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  • 1. Marketing Management Unit 4 Delivering Marketing Programs Chapter 14 - Promotion-Decisions and Strategies Lesson 43 - Sales PromotionLet us now know about yet another popular component of promotion mix-sales promotion.A good definition of sales promotion would be as follows:“An activity designed to boost the sales of a product or service. It may include an advertising cam-paign, increased PR activity, a free-sample campaign, offering free gifts or trading stamps, arrangingdemonstrations or exhibitions, setting up competitions with attractive prizes, temporary price reduc-tions, door-to-door calling, telemarketing, personal letters on other methods”.Sales promotion - Short-term incentives to encourage the purchase or sale of a product or service.You would agree that more than any other element of the promotional mix, sales promotion isabout “action”. It is about stimulating customers to buy a product. It is not designed to be informa-tive – a role which advertising is much better suited to.Sales promotion consists of short-term incentives to encourage purchase or sales of a product orservice., whereas advertising and personal selling offer reasons to buy a product or service, salespromotion offers reasons to buy now.You would find it interesting to note : Sales promotion is commonly referred to as “Below the Line” promotion. Advertising and personal selling Sales promotion can be directed at: The ultimate consumer (a “pull strategy” encouraging purchase) The distribution channel (a “push strategy” encouraging the channels to stock the product). This is usually known as “selling into the trade”DO YOU KNOW THE PURPOSE OF SALES PROMOTION ?Sales promotion activities may be used singly or in combination, both offensively and defensively, toachieve one goal or a set of goals.Sales-promotion tools vary in their specific objectives. A free sample stimulates consumer trial,whereas a free management-advisory service aims at cementing a long-term relationship with aretailer.Sellers use incentive-type promotions to attract new users, to reward loyal customers, and toincrease the repurchase rates of occasional users. Sales promotions used in markets of high brandsimilarity produce a high sales response in the short run but little permanent gain in market share. Inmarkets of high brand dissimilarity, sales promotions can alter market share permanently.Sales promotions enable manufacturers to adjust to short-term price they can charge, because theycan always discount it. They induce consumers to try new products instead of never straying from16.101G © Copy Right : Rai University 443
  • 2. Marketing Managementcurrent ones. They lead to more varied retail formats, such as the everyday-low-price store and thepromotional-pricing store. They promote greater consumer awareness of prices. They permit manu-facturers to sell more than they would normally sell at the list price. They help the manufactureradapt programs to different consumer segments. Consumers themselves enjoy some satisfactionfrom being smart shoppers when they take advantage of price specials. Today, many marketing managers first estimate what they need to spend in trade promotion,then what they need to spend in consumer promotion. Whatever is left they will budget for advertis-ing. There is a danger, however, in letting advertising take a back seat, because advertising typicallyacts to build brand loyalty. The question of whether or not sales promotion weakens brand lo9yality issubject opt different interpretations. Sales promotion , with its incessant price off, coupons, deals, andpremiums, may devalue the product offering in buyers’ mind . Buyers learn that the list price islargely a fiction. However, before jumping to any conclusion, we need to distinguish between pricepromotions and added-value promotions. These examples show how certain types of sales promotioncan axially enhance brand image.WHAT ARE METHODS FOR SALES PROMOTION?Sales Promotion Methods. Most sales promotional methods can be classified as promotion tech-niques either for consumer sales or for trade sales.1. A consumer sales promotion method attracts consumers to particular retail stores and moti- vates them to purchase certain new or established products.2. A trade sales promotion method encourages wholesalers and retailers to stock and actively promote a manufacturer’s products.3 . A number of factors enter into marketing decisions about which and how many sales promotion methods to use.You must be familiar with many of the following sales promotion methods:- Rebates. A rebate is a return of part of the purchase price of a product.- Usually the rebate is offered by the producer to consumers who send in a coupon along with a specific proof of purchase.- Rebating is a relatively low-cost promotional method. Coupons. A coupon reduces the retail price of a particular product by a stated amount at the time of purchase.- These coupons may be worth anywhere from a few cents to a few dollars.- They are made available to customers through newspapers, magazines, direct mail, online, and in shelf dispensers in the store.- Coupons may also offer free merchandise, either with or without an additional purchase of the product. Samples. A sample is a free product given to customers to encourage trial.- Samples may be offered via online coupons, direct mail, or in stores.- Samples are the most expensive sales promotion technique. Premiums. A premium is a gift that a producer offers the customer in return for using its product. Frequent-User Incentives. Frequent-user incentives are programs developed to reward customers who engage in repeat (frequent) purchases.- Frequent-user incentives build customer loyalty.- An airline’s frequent-flyer program is one example of a frequent-user incentive. Point-of-Purchase Displays. A point-of-purchase display is promotional material placed within a retail store.444 © Copy Right : Rai University 16.101G
