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Effect of Sales Promotion on the sale of FMCG products


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Effect of Sales Promotion on the sale of FMCG products

  1. 1. PILLAI’S INSTITUTE OF MANAGEMENT STUDIES & RESEARCH Sector 16, New Panvel East, Navi Mumbai - 410206 EFFECT OF SALES PROMOTION ON THE SALE OF FMCG PRODUCTSA PROJECT ON W.R.T. RETAIL MALLS (Submitted in Partial Fulfillment of the Award of the Degree of Master in Management Studies of University of Mumbai) Submitted by SAYED IMRAN ALAMGIR Roll No. 171 UNDER THE GUIDANCE OF PROF. RUCHIKA GOEL MMS 2011-13
  2. 2. DECLARATIONI, Mr. Sayed Imran Alamgir of Pillai‘s Institute of Management Studies and Research herebydeclare that the Project Work titled ―Effect of Sales Promotion on the sale of FMCG productswrt Retail Malls‖ submitted as part of my curriculum of MMS degree is the original workdone by me the project has not formed the basis for an award of any degree, associate ship,fellowship or any similar titles. Signature of the student Sayed Imran AlamgirPlace:Date: 1
  3. 3. CERTIFICATEThis is to certify that the Project Work titled ―Effect of Sales Promotion on the sale of FMCGproducts wrt Retail Malls‖ is a bonafide work of Mr. Sayed Imran Alamgircarried out inpartial fulfillment for the award of degree of MMS under my guidance. This project work isoriginal and not submitted earlier for the award of any degree/ diploma of this or any otherUniversity/ Institution.Prof. RuchikaGoel Director(Project Guide)Place:Date: 2
  4. 4. ACKNOWLEDGEMENTI have taken efforts in this project. However, it would not have been possible without the kindsupport and help of many individuals and organizations. I would like to extend my sincerethanks to all of them.First of all, I wish to express my indebtedness to Prof. RuchikaGoel, Pillai‘s Institute ofManagement Studies & Research, for her valuable suggestions and guidance throughout theproject.I would also wish to express my warmest thankfulness to Mr. K. Shivaji, Store Manager,D‘Mart (New Panvel), who took out some of his valuable time to provide inputs for thisproject. I would also like to thank Mr. VikramShekhawat, Store Manager, Reliance Fresh(CBD Belapur) and Mr. Sanjay Dumbare, Store Manager, Big Bazaar (Kharghar) forallowing me to conduct my research on their premises.I would like to express my gratitude towards my family & members of D‘Mart (NewPanvel)for their kind co-operation and encouragement which help me in completion of thisproject.I would like to express my special gratitude and thanks to industry persons for giving mesuch attention and time.My thanks and appreciations also go to my colleague in developing the project and peoplewho have willingly helped me. 3
  5. 5. TABLE OF CONTENTS1. 1.0 Executive Summary………………………………………………… 52. 2.0 Research Objectives………………………………………………… 63. 2.1 Objectives…………………………………………………… 64. 2.2 Motivation for the study…………………………………….. 65. 2.3 Research Hypothesis…………………………………………. 66. 3.0 Introduction to FMCG………………………………………………. 77. 3.1 FMCG Concept and Definition……………………………… 78. 3.2 Characteristics of FMCG Products……………………………. 79. 4.0 Introduction to Retailing & Retail Malls…………………………….. 1210. 4.1 Retailing in India……………………………………………… 1211. 4.2 Retail Malls in India…………………………………………. 1312. 5.0 Introduction to Sales Promotion………………………………………. 1513. 5.1 Sales Promotion……………………………………………… 1514. 5.2 Sales Promotion Tools………………………………………… 1615. 5.3 Purpose of Sales Promotion…………………………………... 2016. 5.4 How Sales Promotion Objectives are set…………………….. 2017. 5.5 Sales Promotion Effectiveness………………………………. 2418. 5.6 Sales Promotions in India…………………………………… 2519. 6.0 Literature Review…………………………………………………… 2620. 6.1 Promotion & Consumption…………………………………… 2621. 6.2 Sales Promotion and Consumer Response/ Preference……… 2722. 6.3 Price elasticity………………………………………………… 2823. 6.4 Sales promotion: immediate price reductions………………… 2924. 6.5 Consumer goals………………………………………………. 3125. 6.6 Price promotions and pre-purchase goals…………………….. 3226. 6.7 Promotion format: Discount vs. Free Gift…………………… 3327. 6.8 Short- and long term effects of Sales Promotion…………… 3728. 6.9 Price sensitivity……………………………………………… 3929. 7.0 Research Methodology……………………………………………… 4030. 7.1 Research Design……………………………………………… 4031. 7.2 Product categories under study……………………………… 4032. 7.3 Sampling Design & Data Collection………………………… 4033. 8.0 Data Analysis………………………………………………………... 4134. 8.1 Data Collection & Interpretation……………………………. 4135. 8.2 Retailer Interview……………………………………………. 5236. 8.3 Findings of the report…………………………………………. 5437. 8.4 Recommendation……………………………………………… 5538. 8.5 Limitations of the study…………………………………….. 5639. 8.6 Demographic analysis………………………………………. 5740. 9.0 Conclusion of the survey…………………………………………… 6241. 10.0 Bibliography……………………………………………………… 6342. 11.0 Web References…………………………………………………… 6443. 12.0 Questionnaire……………………………………………………… 65 4
  6. 6. 1.0 Executive SummaryThe Indian FMCG sector is the fourth largest sector in the economy with a totalmarket size inexcess of US$ 20.1 billion. It has a strong MNC presence and is characterized by a well-established distribution network, intense competition between the organized and unorganizedsegments and low operational cost. Availability of key raw materials, cheaper labor costs andpresence across the entire value chain givesIndia a competitive advantage. Also, increase inthe urban population, along with increase in income levels and the availability of newcategories, would help the urban areas maintain their position in terms of consumption. Atpresent, urban India accounts for 66% of total FMCG consumption, with rural Indiaaccounting for the remaining 34%. However, rural India accounts for more than 40%consumption in major FMCG categories such as personal care, fabric care, and hot beverages.Family income is one of the variables which should be considered while designing salespromotion schemes more specifically cash discount. There is significant difference betweenconsumer preference of cash discount and free gift as sales promotion schemes. It is also veryclear that consumers prefer cash discount as a sales promotion schemes compare to free giftas a sales promotion scheme. It is found that Consumer deal proneness differs according tomarital status. Furthermore, it is also proved that married are more deal prone compare toUnmarried.Added to it Brand Equity perception differs according to employment categories. It isconcluded that male prefers the newspaper and point of purchase material as a source toknow sales promotion schemes over female.Overall, Sales promotion scheme on international brand, awareness spread out by word ofmouth, Scheme is value added type with immediate benefit is preferred by the customers. Sowhile designing sales promotion schemes and its benefits from the perspectives of thecustomers above mentioned attributes of the sales promotion schemes should be consideredto achieve the objectives of the sales promotion schemes. 5
  7. 7. 2.0 Research Objectives 2.1 Objectives 1. To study consumer preferences with respect to sales promotion in FMCG sector. 2. To examine tradeoffs, relative importance of different attributes while responding to a sales promotion offer. 3. To study the effect of sales promotions in FMCG sector esp. in soaps and detergent industry. 4. To study consumer behavior in purchase of soaps and detergent 2.2 Motivation for the study With the growth of population and spending power of the consumer has created the opportunities and challenges for the FMCG companies in the world market. Simultaneously, competition to win consumers has been increased drastically. World is becoming the small village and Many MNC‗s have entered in India and other countries. Marketing paradigm is shifting from consumer satisfaction to consumer delight. Enticing consumers with the various sales promotion schemes is the order of the day. If this tool is not used strategically, company has to follow the trend of promotions to maintain the market share. Considering almost universal applications of designing the sales promotion schemes and understanding its impact on business has motivated to take the steps in the direction to study this crucial aspect of promotion management. 2.3 Research Hypothesis H0: Promotional schemes do not have a significant effect on the purchase of brand. H1: Promotional schemes do have an effect on the purchase of brand. 6
