchase • Increasing consumption of an established brand • Defending current customers • Enhancing advertising and marketing efforts

6. Consumer Sales Promotion • Sampling • Give some quantity of product for no charge to induce trial • Excellent way of inducing a trial of both new brand and already established products • Could be costly • Door-to-door sampling, sampling through the mails, in-store sampling, on-package sampling, & demonstrating/sampling the products at a retailer store

7. Consumer Sales Promotion • Coupons • A certificate that entitles consumers to an immediate price reduction when product bought • Most widely used and effective promotion • Used for both new product trial and established product • Costly – only about 2% redeemed by consumers • Distributed through media deliveries in newspapers and magazines, direct mail, in or on packages, in stores, and at point-of-purchase

8. Consumer Sales Promotion • Premiums • An offer of an extra item of merchandise or service either free or at a low price. An incentive for purchase • High impulse value • Consumers most preferred types of promotion • With pack premium • Free in-the-mail premium • Self liquidating premium

9. Consumer Sales Promotion • Contests and Sweepstakes • Contests: consumers compete for prizes or money. Winners are determined by judging entries against some predetermined criteria. A purchase incentive(requires proof of purchase) • Sweepstakes: winners are determined purely by chance. No need for proof of purchase • Both are effective ways of getting consumers become involved with the brand by making the promotion product relevant

10. Consumer Sales Promotion • Refunds and Rebates • Offers to return some portion of product purchase price with proof of purchase • Good in a way to get the information about consumers who bought the products from mail-in forms • Allow marketers to achieve a price reduction for much less than in a direct price deal

11. Consumer Sales Promotion • Price Pack(price-off deal) • Offers to consumers of savings off the regular price of products, flagged on the label or packaging • Reduced-price pack: buy one get one free • Banded pack: two related products banded together • Used by retailers as well to reduce its inventories

12. Consumer Sales Promotion • Frequent Buyer Programs • Promotions for loyal consumers • Frequent flyer program • Product Warranties • Tie-in Promotions • Cross Promotions • Point of Purchase Display and Demonstrations

13. Trade Sales Promotion • Objectives • Obtaining distribution and support for new products • Maintaining trade support for established brands • Encouraging retailers to display and promote established brands • Building retail inventories

14. Trade Sale Promotion • Allowance • Discount of deal offered to the retailer or wholesaler to encourage them to stock, promote, or display a manufacturer’s products • Buying allowances: price reduction on merchandise ordered during a fixed period • Promotional allowances: performing certain promotional or merchandising activities in support of their products • Slotting allowances: special allowance for agreeing to handle new products

15. Trade Sales Promotion • Trade shows and Conventions • Exhibitions or forum where manufacturers display their products to current as well as prospective buyers • Major opportunity to display and demonstrate products, interact with customers, identify new prospects, gather consumer and competitive information and even write new orders • Big portion of annual promotion budget

16. Trade Sales Promotion • Sales Contests • Aims at inducing the sales force or dealers to increase their sales results over a stated period, with prizes going to those who succeed • Sales Training program • Provides sales training assistance to retail sales people • Complex products like computer industries

17. Trade Sales Promotion • Free goods • Offers of extra cases of merchandise to intermediaries who buy a certain quantity or who feature a certain flavor or size • Manufacturers might offer push money or free specialty advertising items to retailers that carry the company’s name

18. Major Decisions in Sales Promotion Establish Objectives Selecting the Appropriate Tools Developing the Program Pretesting, Implementing and Controlling the Program Evaluate Results

19. Major Decisions: Establishing Objectives • Objectives for Consumers • Purchase larger size units • Lead nonusers to trial • Attract switchers from competing brands • Objectives for the Sales Force • Encourage support of new products • Encouraging more prospecting • Stimulate off-season sales

20. Major Decisions: Establishing Objectives • Objectives for Retailers • Carry new items in stock • Carry a higher level of inventory • Off-season buying • Stock related items • Offset competitive promotions • Build brand loyalty • Enter new retail outlets

21. Major Decisions: Selecting the Appropriate Tools • Consumer Promotion Tools • Manufacturer Promotions • Retailer Promotions • Consumer-Franchise Building Promotions • Non-Consumer-Franchise Building Promotions