  • 3. Marketing ManagementIt may actually hold merchandise or inform customers of what the product offers and encouragethem to buy it. Most point-of-purchase displays are prepared and set up by manufacturers andwholesalers. Trade Shows. A trade show is an industry wide exhibit at which many sellers display their products.- Some trade shows are organized exclusively for dealers–to permit manufacturers and wholesal- ers to show their latest lines to retailers.- Others are promotions designed to stimulate consumer awareness and interest. Buying Allowances. A buying allowance is a temporary price reduction to resellers for pur- chasing specified quantities of a product.A buying allowance may serve as an incentive to resellers to handle new products, stimulate pur-chase of items in large quantities. Buying allowances are simple, straightforward, and easily administered. They can easily be copied by competitors. Cooperative Advertising. Cooperative advertising is an arrangement whereby a manufac- turer agrees to pay a certain amount of the retailer’s media costs for advertising the manufacturer’s product.WHAT ARE THE MAJOR DECISIONS IN SALES PROMOTION ?1. Establish its objectives,2. Select the tools,3. Develop the program,4. Pretest the program,5. Implement and control it, and6. Evaluate the results. Establishing objectives Sales-promotion objectives are derived from broader promotion ob- jectives, which are derived from more basic marketing objective developed for the product. For Consumers, objectives include encouraging purchase of larger – sized unit, building trial among nonusers, and attracting switchers away from competitiors’ brands. For retailers, objectives include persuading retailers to carry new items and higher levels of inventory, encouraging off- season buying, encouraging stocking of related items, offsetting competitive promotions, building brand loyalty, and gaining entry into new retail outlets. For the sales force, objective include encouraging support of a new product or model, encouraging more prospecting, and stimulating off-season sales. Selecting consumer – promotion tools The promotion planners should take into account the type of market, sales-promotion objectives, competitive conditions, and each tool’s cost-effec- tivenessThe main consumer-promotion tools have been discussed in previous section. We can distinguishbetween manufacturer promotions and retailer promotions. The former are illustrated by the autoindustry’s frequent use of rebates, gifts to motivate test-drives and purchases, and high-retailer con-tests or premiums., We can also distinguish between sales-promotion tools that are “consumer-fran-chise building,” which reinforce the consumer’s brand preference, and those that are not., Theformer impart a selling message along with the deal, as in the case of free samples, frequencyawards, coupons when they include a selling message, and premiums when they are related to theproduct. Sales-promotion tools that are not consumer-franchise building include price-off packs, con-sumer premiums not related to a product, contests and sweepstakes, consumer refund offers, andtrade allowances.Sales promotion seems most effective when used together with advertising. In one study, a price16.101G © Copy Right : Rai University 445
  • 4. Marketing Managementpromotion alone produced only a 15 percent increase in sales volume. When combines with featureadvertising, sales volume increased 19 percent; when combined with feature advertising and a point-of-purchase display, sales volume increased 24 percent.Many large companies have a sales-promotion manager whose job is to help brand managerschoose the right promotional tools. The following example shows how2 one firm determined theappropriate tools.Selecting trade-promotion tools Manufacturers use a number of trade-promotion tolls. Superpressingly, a higher proportion of the promotion pie is devoted to trade-promotion tools ( 46.9percent) than to consumer promotion ( 27.9 percent), with media advertising capturing theremaining 25.2 percent. Manufacturers award money to the trade (1) to persuade the retailer orwholesaler to carry the brand; (2) to persuade the retailer or wholesaler to carry more units thanthe normal amount; (3) to induce retailers to promote the brand by featuring, display, and pricereductions; and (4) to stimulate retailers and their sales clerks to push the product.The growing power of large retailer has increased their ability to demand trade promotion at theexpense of consumer promotion and advertising. 57 These retailers depend on promotion money fromthe manufacturers. No manufacturer could unilaterally stop offering trade allowances without losingretailer support. The company’s sales force and its brand managers are often at odds over tradepromotion. The sales force says that the local retailers will not keep the company’s products on theshelf unless they receive more trade-promotion money; whereas the brand managers want to spendthe limited funds on consumer promotion and advertising. Manufacturers face several challengers inmanaging trade promotions., they often find it difficult to police retailers to make sure they are doingwhat they agreed to do. Manufacturers are increasingly insisting on proof of performance beforepaying any allowancesSelecting business – and sales-force-promotion tools Companies spend billions of dollars onbusiness – and sales-force-promotion tools (Table 20.5). These tools are used to gather businessleads, impress and reward customers, and motivate the sales force to greater effort. Companiestypically develop budgets for each business-promotion tools that remain fairly constant from year toyear.Developing the program In planning sales-promotion programs, marketers are increasingly blend-ing several media into a total campaign concept. Kerry E. Smith describes a complete sales-promo-tion program:A sports trivia games to create pull-through at taverns for a premium beer brand would use TV toreach consumers, direct mail to incentives distributors, point-of—purchase for retail support, tele-phones