  8. 8. 3.0 Introduction to FMCG Industry 3.1 FMCG Concept and Definition The term FMCG (fast moving consumer goods), although popular and frequently used does not have a standard definition and is generally used in India to refer to products of everyday use. Conceptually, however, the term refers to relatively fast moving items that are used directly by the consumer. Thus, a significant gap exists between the general use and the conceptual meaning of the term FMCG. Further, difficulties crop up when attempts to devise a definition for FMCG. The problem arises because the concept has a retail orientation and distinguishes between consumer products on the basis of how quickly they move at the retailer‘s shelves. The moot question therefore, is what industry turnaround threshold should be for the item to qualify as an FMCG. Should the turnaround happen daily, weekly, or monthly? One of the factors on which the turnaround depends is the purchase cycle. However, the purchase cycle for the same product tend to vary across population segments. Many low-income households are forced to buy certain products more frequently because of lack of liquidity and storage space while relatively high-income households buy the same products more infrequently. Similarly, the purchase cycle also tends to vary because of cultural factors. Most Indians, typically, prefer fresh food articles and therefore to buy relatively small quantities more frequently. This is in sharp contrast with what happens in most western countries, where the practice of buying and socking foods for relatively longer period is more prevalent. Thus, should the inventory turnaround threshold be universal, or should it allow for income, cultural and behavioral nuances? 3.2 Characteristics of FMCG Products Individual items are of small value. But all FMCG products put together account for a significant part of the consumers budget. The consumer keeps limited inventory of these products and prefers to purchase them frequently, as and when required. Many of these products are perishable. The consumer spends little time on the purchase decision. Rarely does he/she look for technical specifications (in contrast to industrial goods). Brand loyalties or recommendations of reliable retailer/dealer drive purchase decisions. Trial of a new product i.e. brand switching is often induced by heavy advertisement, recommendation of the retailer or neighbors/friends. These products cater to necessities, comforts as well as luxuries. They meet the demands of the entire cross section of population. Price and income elasticity of demand varies across products and consumers. 7
  9. 9. Table: 1.1 The Top 10 companies in FMCG sector SR.NO. Companies 1. Hindustan Unilever Ltd. 2. ITC (Indian Tobacco Company) 3. Nestlé India 4. GCMMF (AMUL) 5. Dabur India 6. Asian Paints (India) 7. Cadbury India 8. Britannia Industries 9. Procter & Gamble Hygiene and Health Care 10. Marico Industries Source: Naukrihub.comThe companies mentioned in Exhibit I, are the leaders in their respective sectors. Thepersonal care category has the largest number of brands, i.e., 21, inclusive of Lux, Lifebuoy,Fair and Lovely, Vicks, and Ponds. There are 11 HUL brands in the 21, aggregating Rs.3,799 crore or 54% of the personal care category. Cigarettes account for 17% of the top 100FMCG sales, and just below the personal care category. ITC alone accounts for 60% volumemarket share and 70% by value of all filter cigarettes in India.The foods category in FMCG is gaining popularity with a swing of launches by HUL, ITC,Godrej, and others. This category has 18 major brands, aggregating Rs. 4,637 crore. Nestleand Amul slug it out in the powders segment. The food category has also seen innovationslike softies in ice creams, chapattis by HUL, ready to eat rice by HUL and pizzas by bothGCMMF and Godrej Pillsbury. This category seems to have faster development than thestagnating personal care category. Amul, Indias largest foods company has a good presencein the food category with its ice-creams, curd, milk, butter, cheese, and so on. Britannia alsoranks in the top 100 FMCG brands, dominates the biscuits category and has launched a seriesof products at various prices.In the household care category (like mosquito repellents), Godrej and Reckitt are two players.Goodknight from Godrej, is worth above Rs 217 crore, followed by Reckitts Mortein at Rs149 crore. In the shampoo category, HULs Clinic and Sunsilk make it to the top 100,although P&Gs Head and Shoulders and Pantene are also trying hard to be positioned on top.Clinic is nearly double the size of Sunsilk 8
  10. 10. Dabur is among the top five FMCG companies in India and is the herbal specialist. With aturnover of Rs. 19 billion (approx. US$ 420 million) in 2005-2006, Dabur has brands likeDaburAmla, DaburChyawanprash, Vatika, Hajmola and Real. Asian Paints is enjoying aformidable presence in the Indian sub-continent, Southeast Asia, Far East, Middle East, SouthPacific, Caribbean, Africa and Europe. Asian Paints is Indias largest paint company, with aturnover of Rs.22.6 billion (around USD 513 million). Forbes Global magazine, USA, rankedAsian Paints among the 200 Best Small Companies in the WorldCadbury India is the market leader in the chocolate confectionery market with a 70% marketshare and is ranked number two in the total food drinks market. Its popular brands includeCadburys Dairy Milk, 5 Star, Eclairs, and Gems. The Rs.15.6 billion (USD 380 Million)Marico is a leading Indian group in consumer products and services in the Global Beauty andWellness space.The Rs.85, 000 crore FMCG market in India is growing at a fast pace despite of the economicdowntrend. The increasing disposable income and improved standard of living in most tier IIand tire III cities are spearheading the FMCG growth across the nation. The changing profileand mind set of the consumers has shifted the thought to ―Value for Money from ―Moneyfor Value.Over the years companies like HUL, ITC and Dabur have improved performance withinnovation and strong distribution channels. Their key categories have strengthened theirpresence and outperformed peers in the FMCG sector. On the contrary, Colgate Palmoliveand Britannia Industries are strong in single product category i.e. tooth - Pastes and Biscuits.In addition companies have been successful in reviving their presence in the semi-urban andrural market.In 1991, India has opened country to foreign brands. As per this liberalization policy many aforeign players ventured into our country finding it a lucrative large mass market. Thisresearch paper is a theoretical paper studying the coping strategies of Indian players incompetition to the MNC companies. It studies those Indian players who have stood out in thiscompetition and have been successful in doing so. 9
  11. 11. Table: 1.2 Following is the table summarizes pre and post liberalization scenario FMCG Sector Major Brands New Brands- 1990s onwards 1970s & 80s Indian Brands Global brands Soaps Lifebuoy, Cinthol, Nirma Beauty soap Palmolive, Dettol, Liril, Lux, Dove Pears, Rexona, Mysore Sandal, Neem, Margo Creams & Lotions Fair & Lovely, Dabur, Himalaya Oriflame, Avon, Pond‗s, Biotique, Amway, Johnson & Johnson Garnier Detergents Surf, Nirma, Fena, Lakhani Ariel, Tide, Henkel Wheel Processed foods Maggie, Kissan, MTR, Aashirwaad, Heinz, Pillsbury Parle, Haldiram, Bikaner Britannia Nescafe, Red Label, Haldiram, Tata Tea, Pepsi, Coke, Sprite, 7 Campa, Thumsup Bisleri, Tajmahal up Beverages Cigarettes Wills, India Kings, Menthol PanamaReference: JaspreetBhasinChandok and Mr. HariSundar G, Strategies for Survival of IndianFMCGs, Conference on Global Competition & Competitiveness of Indian Corporate p. 607 -613 10
  12. 12. Table: 1.3 FMCG category and products:Category : Products:Household Care: Fabric wash (laundry soaps and synthetic detergents); household cleaners (dish/utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticides and mosquito repellents, metal polish and furniture polish). Health beverages; soft drinks;Food and Beverages: staples/cereals; bakery products (biscuits, bread, cakes); snack food; chocolates; ice cream; tea; coffee; soft drinks; processed fruits, vegetables; dairy products; bottled water; branded flour; branded Rice; branded sugar; juices etc. Oral care, hair care, skin care, personalPersonal Care: wash (soaps); cosmetics and toiletries; deodorants; Perfumes; feminine hygiene; paper products. 11
  13. 13. 4.0 Introduction to Retailing & Retail Malls 4.1 Retailing in India Retailing in India is one of the pillars of its economy and accounts for 14 to 15 percent of its GDP.The Indian retail market is estimated to be US$ 450 billion and one of the top five retail markets in the world by economic value. India is one of the fastest growing retail market in the world, with 1.2 billion people. Indias retailing industry is essentially owner manned small shops. In 2010, larger format convenience stores and supermarkets accounted for about 4 percent of the industry, and these were present only in large urban centers. Indias retail and logistics industry employs about 40 million Indians (3.3% of Indian population). Most Indian shopping takes place in open markets or millions of small, independent grocery and retail shops. Shoppers typically stand outside the retail shop, ask for what they want, and cannot pick or examine a product from the shelf. Access to the shelf or product storage area is limited. Once the shopper requests the food staple or household product they are looking for, the shopkeeper goes to the container or shelf or to the back of the store, brings it out and offers it for sale to the shopper. Often the shopkeeper may substitute the product, claiming that it is similar or equivalent to the product the consumer is asking for. The product typically has no price label in these small retail shops; although some products do have a manufactured suggested retail price (MSRP) pre-printed on the packaging. The shopkeeper prices the food staple and household products arbitrarily, and two consumers may pay different prices for the same product on the same day. Price is sometimes negotiated between the shopper and shopkeeper. The shoppers do not have time to examine the product label, and do not have a choice to make an informed decision between competitive products. Indias retail and logistics industry, organized and unorganized in combination, employs about 40 million Indians (3.3% of Indian population). The typical Indian retail shops are very small. Over 14 million outlets operate in the country and only 4% of them being larger than 500 sqft (46 m2) in size. India has about 11 shop outlets for every 1000 people. Vast majority of the unorganized retail shops in India employ family members, do not have the scale to procure or transport products at high volume wholesale level, have limited to no quality control or fake-versus-authentic product screening technology and have no training on safe and hygienic storage, packaging or logistics. The unorganized retail shops source their products from a chain of middlemen who mark up the product as it moves from farmer or producer to the consumer. The unorganized retail shops typically offer no after-sales support or 12
