1 / 19

Trade and Consumer Promotion

Retailing MKTG 6211. Trade and Consumer Promotion. Professor Edward Fox Cox School of Business/SMU. Types of Manufacturer Sales Promotions. Consumer Promotions Objective is to influence consumer to purchase product/service Trade Promotions

limei
Download Presentation

Trade and Consumer Promotion

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Retailing MKTG 6211 Trade and Consumer Promotion Professor Edward Fox Cox School of Business/SMU

  2. Types of Manufacturer Sales Promotions • Consumer Promotions • Objective is to influence consumer to purchase product/service • Trade Promotions • Objective is to influence retailer/wholesaler to purchase product, and to promote it to the consumer in turn • Business Promotions • Manufacturer to business buyer

  3. Growth of Sales Promotions • Trade Promotion grows with roughly with manufacturers’ dollar sales Source: A.C. Nielsen

  4. How Important Are Promotions? Total Advertising and Promotion Budget % by Spending type -2000 Trade promotion is 12% of gross dollar sales for packaged goods manufacturers Source: A.C. Nielsen

  5. Why the Prominence of Sales Promotions? • Product managers face pressure to increase current sales • Companies face competition in mature markets • Advertising efficiency has declined • Consumers have become more deal-oriented

  6. Consumer Promotions • Short-term incentives by the manufacturer to encourage purchase of a product or service Consumer-Promotion Tools Consumer-Promotion Objectives Advertising Specialties Samples Entice Consumers to Try a New Product Coupons Lure Customers Away From Competitors’ Products Patronage Rewards Patronage Rewards Cash Refunds Get Consumers to “Load Up’ on a Mature Product Contests Price Packs Sweepstakes Hold & Reward Loyal Customers Premiums Games Consumer Relationship Building Point-of-Purchase Displays Source: Adapted from Prentice Hall

  7. Trade Promotions • Short-term incentives by the manufacturer that are directed to retailers and wholesalers Trade-Promotion Tools Trade-Promotion Objectives Premiums Price-Offs Persuade Retailers or Wholesalers to Carry a Brand Allowances Give a Brand Shelf Space Displays Allowances Patronage Rewards Buy-Back Guarantees Promote a Brand in Advertising Discounts Push a Brand to Consumers Push Money Free Goods Specialty Advertising Items Contests Source: Adapted from Prentice Hall

  8. Effects of Consumer and Trade Promotions on Consumer Behavior • Expand category volume • Cause brand switching • Cannibalization • Change purchase timing • Cause stockpiling

  9. Size of the incentive (depth of discount) Considerations in Executing a Trade Promotion What are the conditions for participation? Structure and distribution of the promotion program Length of the program (limited time) How to evaluate success of the program Source: Adapted from Prentice Hall

  10. Issues in Trade Promotion • Accountability • Profitability • Long-term effects of promotions These issues boil down to whether or not trade promotion represents a good investment

  11. Trade PromotionAccountability • Dollars for buying or selling? • Off-invoice allowances • Scan-backs or bill-backs • Forward buying • Diverting / grey markets

  12. Trade PromotionProfitability • What proportion of trade promotion dollars are passed through to consumers? • What proportion end up in the retailer’s pocket? • Do the additional sales from a trade promotion offset the reduced margins and the allowances paid out?

  13. Trade PromotionProfitability Example Consider the following trade promotion example … • Sales for Starkist light meat in-water tuna 6.5 ounces average one case (48 units) per store in a retailer having 100 stores • The regular shelf price is $.79; the retailer pays the manufacturer’s price of $.70 per unit (gross profit is $.09 per unit); Starkist’s production and transportation cost is $.42 per unit (unit contribution is $.28) • The retailer’s gross profit during a normal week is 48 x 100 x $.09 = $432 • The retailer can sell an average of five cases per store during a promoted week if the discounted retail price is $.59 and the product is advertised and displayed

  14. Trade PromotionProfitability Example Starkist offers the following trade deal: • Price-off - 20% off the manufacturer’s regular price for all product sold during the week (scan-back) yields a case price of $26.88 or a discount of $6.72 off the regular case price • Display allowance - $2.00 per case • Advertising allowance - $1,500

  15. Trade PromotionProfitability Example Retailer profitability… • Sales for the promoted week are 5 x 100 = 500 cases or 24,000 units • Revenues for the promoted week are $.59 x 24,000 = $14,160 • Costs for the promoted week • With the price-off, the cost of goods is 500 x $26.88 = $13,440 • Allowances are 500 x $2.00 = $1000 for display and $1,500 for advertising • The promoted item’s weekly contribution is therefore $14,160 - $13.440 + $1000 + $1,500 = $3,220, much more than the normal weekly contribution of $432

  16. Trade PromotionProfitability Example Starkist’s profitability… • For a normal week • Revenues are $.70 x 100 x 48 = $3,360 • Costs are $.42 x 100 x 48 = $2,016 • Contribution is $3,360 - $2,016 = $1,344 • For the promoted week • With the 20% price-off, revenues are 500 x $26.88 = $13,440 • Costs • Production and distribution is 500 x 48 x $.42 = $10,080 • Allowances are 500 x $2.00 = $1000 for display + $1,500 for advertising • Contribution of the promoted item is therefore $13,440 - $10,080 - $1,000 - $1,500 = $860; less than the normal weekly contribution of $1,200

  17. Trade PromotionProfitability Example • So assessing the profitability of a trade promotion requires determining what would have been sold had the promotion not occurred • But what about the effect on other brands (e.g., Chicken of the Sea) and types (e.g., white meat tuna)? • But what about stockpiling – borrowing from future tuna purchases?

  18. Trade PromotionLong-Term Effects • Detrimental to brand health? • Builds the habit of switching • Teaches shoppers to buy on price • Takes resources away from media advertising • Builds brands? • Encourages trial Though there is little evidence of promotion enhancing brand equity, results are inconclusive about harming brand equity

  19. Why Not Reduce Trade Promotions? If a manufacturer reduced trade promotions … • What would competitors do? • Reduce, maintain or increase promotional levels • What would retailers do? • Punish or not punish the manufacturer Example - Procter & Gamble adopted value pricing and lost roughly 5% market share

More Related