for consumer cal-ins, a service bureau for call processing, live operators for data entry, andcomputer software and hardware to tie it all together… companies use teleprompting not only to pullproduct through at retail but also to identify customers, generate leads, build databases and delivercoupons product samples, and rebate offers.60Pretesting, implementing, controlling, and evaluating the programAlthough most sales-promotion programs are designed on the basis of experience, pretests should beconducted to determine if the tools are appropriate, the incentive size optimal, and the presentationmethod efficient. Roger Strange maintains that promotions usually can be tested quickly and inex-pensively and that large companies should test alternative strategies in selected market areas witheach national promotion. Consumers can be asked to rate or rank different possible deals, or trialtests can be run in limited geographic areas.446 © Copy Right : Rai University 16.101G
  • 5. Marketing ManagementMarketing managers must prepare implementation and control plans for each individual promotionthat cover lead time and sell-in-time. Lead time is the time necessary to prepare the program prior tolaunching it: initial planning, design, and approval of package modifications or material to be mailed ordistributed; preparation of advertising and point-of-sale materials; notification of field sales person-nel; establishment of allocations for individual distributors; purchasing and printing of special premi-ums or package materials; production of advance inventories in preparation for release at a specificdate; date; and, finally, the distribution to the retailer. sell-in time begins with the promotional launchand ends when approximately 95 percent of the deal merchandise is in the hands of consumers.To evaluated the program, manufacturers can use three method: sales data, consumer surveys, and experiments.The first method involves using scanner sales data, which are available from companies such asInformation Resources Inc. and Nielsen Media Research. Marketers can analyze the types of peoplewho took advantage of the promotion, what they bought before the promotion, d how they behavedlate toward the brand and other brands.In general, sales promotions work best when they attract competitors’ customers to try a superiorproduct and these customers switch. If the company’s product is not try a superior product and thesecustomers switch. If the company’s, product is not superior, the brand’s share is likely to return to this– pre-promotion level. If more information is needed, consumer surveys can be conducted to learnhow many recall the promotion, what they thought of it, how many took advantage of it, and how thepromotion affected subsequent brand-choice behavior.Sales promotions can also be evaluated through experiments that very such attributes as incentivevalue, duration , and distribution media. For example, coupons can be sent to half of the households ina consumer panel. Scanner data can be sued to track whether the coupons led more people to buythe product immediately and in the future.Beyond the cost of specific promotions, management must recognize additional costs. First, promo-tions might decrease long-run brand loyalty by making more consumers deal-prone rather than ad-vertising-prone . Second, promotions can be more expensive than they appear. Some are inevitablydistributed to the wrong consumers.Third, there are the costs of special production runs, extra sales-force effort, and handling requiems. Finally, certain promotionsirritate retailers, who may demand extra trade allowances or refuseto cooperate.APPLICATION EXERCISE :Review the following article. Comment on the strategy fol-lowed .Something interesting for you ……….Microwave sales sizzle in small townsAMRITA NAIR GHASWALLAMUMBAI: Experiential marketing is the new buzzword for the microwave oven category. For con-sumer durable majors catering to microwave ovens, cookery shows are the order of day and tagging16.101G © Copy Right : Rai University 447
  • 6. Marketing Managementalong for the sales pitch are microwave oven cookbooks and even microwave cookware. The target:B and C class towns.While earlier markets like Ranchi, Haryana and Coimbatore accounted for 30 to 40 microwaveovens, today, consumer durable firms are selling approximately 400 microwave ovens in these andsmaller towns. The positive response has had firms ramping up their marketing and communicationefforts.Consumer durable major LG Electronics has chalked out a clear strategy to tap the mass market andis looking at selling one million microwave ovens in the next five years.Saurabh Baisakhia, LG product group head, maintains that consumer sale for LG is happening pre-cisely as a result of “these marketing initiatives.”The firm appears to have broken the seasonality myth associated with the MWO category. AddsBaisakhia, “The focussed initiatives of meeting our consumers need through pre sales promotionsand post purchase experience (read cookery classes) has ensured that LG MWOs sales this yearwas not affected by the popular misconception of slow summer sales.”According to the latest figures released by ORG, LG has cornered a 33.3 per cent market share forthe first half of 2003. Samsung is a close second with a market share of 31.4 per cent. While LG sold18,256 units in the first six months, Samsung sold 17,203 units during the same periodSamsung director R Zutshi pointed out that, “Cookery classes, MWO melas in smaller markets anda fullyequipped demonstration centre in Pune, where cooking classes are held for housewives andpotential customers, are some of our marketing initiatives which have yielded results.”In a bid to boost sales, Samsung is also giving a free Tarla Dalal recipe book, a MWO starters-kitcomprising of five bowls, a chappati warmer, a dhokla maker and a coffee maker among othercookware. POINTS TO REMEMBER448 © Copy Right : Rai University 16.101G
  • 7. Marketing Management16.101G © Copy Right : Rai University 449