  14. 14. service. Finally, most transactions at unorganized retail shops are done with cash,with all sales being final.Until the 1990s, regulations prevented innovation and entrepreneurship in Indianretailing. Some retails faced complying with over thirty regulations such as"signboard licenses" and "anti-hoarding measures" before they could open doors.There are taxes for moving goods to states, from states, and even within states insome cases. Farmers and producers had to go through middlemen monopolies. Thelogistics and infrastructure was very poor, with losses exceeding 30 percent.Through the 1990s, India introduced widespread free market reforms, including somerelated to retail. Between 2000 to 2010, consumers in select Indian cities havegradually begun to experience the quality, choice, convenience and benefits oforganized retail industry.4.2 Retail Malls in IndiaOur research would be conducted in three retail malls in Navi Mumbai. A briefbackground of these retail malls in as under:D’MartAvenue Super Marts Ltd (ASL) owns and operates hypermarkets and supermarkets bythe store name D-Mart.D-Mart seeks to be a one-stop shopping destination for the entire family, meeting alltheir daily household needs. A wide selection of home utility products is offered,including foods, toiletries, beauty products, garments, kitchenware, bed and bathlinen, home appliances and much more.Since D-Mart first opened its doors in the Mumbai region in 2000, it has grown into atrusted and well-established shopping destination in Maharashtra, Gujarat, AndhraPradesh and Karnataka. D-Mart is now looking forward to growing its stores acrossIndia.Big BazaarBig Bazaar is a chain of hypermarket in India. As of June 2, 2012 there are 214 storesacross 90 cities and towns in India covering around 16 million sq.ft. of retail space.Big Bazaar is designed as an agglomeration of bazaars or Indian markets with clustersoffering a wide range of merchandise including fashion and apparels, food products,general merchandise, furniture, electronics, books, fast food and leisure andentertainment sections. 13
  15. 15. Big Bazaar is part of Future Group, which also owns the Central Hypermarket, BrandFactory, Pantaloons, eZONE, HomeTown,, KBs Fair Price to namea few and is owned through a wholly owned subsidiary of Pantaloon Retail IndiaLimited (BSE: 523574 523574), that is listed on Indian stock exchanges.Reliance FreshReliance Fresh is the convenience store format which forms part of the retail businessof Reliance Industries of India which is headed by MukeshAmbani. Reliance plans toinvest in excess of 250 billion in the next 4 years in their retail division. The companyalready has 453 Reliance Fresh outlets across the country. These stores sell freshfruits and vegetables, staples, groceries, fresh juice, bars and dairy products.A typical Reliance Fresh store is approximately 3000–4000 square feet and caters to acatchment area of 2–3 km. 14
  16. 16. 5.0 Introduction to Sales Promotion 5.1 Sales Promotion The importance of consumer sales promotion in the marketing mix of the fast moving consumer goods (FMCG) category throughout the world has increased. Companies spend considerable time in planning such activities. However, in order to enhance the effectiveness of these activities, manufacturers should understand consumer and retailer interpretations of their promotional activities. The study here pertains to consumer‘s perceptions regarding sales promotion. Some past researches have suggested that promotion itself has an effect on the perceived value of the brand. This is because promotions provide utilitarian benefits such as monetary savings, added value, increased quality and convenience as well as hedonic benefits such as entertainment, exploration and self-expression. Broadly speaking most of the companies using Marketing Mix which includes… Price Place (Channel of Distribution) Product Promotion These are the four basic pillar of marketing mix. Most of the marketing strategies are built on the basis of these criteria. Promotion is one of the important elements of marketing mix. There are so many elements of promotion such as … Advertising Direct Marketing Public Relations Sales Promotion Traditionally, sales Promotions have been used by marketer to increase sales in the short term. However, in the last few decades this communication tool has evolved and now is considered from a strategic point of view. For this reason, it is necessary to realize new studies in this area and study how consumers evaluate sales promotions. Sales promotions have grown in both importance and frequency over the past few decades. Although an accurate estimate for total sales promotions expenditures does not exist, we can be sure that the trend is up. Sales promotion serves three essential roles: It informs, persuades and reminds prospective customers about a company and its products. Even the most useful product or brand will be a failure if no one knows that it is available. As we know, 15
  17. 17. channels of distribution take more time in creating awareness because a product has topass through many hands between a producer and consumers.Therefore, a producer has to inform channel members as well as ultimate consumersabout the attributes and availability of his products. The second purpose of promotionis persuasion. The cut throat competition among different products puts tremendouspressure on their manufacturers and they are compelled to undertake sales promotionactivities. The third purpose of promotion is reminding consumers about productsavailability and its potential to satisfy their needs.5.2 Sales Promotion ToolsExchange OfferThis promotion is seen mainly in the consumer durable product category. Thispromotion requires the consumer to exchange an old product for a new one and getsome benefit, usually a price reduction. For example, in case of cars, the schemeoffers the consumer a price reduction of Rs. 10,000 on the new car in exchange for anold car. For pressure cooker, the scheme offers a price reduction of 40% onexchanging an old cooker for a new cooker. In case of household durables, thescheme usually requires the consumer to exchange an old model of a product (e.g.AC, refrigerator, music system, mixer grinder, gas stove) to get a price reduction onthe new model. Apart from exchanging an old durable good, the scheme also involvesexchanging a small TV for a big TV. Most exchange schemes provide an incentive topurchase in the form of a price reduction. One exchange scheme involved returning anold washing machine for a new one and getting an electric iron as gift.The purpose of the exchange scheme appears to be upgrade existing users of durableproducts to newer and larger sized models of a product.Free Gift OfferThis promotion is popular across a range of product categories. It offers the consumeran incentive to purchase in the form of a free product/service. For example, in case ofa car purchase, the consumer is offered a free product such as a music system oraccessories. The consumer may also be offered a free service such as extended 3-yearwarranty or free insurance. Often the product offered free is a complement to theoriginal purchase. This is illustrated by instances of the following types of free giftoffers:• a free stabilizer with an AC purchase• free pillows with a mattress purchase 16
  18. 18. • free petrol on a 2 wheeler purchase• free toothbrush with toothpaste• free shaving blade with shaving gel/foam.At times, the product offered as a free gift constitutes an upgrade to the originalpurchase. For example in case of Computer Printers, a free Internet connection,Internet telephony kit, software titles and multimedia package is offered along withthe printer. Or in case of notebook computer/PC, the consumer is offered a FreeInternet upgrade and 20 GB, Web Camera, Printer, Britannica CDs, software. In caseof fast food restaurants, the free products are items such as soft drink, bread stick,pineapple fudge, garlic bread, ice cream cookies. Here the free products appear to be‗use complements‘ to the original product.At other times the free product may be a related product or product used in a similarcontext e.g. cooking or cleaning or personal care or eating. For kitchen products, thefree product are items used in the kitchen such as plastic containers, metal spoon,tawa, non stick pan, idli stand, serving bowl, table mat and OTG. In case of detergentpowder/cake the free products are related cleaning products such as bleach, washingsoap, washing powder, bucket, bath soap, floor cleaner and utensil cleaner. In the skincare segment, the free products are other personal care items such as soap, bodylotion, shampoo sachet, shaving cream and toothpaste. In case of food products, thefree product comprises of other edible items such as biscuits, coffee, namkeen, salt,chocolate.At other time the free product may be totally unrelated to the original purchase. Forexample the consumer may be offered a free pen with a skin care cream or freebatteries with soap. It is possible that, in such, cases, the products through unrelatedare targeted to the same segment of consumers. This is particularly seen in free giftpromotions targeted at children. For example, in case of health drinks, the freeproduct are items such as cricket bat, zoom ball, story book, pencil box, biscuits,binoculars, toy bike, cricket set, football and trendy wristwatch which are valued bychildren. Similarly, in case of confectionary products such as chocolates and biscuit,the free products are products relevant to children such as comics, sticker, toy, tattoo,magic paint card and magic candle.In some cases, the free gift offered along with the purchase is another product variantoffered by the company. For example in case of fruit juice the consumer is offered theguava flavor fruit juice when he/she buys 5 packs of orange flavor. In case of spices,the consumer is offered Kashmiri mirch along with purchase of the regular spices.Several free gift offers have a pre commitment of size or value of purchase from theconsumer. The consumer has to make a certain value of purchase before he is entitledto the free gift. Often, there are smaller gifts associated with purchase of smaller pack 17