22. Manufacturer Promotions Rebates Gifts Special Trade-in Deals Retailer Promotions Price Cuts Feature Advertising Retailer Coupons Retailer Contests and Premiums Major Decisions: Selecting the Appropriate Tools

23. Consumer-Franchise Building Reinforce consumer’s brand understanding Coupons Free samples Premiums (when related to product) Non-Consumer-Franchise Building Price-off packs Premiums (not related to product) Contests & Sweepstakes Refunds Trade Allowances Major Decisions: Selecting the Appropriate Tools

24. Major Decisions: Selecting the Appropriate Tools • Consumers like promotions • High Equity Brand: Use Promotion • Low Equity Brand: Promos have no effect • Utilitarian brand: Use monetary promotion • Indulgence brand: Use non-monetary promotion • Participation is dependent upon satisfaction with retailers Source: Northwestern University Study as cited in PRIMEDIA Business Magazine

25. Major Decisions: Selecting the Appropriate Tools • Trade Promotion Tools • Higher portion of promotion allocation • Rationale: • Persuade retailer/wholesaler to carry brand • Persuade retailer/wholesaler to carry more units • Encourage retailers to promote brand • Stimulate retailers to push product

26. Major Decisions: Selecting the Appropriate Tools • Examples of Trade Promotion Tools: • Price-off • Allowance (advertising/display) • Free Goods

27. Major Decisions: Selecting the Appropriate Tools • Sales Force/Major Business Promotion Tools • Trade Shows & Conventions • Sales Contests • Specialty Advertising

28. Major Decisions: Developing the Program • Integration of various tools • Factors: • Size of Incentive • Conditions for Participation • Duration • Distribution • Timing • Total Sales-promotion Budget

29. Major Decisions: Pretesting, Implementation & Control • Pretesting is important to ensure efficacy of promotion tools • Implementation • Lead time: preparation prior to launch • Sell-in time: begins with promotional launch and ends when 95% of merchandise is distributed to consumers

30. Tools used to evaluate Sales Promotion • Sales data • Consumer surveys • Experiments • Regression Analysis • Choice and Purchase Timing Models • Time Series Analysis

31. Evaluation of Sales Promotion • Brand switching • Repeat purchasing • Purchase acceleration • Category expansion

32. Experiments: Sales Promotion • Time Series Quasi-Experiments • Sales are observed for some period of time, a promotion is then introduced and sales are observed both during and after the promotion • The observation could be on a panel of customers, one or more cities or even one or more stores

33. Experiments: Sales Promotion • Two-Group Pre-Post Experiments • The experiment is conducted on 2 groups • Groups are randomly assigned to ‘experimental units’ such as stores • The units have same characteristics, so that any unusual event if occurs, will occur in both units • Sales promotion is done in these units and results are measured

34. Experiments: Sales Promotion • Experiments involving more than one variable • Randomized Blocks : Dividing the units into different groups and then studying them • Latin Squares : • Full and Fractional Factorials:

35. Sales Promotion & Regression Analysis • Regression Analysis can be applied on the data collected for analyzing Sales Promotion. • The dependent variables can be brand sales, category sales or even market share • The independent could be various promotions like features, deals, price, display, coupons and such

36. Choice and Purchase Timing Models • Choice Models • focus on the individual consumer and modeling her choice behavior • used to understand carry-over effects and heterogeneity in deal response • focuses on which brand is purchased • Purchase models • used to analyze stockpiling behavior • focuses on when a brand is purchased • Combination used to understand sources of volume

37. Sales Promotions & Time Series Analysis • Techniques designed to examine data that evolve over time • Univariate time series analysis : predict value of sales as a function of previous sales • Transfer function analysis : starts with univariate time series and then adds independent variables such as promotions • Intervention analysis : similar to transfer function analysis, but is particularly suited to the analysis of promotions. • Promotions are viewed as short term pulses ‘intervening” with the normal progression of sales time series

38. Examples • ‘Micromarketing An Individual Approach’ – Pharmaceutical Executive (Dec 2001) • Computing power of today's PC enables marketers to conduct analysis that were unthinkable just a few years ago, creating exciting new ways to approach and track promotions

