Marketing Research in Sales Promotion

1. Marketing Research in Sales Promotion Wenmei Dong Turgut Feyiz Jin Li Pierre Noizet Richard Yang

2. Outline • Introduction • Sales Promotion • Why sales promotion needs MR • MR for promotion optimization • MR Research Measurement Tools & Models • Conclusion

3. What is promotion? Promotion The coordination of all seller initiated efforts to set up channels of information and persuasion in order to sell goods and services or promote an idea.Promotion MIX Advertising Direct Marketing Interactive/Internet Marketing Publicity/Public Relations Personal Selling Sales Promotion

4. Sales Promotion Sales promotion Marketing activities that provide extra value or incentives to the sales force, the distributors, or the ultimate consumer and can stimulate immediate sales.

5. Sales Promotion Targets ConsumerSales Promotion Trade Sales Promotion Sales Promotion

6. Immediate Purchases Uses of Sales Promotion Increase Trial Boost consumer inventory Encourage repurchase Increase ad effectiveness Encourage brand switching Encourage brand loyalty Uses of Sales Promotion

7. Type of Buyer Desired Results Sales PromotionExamples Loyal Customers • Reinforce behavior • Increase consumption • Change timing • Loyalty marketing • Bonus packs Competitor’s Customers • Break loyalty • Persuade to switch • Sampling • Sweepstakes, contests, premiums Brand Switchers • Persuade to buy your brand more often • Price-lowering promotion • Trade deals Price Buyers • Appeal with low prices • Supply added value • Coupons, price-offpackages, refunds • Trade deals Objectives of Sales Promotion

8. Sales Promotion - Double-edged Sword

9. Why we need MR in sales promotion Frequent failures of Promotion • Waste resources • Half of the promotion expenditures go to waste • High promotion spending, low ROI • Cross-product cannibalization, cross-channel dilution and halo effects • Promotion-driven stock-out, excess inventory

10. Why we need MR in sales promotion - cont. Marketing Research can help to Create Optimized Promotion

11. Optimized Promotion • Predict incremental profit , revenue, and associated costs for various promotional alternatives , before we commit marketing dollars • Reduce promotional costs, while simultaneously boosting market response

12. Optimized Promotion – cont. • Avoid cross-product cannibalization, cross-channel dilution and halo effects • Forecast expected impacts on inventory levels • Set optimal mix of promotions to maximize return, while protecting sales, margin, and market share targets

13. How MR Serves Promotion • Test the ideal promotional vehicles • Discount, displays or features for each brand/product • Single Vehicle (e.g., discount) • Mixed Vehicles( e.g., discount and display) • Test which product/brand will profitable to run promotional activities

14. How MR Serves Promotion – cont. • Identify cannibalized products mix and the bundled products mix • Survey the Price Elasticity. Help us to make decision on Production Capacity and the Discount Level • Marginal Revenue = P(1+1/E) • Marginal Cost • Others: test the effectiveness of promotions with specific targets

15. How MR Serves Promotion – cont.

16. How MR Serves Promotion – cont.

17. How MR Serves Promotion – cont.

18. Problems to be solved by MR on sales promotion • What item? • What type of promotion? • When to promote? • For how long? • Where to promote? • At what price? • How? • Results?

19. MR Measurement Tools Measuring Promotion Effectiveness, Estimation and Evaluation of Models • Retail Store Audit • Consumer Purchase Panels • Scanner Data • Nielsen’s SCANTRACK – Largest one

20. Sample Scanner-Panel Data

21. Retail Store Audit Retail Store Audit • Beginning inventory + deliveries –ending inventory = sales for the period • Observable information such as shelf prices, display space, the presence of special displays and in-store promotion activities • Nielsen Retail Index and Audits and Surveys • Advantage: Know the overall sales change • Disadvantage: No details about customers and their purchasing behavior

22. Consumer Purchase Panels • Main categories • Home Audit • Mail Diary • Advantages • Provide changes in behavior • Limitation • Selection bias • Mortality effect • Testing Effect

23. Scanner Data Tools : • Laser Scanner • Universal product code • Generates huge amounts of data • Main suppliers: IRI, Nielsen • Kraft Food spends more than $30 million per year on scanner data • In comparison to survey research: scanner data reveal actual consumer behavior Advantage: • High degree of accuracy • Time saving • Possible to study short period of sales

24. Models • Choice Model • Likelihood (Prob.) going to buy in response to promotion • P (buy) = F (promotion, feature, etc) • Quantity Model • Number of units of a brand a consumer will buy • Q (buy) = F (price cut, inventory, consumption rate, etc) • Promotion Model • Profit = Sum (Profit margin*P*Q)

25. Tools to solve the Model problems • Linear Programming • Objective function ( ROI, Sales, etc) • Constraint • Budget • Inventory • Timing • Optimal Solution • Excel Solver • Various Software (SAP, PeopleSoft, etc)

26. Conclusion MR is like a car light for the marketers to see clearer about the future and know what really works.

27. Questions?