  19. 19. sizes and larger gifts associated with purchase of larger pack sizes of a product. Inmost cases, the price of the free gift is not mentioned. The brand name of the freeproduct e.g. Timex watch or Motorola handset is mentioned in some cases.Sweepstake offerThe sweepstake offer gives the consumer a chance to win a large prize through luck.It usually involves a lucky draw or a scratch card based on which the winners aredecided. The prizes offered on this promotion can be broadly classified into twotypes. The first type of prize is a trip to a foreign location e.g. Paris, London,Thailand, Singapore or Malaysia. Many brands offer a trip to the South Africa WorldCup as a promotional attraction. The second type of prize are durable products such asBike, Car, Watch, Washing Machine, Television, Refrigerator, DVD, Mobile Phone,Cordless phone, PC, Microwave, Camera, Sunglasses, Gold Jewellery, Gold Coin.Gold has a major appeal as a prize on the sweepstake promotion across diverseproduct categories such as soap and personal computer. In some cases, the details ofthe prize on the sweepstake promotion is not specified and is stated as ‗prizes worthRs. 50 crores.‘Buy more and save/getThis type of promotion requires a consumer to buy two or more products to avail ofthe promotional advantage. The promotional benefit is usually in the form of moneysaved as a result of buying two ore more products at the same time. In certain cases,the promotion requires the consumer to buy additional units of the same product toavail of the promotional advantage. For example, in case of bath soaps and detergentcakes, this promotion requires the consumer to buy three bath soaps/detergent cakesand get one soap/detergent cake free. In case of fruit juice the consumer is required tobuy 5 packs of fruit juice and get one pack of fruit juice free. This promotion seems tobe popular in categories where the extra units of the product offered on the promotioncan be stored for future consumption.When different products are bundled together on this promotion, there is usually arelationship between the products. For example in case of computer printers, thisscheme requires the consumer to buy a printer and scanner together and get a pricereduction. In case of consumer durables, this scheme attempts to induce the consumerto buy greater number of products from the same company. For example the schemerequires the consumer to buy AC and refrigerator or AC and microwave of the samebrand and avail a price reduction. In FMCG products, this promotion requires theconsumer to buy toothpaste and toothbrush together or buy shaving cream and bladetogether to get a price reduction. This promotion is seen in case of Fast FoodRestaurants as well where the consumer is required to buy a pizza, coke mobile andgarlic bread and get a saving on the combination purchase. In case of FMCGproducts, this type of promotion bundles together products that are use complements. 18
  20. 20. Contest offersContest offers are seen mostly in products targeted at children. In case of Fast Foodrestaurant, this promotion requires the consumer to fill up a coupon and get a chanceto meet a film star such as HrithikRoshan. In case of soft drinks, the contest offerrequires the consumer to answer a question in an ad and get a chance to meet a moviestar. In other product categories, the prizes offered on this promotion are similar tothose on the sweepstake promotion. The consumer is offered the chance to win a caror a flat or various household durable appliances.Extra Product OffersMost of the extra product promotions (65%) are seen in the FMCG category wherethe extra units of product serve as additional consumption units for the consumer.There are no extra product promotions seen in the durables product category. InFMCG, the specific products on which the extra product promotion is launchedinclude TalcumPowder, Detergent Cake, Soaps, Fruit Juices and Hair Oil. In case oftoothpaste the promotion requires the consumer to buy one toothpaste and get thesecond toothpaste free. In a talcum powder extra product promotion, the consumer isoffered 20% extra in the same pack. This promotion is also seen in the Servicessector. In case of Internet service provider, this promotion offers extra hours on theInternet and free Internet access on Sunday. In case of fast Food restaurants, thepromotion offers a second pizza free along with the original pizza or a slice free alongwith the original pizza.Other OffersA variety of promotions are seen in the ‗Any Other‘ category. One frequentpromotion in the consumer durable category is the 0% finance scheme for purchase oftwo wheelers, notebook/PCs, refrigerator, music system, television, microwave oven,2 wheeler.A different kind of promotion requires the consumer to invest money in order to availthe promotional benefit. In case of fans, this sort of promotion requires the consumerto purchase 3 fans and pay Rs. 90 to get a wristwatch worth Rs. 480. Another suchpromotion requires the consumer to buy a fan, pay Rs. 40 and get a free camera worthRs.300. In case of health drinks, the promotion requires the consumer to pay Rs. 7/-more and get a badminton racket free.A variant of this promotion is another promotion, which requires an investment ofeffort rather than money from the consumer. For example, in case of tea, theconsumer is required to pay Re. 1 and get a Britannia biscuit pack free along with thetea pack. In case of salt, the consumer is required to collect a newspaper coupon andpay Re. 1 to get a pack of salt. 19
  21. 21. Yet other types of promotions require an investment of both money and effort fromthe consumer in order to avail of the promotional benefit. For example, a soft drinkpromotion requires the consumer to collect crowns and put in some money to get aprice discount on the soft drink. In case of ice cream the consumer is required tocollect three ice cream wrappers to get a scratch card which gives him the opportunityto win lakhs of prizes. In case of chocolates, the promotion requires a consumer toexchange empty chocolate wrappers to get movie tickets or bunny stickers free.5.3 Purpose of Sales PromotionThe ultimate aim or purpose of sales promotion is that of increasing the volume ofsales and profits but it differs from advertising and personal selling both in approachand techniques. Personal selling involves face to face contact with specificindividuals, while advertising is directed at a large number of potential customers.Sales promotion serves as a link between two by focusing selling efforts on selectedsmall groups of people. Sales promotion usually involves non-recurring and no-routine methods, in contrast with the routine and recurring nature of advertising andpersonal selling. Under advertising, the media is not owned and controlled by theadvertiser except in direct mail advertisings. But sales promotion methods arecontrolled by the advertiser. Sales promotion covers various stimulants directed to theconsumers and dealers that is why it is of two types-consumers sales promotion anddealers‘ sales promotion. The former stimulates consumer‗s buying at the point ofsale, and latter improves dealer‗s effectiveness at the retail outlets.5.4 How Sales Promotion Objectives are setSales promotion has dual objective: (A) Basic objectives and (B) Other objectives.(A) Basic objectives of sales promotion are:(i) Increasing the buying response of ultimate consumers.(ii) Increasing the selling efforts and intensity by dealers as well as bysales personnel.(iii) Supplementing and co-coordinating the efforts of advertising and personalselling(B) The other objectives are:(i) Calling attention to new products and product improvements.(ii) Informing buyers of new brand and new packaging.(iii) Improving market share. 20