39. Examples • ‘Evaluating Promotions in Shopping Environments: Decomposing Sales Response into Attraction, Conversion, and Spending Effects’– Marketing Science Vol.20, No.2, Spring 2001 • Proposes a framework that incorporates attraction effects, conversion effects and spending effects and examines the influence of sales promotions on store performance • Price promotion : • have little impact on front traffic, but positively effects store entry and likelihood that a consumer will make a purchase • The effect on consumers’ spending in a store is also significant, but varies in sign with the promotion employed • Promotions with greater scope enhances store entry, promotions with narrow scope seem to have negative impact on store traffic

40. Challenges for Sales Promotions • Marketers are becoming too dependent on using sales promotion to produce short-term or immediate increases in sales • Companies are investing in sales promotion at the expense of advertising and thus not building the long-term value of the brand franchise • Brands are losing their perceived value from the perspective of consumers when they are purchased because of a promotional offer • Consumers focus more on the promotion than the product. In fact, sometimes consumers are not at all loyal to the product but are attracted to the coupon, gift, or rebate

41. Challenges for Sales Promotions • Challenges with Trade Promotion • Difficult to police retailers • Forward buying • Diverting • No legal binding on retailers • Difficulty in monitoring retailers (as regards to advertisement regarding the deals)

42. Challenges for Sales Promotions • Coupons – consumer delays purchases • Deals – reduce perceived product value and delay in purchase • Premiums – consumers buy for premium not for product • Contests – requires creative or analytical thinking • Sweepstakes – sales drop after sweepstakes

43. Challenges for Sales Promotions • Samples – high cost for companies • Continuity program – high cost for companies • Point-of-purchase display – hard to get retailer to allocate high-traffic space • Rebates – easily copied; steal sales from future; reduce perceived product value • Product placement – little control over presentation of product

44. Examples • ‘Too Much Information’– Supermarket Business : February 15, 2000 • Only 15% of the manufacturers surveyed indicate that retailers ‘frequently’ share data with them. • Main reason for the lack of openness include privacy issues, questions regarding the benefits of such relationship, and the lack of structured or established sharing program • Knowing who the retailer’s consumers are and what they’re buying is only a small piece of puzzle. Understanding who they are is the real challenge

45. Examples • ‘Battery ads run low ; Price battle saps dollars from category advertising budgets. ’– Advertising Age, May 6, 2002 • Example of Duracell, which cut ad-spending by 38% while increasing promotion, in response to steep deals started in1999 by its rivals. But, at the end of the fourth quarter they realized that despite a 6% gain in unit volume, dollar sales fell 3%

46. Examples • ‘Do We Care What Others Get ? A Behaviorist Approach to Targeted Promotions’– Journal of Marketing Research (Aug 2002) • Increase in use of targeted promotions- the practice of offering different prices to prospective and present customers • Consumer preference affected not just by prices the consumers are offered, but also by prices available to others • Amazon was target promoting, but it stopped doing that as soon as customers started complaining about charging different prices to different customer.

47. Current Trends in Sales Promotion • Increase in share of sales promotion as part of marketing budget • Did you know that a decade ago, the advertising-to-sales-promotion ratio was 60:40? • Today, in many consumer goods companies, sales promotion accounts for 65% to 75% of the combined budget!

48. Current Trends in Sales PromotionSAMPLING • Sampling: $1.2 million industry • Point-of-sweat sampling: UNILEVER is getting aerobics instructors at Bally’s Fitness Clubs to hand out Dove body wash, deos and face cloths to perspiring students. • Point-of-thirst sampling: Beverage companies doling out cold drinks on hot days. Starbucks recently had its “chill patrol” handing out frozen Frappuccino samples and two-for-one coupons on a hot summer afternoon in Manhattan.

49. Current Trends in Sales Promotion SAMPLING • Point-of-dirt sampling: Stain remover and hand cleansing companies snaring consumers at mall food courts. • Point-of-relief sampling: Dr. Scholl’s bestowing blister treatment cushions to runners at the Chicago Marathon. • Today, precision is needed to determine what, where and how you deliver samples.

50. Current Trends in Sales PromotionEXPERIENTIAL MARKETING • Sampling agencies reinventing themselves to provide a “brand experience”. • Using interactive elements to communicate with the market. • Ex: Adidas used street theatre and discount coupons to create a brand experience. • Ex: Marks and Spencer used live models as mannequins to display women’s lingerie and had store employees to hand out discount coupons to passers-by.