  22. 22. (iv) Obtaining dealer outlets.(v) Meeting competition.These objectives are set on the basis of following criteria.(i) Cost of reaching an audience member.(ii) Acceptability of the tools to be used.These criteria are developed taking into consideration the following variables/factors:(i) Kinds of product:The product is one of the factors determining the form of promotion. Toys, toiletsoaps and cosmetics are effectively shown on television. Mass selling consumergoods can be easily promoted through radio and television. Industrial and specialtygoods should be promoted through technical journals and through sales engineers.(ii) The buyer:If the marketers are to provide realistic solutions to the problem of buyers, they mustknow their customers, their needs and desires, their attitude, values, aspirations andexpectations. Hence marketers must have up-to-date information about customerdemand and customer behaviour. If the buyers are educated then demonstrations orinstructions can be used as sales promotion technique. Similarly, contests and quizzescan be used if buyers are of young age and educated.(iii) Nature and size of market:The number, geographical location and purchasing power of potential customersexercise a significant impact on the sales promotion. Sampling, coupon, money refundorders, premium offer, price-off and trading stamps etc., are suitable for salespromotion in local markets. On the other hand, fairs, exhibitions and fashion showsare more appropriate for sales promotion on the national level particularly forgarments, books and electronic items. 21
  23. 23. (iv) Stages in product life cycle:This is an important managerial tool in sales promotion. A product life cycle consistsof four stages.(a) Introduction of the product requires lot of energy to create awareness,acceptance and demand for the product. Introducing a new product for mostcompanies is a costly and difficult exercise that is why they mostly depend onmiddlemen,(b) Growth. It includes a fast growth both in sales volume and profit.(c) Maturity (Saturation).This stage is longer. But the speed in achieving salesvolume reduces during this stage. Profit also starts declining much faster than thesales.(d) Declining. This is the last stage in product life cycle. After a period ofstability, the buyers lose interest on the product, and sales start falling more quickly.At this stage either high cost sales promotion technique may be used or existingproduct may be improved.(v) Management policy:In the management policy, first of all, sales promotion objectives are set, thencommunication tools required to achieve these objectives are designed, and the thirdstep is to determine the cost required to execute promotional activities andprogrammes. In short sales promotion expenditure is directly related to the objectivesto be achieved.(vi) Budget allocation available:The decision on how much to spend on promotion is externally difficult on account ofmultitude of promotion tools, on the one hand, and varieties of products and marketson the other. For example, the greater the geographical dispersion of a target market,the greater the communication expenditure required. Similarly, if an offering is in itsearly life cycle, there is a greater need of expenditure. But promotion budget shouldalways justify the tasks to be undertaken. A basic principle would be the cost andreturns of sales promotion tools to be adopted.Hindustan Lever has its well-drawn up sales promotion budget. If any business housedoes not have its promotion budget fixed, then promotion programmes will have to bedesigned to support the marketing plan. 22
  24. 24. (vii) Government regulations:Government has passed various laws and made rules to protect the consumer interest,such as the prevention of Food Adulteration Act, the Drugs and Magic Remedies(Objectionable Advertisements) Act, and Drugs and Cosmetics Act etc. Salespromotion policy must take into consideration the government regulations relating tothe particular product, e.g. the commodity rates must be specified on the package andin case of medicines drug contents and date of manufacturing, date of expire, andprice must be specified. 23
  25. 25. 5.5 Sales Promotion EffectivenessAre monetary savings the only explanation for consumer response to a salespromotion? There are monetary and non-monetary promotions provide consumerswith different levels of three hedonic benefits (opportunities for value-expression,entertainment, and exploration), and three utilitarian benefits (savings, higher productquality, and improved shopping convenience) explained by Pierre Chandon, BrianWansink et al (2000). They have also described that for high-equity brands, monetarypromotions are more effective for utilitarian products than for hedonic products.Marketers and academics often view the reliance on sales promotions, especiallymonetary promotions, as a sub-optimal consequence of price competition caused bymyopic management (Buzzell, Quelch and Salmon 1990). These critics argue that, inthe short-run, the proliferation of monetary promotions erodes their capacity tomarket share, which explains why so many are unprofitable (Abraham and Lodish1990; Kahn and McAlister 1997). In the long run, it is feared that sales promotionsincrease price sensitivity and destroy brand equity—both with retailers and consumers(Mela, Gupta, and Lehman 1997). As a result, many industry experts are calling formore effective and cost-efficient promotions that rely less on price (PromotionMarketing Association of America 1994), and some go so far as to recommendeliminating most promotions by switching to an everyday-low-price policy (Kahn andMcAlister 1997; Lal and Rao 1997).Adopting consumer perspective the value that sales promotions have for brands isrelated to the value, or benefits, that sales promotions have for consumers. So, it leadsto the fundamental question of why consumers respond to sales promotions. Mosteconometric or game-theoretic studies assume that monetary savings are the onlybenefit that sales promotions have for the consumer. If this is true, an everyday-lowprice may indeed represent an efficient solution for providing consumers withthese savings while minimizing search costs for the consumer and logistical costs forthe firm.On the other hand, if, sales promotions provide consumers with an array of hedonicand utilitarian benefits beyond monetary savings, everyday low prices cannot fullyreplace sales promotions without the risk of alienating consumers who value thenonmonetary benefits of sales promotions. The existence of multiple consumerbenefits may also help understand some puzzling consumer responses to salespromotions which cannot be fully explained by the search for savings (e.g., Dhar andHoch 1996; Hoch, Drèze and Purk 1994; Inman, McAlister, and Hoyer 1990;Schindler 1992; Soman 1998). 24
  26. 26. Beyond its intended contribution to the general debate on the value of salespromotions or on the antecedents of consumer response to them, studying theconsumer benefits of sales promotions as practical implications for improving theireffectiveness. It is obvious because monetary and non-monetary sales promotionsoffer different benefits; they should be more effective for different types of products.5.6 Sales Promotions in IndiaThe FMCG sector which had kept the highest advertisement expenses as theproportion of sales, has kept the ad expenses almost proportionate to growth in netsales. The elasticity of advertisement of the sector stood at 0.80 per cent to their netsales during the analyzed period. Income and expenditure statement of the majorcompanies in the segment analyzed for the FMCG companies, which used to befervent advertisers in the past, have marginally hiked their ad budget in 2008-09 incomparison with 2007-08. According to the analysis of FMCG sector, HindustanUnilever Limited increased its advertising costs in 2008-09 by 48 per cent to 2,130.92crore which was at 440.22 crore in 2007-08. Another FMCG major, ITC Limited,spent nearly 33 per cent more in 2008-09 than the previous year, as the companyearned 8.37 per cent growth in net sales during the same period whereas Britanniawhich spent about 17.47 per cent more on advertisements in 2008-09 as compared tothe previous year recorded a growth of 20.44 per cent in the same period.Dabur spent nearly 14.85 per cent more on advertisements in 2008-09 as against thecorresponding period of previous year while the company‗s net sales increased by 15per cent in 2008-09. Marico Limited which cut its advertising expenses in 2008-09 by6.05 per cent saw a growth rate of 22.52 per cent in the net sales figure in 2008-09 ascompared to 2007-08. 25
  27. 27. 6.0 Literature Review 6.1 Promotion & Consumption Does consumption respond to promotion? Many studies have focused on the effects of promotion on brand switching, purchase quantity, and stockpiling and have documented that promotion makes consumers switch brands and purchase earlier or more. The consumers‘ consumption decision has long been ignored, and it remains unclear how promotion affects consumption (Blattberg et al. 1995). Conventional choice models cannot be used to address this issue because many of these models assume constant consumption rates over time (usually defined as the total purchases over the entire sample periods divided by the number of time periods). While this assumption can be appropriate for some product categories such as detergent and diapers, it might not hold for many other product categories, such as packaged tuna, candy, orange juice, or yogurt. For these categories, promotion can actually stimulate consumption in addition to causing brand switching and stockpiling. Thus, for product categories with a varying consumption rate, it is critical to recognize the responsiveness of consumption to promotion in order to measure the effectiveness of promotion on sales more precisely. Emerging literature in behavioural and economic theory has provided supporting evidence that consumption for some product categories responds to promotion. Using an experimental approach, Wansink (1996) establishes that significant holding costs pressure consumers to consume more of the product. Wansink and Deshpande (1994) show that when the product is perceived as widely substitutable, consumers will consume more of it in place of its close substitutes. They also show that higher perishability increases consumption rates. Adopting scarcity theory, Folkes et al. (1993) show that consumers curb consumption of products when supply is limited because they perceive smaller quantities as more valuable. Chandon and Wansink (2002) show that stockpiling increases consumption of high convenience products more than that of low-convenience products. In an analytical study, Assuncao and Meyer (1993) show that consumption is an endogenous decision variable driven by promotion and promotion-induced stockpiling resulting from forward-looking behaviour. There are some recent empirical papers addressing the promotion effect on consumer stockpiling behaviour under price or promotion uncertainty. Erdem and Keane (1996) and Gonul and Srinivasan (1996) establish that consumers are forward looking. Erdem et al. (2003) explicitly model consumers‗ expectations about future prices with an exogenous consumption rate. In their model, consumers form future price expectations and decide when, what, and how much to buy. Sun et al. (2003) 26
  28. 28. demonstrate that ignoring forward looking behaviour leads to an over estimation ofpromotion elasticity.6.2 Sales Promotion and Consumer Response/ PreferenceConsumer promotions are now more pervasive than ever. Witness 215 billionmanufacturer coupons distributed in 1986, up 500% in the last decade (ManufacturersCoupon Control Center 1988), and manufacturer expenditures on trade incentives tofeature or display brands totalling more than $20 billion in the same year, up 800% inthe last decade (Alsop 1986; Kessler 1986). So far, not much work has been done toidentify the purchasing strategies that consumers adopt in response to particularpromotions, or to study how pervasive these strategies are in a population of interest.Blattberg, Peacock and Sen (1976) define a purchase strategy as a general buyingpattern which "incorporates several dimensions of buying behaviour such as brandloyalty, private brand proneness and deal proneness." A greater understanding of thedifferent types of consumer responses to promotions can help managers to developeffective promotional programs as well as provide new insights for consumerbehaviour theorists who seek to understand the influence of different types ofenvironmental cues on consumer behaviour.Blattberg, Eppen, and Liebermann (1981), Gupta (1988), Neslin, Henderson, andQuelch (1985), Shoemaker (1979), Ward and Davis (1978), and Wilson, Newman,and Hastak (1979) find evidence that promotions are associated with purchaseacceleration in terms of an increase in quantity purchased and, to a lesser extent,decreased inter purchase timing. Researchers studying the brand choice decision-forexample, Guadagni and Little (1983) and Gupta (1988)-have found promotions to beassociated with brand switching. Montgomery (1971), Schneider and Currim (1990),and Webster (1965) found that promotion-prone households were associated withlower levels of brand loyalty.Blattberg, Peacock, and Sen (1976, 1978) describe 16 purchasing strategy segmentsbased on three purchase dimensions: brand loyalty (single brand, single brandshifting, many brands), type of brand preferred (national, both national and privatelabel), and price sensitivity (purchase at regular price, purchase at deal price). Thereare other variables that may be used to describe purchase strategies, examples arewhether the household purchases a major or minor (share) national brand, store brand,or generic, or whether it is store-loyal or not. McAlister (1983) and Neslin andShoemaker (1983) use certain segments derived from those of Blattberg, Peacock, andSen but add a purchase acceleration variable to study the profitability of productpromotions. 27
  29. 29. Throughout the world, consumer sales promotions are an integral part of themarketing mix for many consumer products. Marketing managers use price-orientedpromotions such as coupons, rebates, and price discounts to increase sales and marketshare, entice trial, and encourage brand switching. Non-price promotions such assweepstakes, frequent user clubs, and premiums add excitement and value to brandsand may encourage brand loyalty (e.g., Aaker 1991; Shea, 1996). In addition,consumers like promotions. They provide utilitarian benefits such as monetarysavings, added value, increased quality, and convenience, as well as hedonic benefitssuch as entertainment, exploration, and self expression (Chandon, Laurent, andWansink, 1997).A large body of literature has examined consumer response to sales promotions, mostnotably coupons (e.g.. Sawyer and Dickson, 1984; Bawa and Shoemaker, 1987 and1989; Gupta, 1988; Blattberg and Neslin, 1990; Kirshnan and Rao, 1995; Leone andSrinivasan, 1996). Despite this, important gaps remain to be studied. It is generallyagreed that sales promotions are difficult to standardize because of legal, economic,and cultural differences (e.g., Foxman, Tansuhaj, and Wong, 1988; KashaniandQuelch, 1990; Huff and Alden, 1998). Multinational firms should thereforeunderstand how consumer response to sales promotions differs between countries orstates or province.6.3 Price elasticityTraditionally the price has been considered an informative element, from which theConsumer can create an expectation on the quality of the product to acquire (Leavit,1954; Tull et al., 1964; McConnell, 1968; Lichtenstein et al., 1988).Similarly, manufacturers and retailers act on the prices policy to achieve increases intheir sales of products. With these reductions in prices, consumers are expected to buya greater amount of the product or brand. Although these are usual effects, they willdepend on the brands submitted to such fluctuations (Hoch and Banerji, 1993;Aggarwal and Cha, 1998). In the analysis of the effects of price fluctuations, theconcept of price elasticity of the demand must be unavoidably mentioned. As Fibichet al. (2005) point out; price elasticity of demand is the percentage change in quantitydemanded as a result of a 1 per cent change in price. The individuals‗ sensitivity toprice is conditioned by a series of factors like market share, level of competition,activity in display, brand loyalty or other variables related to the consumer like hisincome (Lambin, 1991). Cross price elasticity is adequate to know the extent to whicha variance in a brand price alters the demand of the rival brands. 28
  30. 30. Some phenomena or issues of interest in relation to this have been analyzed in theprevious literature: asymmetric price effect (Lemon and Winer, 1993; Bronnenbergand Wathie, 1996; Sethuraman et al., 1998), asymmetric share effect (Sethuraman,1995; Sethuraman and Srinivasan, 1999) and proximity to neighbor effect(Sethuraman et al., 1998). The results of Sethuraman (1995) indicate that whilereductions in the price of manufacturer brands with more market share will influencethe store brands‗ sales, it is less likely that manufacturer brands are affected byreductions in the price of store brands.The brand choice made by the consumer at the moment of the purchase will beinfluenced by the price of the different brands of the category of product. In this way,a reduction in the price of an expensive brand may make this more attractive fortheconsumer and, therefore, the likelihood of choice of this brand may be increased tothe detriment of the rest.6.4 Sales promotion: immediate price reductionsPrice and promotion strategies are closely related. It is very difficult to distinguishprice variances which are caused by decisions derived from the prices policy fromthose produced as a result of the promotion policy. Thus, proposal has been developedby Cummins (1998), according to which sales promotion has to stop being a part ofthe communication mix to become an autonomous variable.When the promotion ends, sales are reduced even below the usual levels (withoutpromotion). In the long term, the sales level tends to go back to a position near theinitial position. Even Mela et al. (1998) confirm that long-term price promotions makethe consumer more sensitive to price and therefore their effectiveness is reduced withthe subsequent negative effect on benefits. These results are coherent with thoseobtained by Mela et al. (1997). Nevertheless, we must clarify that the effectsprovoked by promotions vary according to multiple factors: the type of incentive, theamount of discount provided or the type of product to which the promotion is applied,among others.Some years ago both effects were more intense than nowadays because the use ofsales promotion was not as widespread as it is now. Nowadays the consumer observesthat the category of products is systematically affected by some promotional actions,and as a consequence he will not modify the planning of his purchase (Fader andLodish, 1990; Lal, 1990). Retail establishments should modify their promotionalplans in order not to lose the essential objective: modify favorably the consumer 29
  31. 31. buying behaviour surprising him with a promotion action. This element of surprise isnow in danger.Besides, the presence of promotion actions attractive to consumers may make thischange establishment (Tellis, 1997). This effect is related to the change of brand, thatis, consumers who do not usually acquire the brand feel attracted and buy it. Thegreater increase in sales occurs as a consequence of this reality (Blattbergand Neslin,1990; Gupta, 1993).It is necessary to be continuously in touch with the market because on certainoccasions the use of promotions could cause unwanted effects. This happens when theconsumer perceives that he is paying for unnecessary product highlighting andpositioning activities, which will make his behaviour, deviate from the desired one,and thus, he will stop buying the promoted brand (Simonson et al., 1994). On someoccasions the consumer may also stop buying a brand or avoid its purchase when it ispromoted so as not to have to justify his behaviour before the group (Simonson,1989). Or the consumer simply decides not to buy the promoted product because hefeels that he is being manipulated and he will act punishing the retailers.The results of works such as those by Suri et al. (2000), detect the need to introducepromotions as explicit elements of the consumer buying behaviour. Begona AlvarezAlvarez and Rodolfo Vazquez Casielles (2008) concluded that the brand choice andbuying behaviour developed by consumers is a complex phenomenon. The variablesthat influence it are numerous and it is necessary to know them to act and developuseful strategies that achieve the objectives aimed at in each case. The influence ofprices on this process is very important.In previous researchers questions related to reference prices have been approached indepth. It seems widely accepted that when consumers buy a product they compare itsprice with a subjective level. The problem focuses on finding the most adequate wayof estimating that level. While some theoretical trends consider that the consumerforms his reference price from the observation of the prices at the establishment,others defend that the consumer remembers the prices paid on previous occasions andhe will form his reference price from them. The analysis made allows them to proposethe estimations from stimuli or observation as explanatory of the brand choice anddecision process developed by the consumer.Just as it was expected, Begona Alvarez Alvarez and Rodolfo Vazquez Casielles(2008) have confirmed the importance of prices in the purchasing process. The effectsderived from their fluctuations depend on the characteristics of the brand.Specifically, they have found differences in the intensity of response to price 30
  32. 32. variances between manufacturer brands and store brands. The latter appeared to bemore vulnerable.Since one of the most widely used techniques of sales promotion are immediatediscounts, they have considered it necessary to clarify the effects this may produce.Interesting results have been obtained regarding this issue. Discounts are perceived asattractive and serve to modify consumer preferences, but depending on the categoryof product.Thus, for those in which consumers show a strong tendency or preference for thebrand, the expected results are not obtained, because they are not relevant in the branddecision process. The application of another promotional tool would be moreadvisable instead. However, for other categories of product with lower loyalty rates,the application of discounts is the most adequate action, since the use of otherpromotion actions does not produce any effect.Sellers use various advertising and promotion tactics to attract customers and increasesales. Previous research has shown that framing of promotion messages andpresentation of price information influence consumers‗ perceptions of prices and theirwillingness to buy (Das, 1992; Sinha et al., 1999; Sinha and Smith, 2000).However, Lan Xia and Kent B. Monroe (2008) have distinguished betweenconsumers who have prior goals to buy the product relative to those who do not havesuch purchase goals. Further, they have added whether consumers‗responses todifferent promotion message framing and price presentations differ when they do ordo not have pre-purchase goals. Since the same promotion information may lead todifferent perceptions as consumers‗goals vary (Shavitt et al., 1994), understandinghow consumers with different purchase goals react to various promotion messagescan help sellers design effective promotion programs.6.5 Consumer goalsMany consumer purchasing decisions are goal oriented (Bagozzi, 1997; Bagozzi andDholakia, 1999). Such goals are important as they direct other stages of theconsumers‗ decision process. Broadly, there are different levels of consumer goalspecificity (Lawson, 1997). People with abstract goals tend to search across productcategories and consider a wider range of information as relevant. For example, if thegoal is to get away from work and have fun (an abstract goal), consumers mayconsider multiple activities including going to a movie, visiting friends, or taking avacation. Many options are relevant and attentions are spread across multiple productcategories. On the other hand, if the goal is to buy a microwave oven (a concrete 31
  33. 33. goal), only microwave oven information is relevant and tends to get people‗sattention.In the market place, consumer goals vary along a continuum ranging from no goal,abstract goal to concrete goal. Goals guide consumers‗ information gathering anddecision processes. Goals are associated with different levels of consumerinvolvement (Howard and Kerin, 2006) which guide the allocation of attention as wellas other cognitive resources for information processing (Peterman, 1997).Whenconsumers have an abstract goal or no goal at all, the involvement with any particularpurchase is low and they may spread out their attention and no single piece ofinformation may be regarded as particularly relevant.However, when they have a specific purchase goal, their involvement is high and theyare more focused in their information search and processing and perceive some typesof information to be more relevant than others. As Bargh (2002) has indicated, theparticular goal in place changes everything – the focus of attention and the evaluationof objects and events, as well as memory for eventsAlthough the importance of consumer goals has been recognized in previous research,it has not been explicitly incorporated in research on consumers‗ perceptions of pricepromotions (Mazumdar et al., 2005). Yet, when shopping, consumers mayencounter various price promotion messages for products or services for which theydo or do not have specific purchase goals. Mazumdar et al. (2005) in a summary ofreference price research called for more research examining shopping occasions (i.e.planned vs unplanned purchases) as an important moderating factor of the effects ofvarious types of reference price information. Lan Xia and Kent B. Monroe (2008)examined how consumers‗ prior purchase goals interact with promotioncharacteristics to influence their perceptions of price promotions and their willingnessto buy.6.6 Price promotions and pre-purchase goalsGoals play a fundamental role in influencing how information in a promotion messagewill be processed (Shavitt et al., 1994). When individuals have multiple informationprocessing strategies available, they select among them on the basis of goals, motives,and the environmental context (Taylor, 1998). Thus, by definition informationregarding a specific product attracts more attention when consumers have aprepurchase goal for that product category compared to when consumers do not havea pre-purchase goal. 32
  34. 34. Price promotions usually provide consumers with monetary savings on specificproducts. If consumers are in a store intentionally searching for these specificproducts, then it is expected that they would find promotions on such products moreattractive compared to those consumers who are in the store but do not have a priorpurchase goal for a promoted product. Therefore, the purchase likelihood is higher. Inaddition to this main effect, consumers may react to different promotioncharacteristics in different ways given the existence or absence of a pre-purchase goal.For example, Howard and Kerin (2006) found that consumers with different levels ofinvolvement, operationalized by whether they are in the market for a particularproduct, have different information processing styles and hence respond to differentprice promotion cues.Price promotion characteristics can be grouped into four categories: pricepresentation, deal characteristics, situation factors, and study effect (Krishna et al.,2002). Price presentation research examines whether consumers‗ perceptions of apromotion are influenced by how the promotion is communicated, e.g. framing.Research on deal characteristics studies the influence of factors such as dealpercentage, free gift value, and size of the bundle. Situation factors refer to the overallsituation of the price promotion including types of stores, brands and whether thepromotion information is received at home or in the store.Finally, study effect addresses measurement issues including factors such as numberof variables manipulated and number of participants. Different promotioncharacteristics influence current as well as future purchase intentions (DelVecchio etal., 2006). Lan Xia and Kent B. Monroe (2008) examined several important issuesrelated to price presentations and deal characteristics of price promotions focusing onpromotion framing, format, and promotion depth.6.7 Promotion format: Discount vs. Free GiftIn addition to promotion framing, price promotions come in different formats such asdiscount, coupon, rebate, and purchase with free gift, etc. While most promotionforms involve monetary savings, some promotions are non-monetary. One type ofnon-monetary promotion often used is offering consumers a free product or giftinstead of a price discount. 33
  35. 35. Compared to price discounts, non-price promotions such as free gifts are likely to beperceived as small gains (Diamond and Johnson, 1990) and maintain product qualityperceptions comparing to discounts (Darke and Chung, 2005). Discounts reduce theprice that consumers have to pay for the product (i.e. reduced sacrifice). However, ina free gift promotion, while the value of the promotion may be equivalent to adiscount, nevertheless, it does not reduce the sacrifice with the focal product purchaseand therefore it could be perceived as a gain. If consumers with and without prepurchase goals respond differently to gains and losses in price promotion perceptions,they may react differently to monetary and non-monetary price promotionsDiamond and Abhijit (1990) found that a price discount was more likely to be choseneven when the discount was less than the retail value of the free product.As discussed earlier, if consumers who are planning to buy a product are morefocused on the monetary sacrifice, they would prefer a price discount (reduced loss)over a free gift promotion (small gain). However, consumers who are not planning tobuy may be more attracted by a small gain associated with the free gift. Lan Xia andKent B. Monroe (2008) concluded how consumers with or without a specific pre-purchase goal respond differently to a price promotion. Not surprisingly, Lan Xia andKent B. Monroe (2008) showed a consistent main effect of goal onparticipants‗willingness to buy. This main effect was not mediated by perceivedvalue. This result is consistent with the intuition that consumers are responsive toinformation that matches their needs. Product or brand level price promotioninformation is less relevant when consumers do not have a pre-purchase goal. Theyobserved a main effect of promotion format. Participants preferred discount over freegift and higher discount level over lower discount level regardless of the presence of apre-purchase goal. These main effects were mediated by perceived transaction value.It is also added that the main effect of promotion format probably due to fact that thetwo promotion framing represented equivalent price savings. In addition to the maineffects, they show how consumers‗goals interact with some important characteristicsof price promotions to influence their willingness to buy. The effect of the promotionmessage framing or format is conditional on consumers‗ prior purchase goals.Consumers planning to purchase a product are more responsive to promotionmessages framed as reduction of losses (e.g. ―pay lessǁ and a discount) whileconsumers without a goal are more responsive to messages framed as additional gains(e.g. ―save moreǁ and free gift). 34
  36. 36. Henceforth, consumers with different purchase goals respond differently to the depthof a discount. When consumers do not have a purchase goal, they are less responsivewhen the discount level is either too small or too large. In contrast, such thresholdsare less observable when consumers have a prior purchase goal. Further more, it hasbeen concluded that perceived quality is the underlying mechanism for the effect ofpromotion framing across purchase goals. Overall, introducing consumer goals as amoderating factor provides some boundary conditions to previous research effects andadds to knowledge of consumers‗ perceptions of and responses to various pricepromotions.The notion that targeted deals are more efficient than across-the-board salespromotions that provide unnecessary discounts to price-insensitive consumers hasprompted a dramatic growth in customized pricing and sales promotions (Acquistiand Varian 2005). However, questions have been raised regarding the efficacy oftargeted offers in general (Homburg, Droll, and Totzek 2008) and customized pricepromotions in particular (Acquisti and Varian 2005; Feinberg, Krishna, and Zhang2002).Thus, whether companies should rely on customized promotions remains an openquestion, highlighting the need for additional research into how consumers respond totargeted discounts as well as contingencies that affect their response to these offerings(Franke, Keinz, and Steger 2009; Simonson 2005). In this regard, a variable that hasreceived little attention in the literature is the relative exclusivity of targeted pricepromotions. Because such promotions are offered selectively to some consumers (i.e.,deal recipients) but not to others (i.e., deal non recipients), targeted price promotionsinvolve a level of exclusivity that surpasses that associated with more inclusive (i.e.,undifferentiated) offers. At their most exclusive, price discounts can be customized tomaximize promotional fit with individual consumers (Simonson 2005). At moremodest levels of exclusivity, targeted promotions can be selectively offered to entiregroups of consumers, as with affinity marketing programs (e.g., Borders‗ educatorsavings promotions, which limit discounts to current and retired teachers).Research by Feinberg, Krishna, and Zhang (2002) provides evidence of a betrayaleffect, in which loyal consumers of a brand provide less favourable preferences forthat brand when they are excluded from a targeted deal offered only tocompetitors‗customers.Equity frameworks (Adams 1965; Bolton and Ockenfels 2000; Greenberg 1986)presume that people will engage in interpersonal comparisons that factor not only theoutcomes received (non social utility) but also how such outcomes compare withthose that others accrue (social utility). When consumers react to marketing offers 35
  37. 37. with the goal of maximizing personal welfare (i.e., they are self-regarding), thereceipt of an exclusive deal leads to advantageous inequity that enhances evaluationsof the targeted discount among deal recipients (Greenberg 1987; Loewenstein,Thompson, and Bazerman 1989). In contrast, non recipients (whose exclusion fromthe offer results in disadvantageous inequity) should evaluate this type of promotionless favourably. Thus, as a result of their respective outcomes, recipients and nonrecipients should differ in their evaluations of a targeted deal.Equity theory further suggests that evaluations of a targeted offer will depend not onlyon the relative outcomes associated with the offer (i.e., whether the consumer is arecipient or non recipient) but also on the inputs or costs associated with receipt of thepromotion. In the context of targeted deals, these inputs may be represented by theamount of effort customers have invested in their relationship with a marketer (e.g.,through their past patronage of the brand) (Feinberg, Krishna, and Zhang 2002;Homburg, Droll, and Totzek 2008); in turn, these investments should influence howconsumers respond to a targeted offer (Verhoef 2003). In this regard, the negativereactions of deal non recipients in Feinberg, Krishna, and Zhang (2002) likely arosebecause of disparities in both exchange components.In comparison with deal recipients, these consumers experienced disadvantageousinequity in terms of both the relative outcomes associated with the offer (non receiptof the targeted promotion) and the relative inputs (brand-loyal non recipients hadmore invested in their relationship with the marketer than deal recipients, who wereusers of a competitive offering). Being placed in a situation of disadvantageousinequity presumably prompted negative emotions (Tabibnia, Satpute, and Lieberman2008) that undermined the preferences of non recipients for the brand to which theyhad previously been loyal.However, Michael J. Barone&Tirthankar Roy (2010), explored was whether, when,and how recipients‗ evaluations of a targeted price promotion may be affected by theoffer‗s exclusivity (i.e., the extent to which an offer is available to consumers in themarketplace). If exclusion from a targeted offer can trigger disadvantageous inequityfor non recipients (as Feinberg, Krishna, and Zhang (2002) demonstrate), it stands toreason that receipt of an exclusive discount should engender advantageous equity fordeal recipients.Furthermore, an emerging literature on inequity aversion (Fehr and Gintis 2007; Fehrand Schmidt 1999) suggests that certain people desire outcomes that balanceselfregarding (i.e., selfish) interests with other-regarding interests. Thus, someconsumers may be reluctant to engage in exchanges that provide them with 36
  38. 38. advantageous inequity, and this disinclination is likely to grow with the level ofinequity characterizing the exchange (Scheer, Kumar, and Steenkamp 2003).Inequity-averse deal recipients should evaluate a deal less favourably as it becomesmore exclusive. As a result of their motivation to avoid experiencing the negativeaffect (e.g., guilt) that may accompany advantageous inequity (Scheer, Kumar, andSteenkamp 2003), inequity-averse recipients should evaluate exclusive deals lessfavourably than more inclusive offers. While variations in inequity aversion havebeen examined at more macro levels (e.g., across cultures; see Scheer, Kumar, andSteenkamp 2003), little work has explored individual difference factors thatcharacterize inequity-averse people.However, such an examination affords a means of identifying theoretically relevantvariables that moderate consumers‗ tendencies toward inequity aversion, informationthat is useful in developing strategies aimed at more effectively and efficientlydelivering targeted deals to the marketplace.6.8 Short- and long term effects of Sales PromotionThe evidence of short-term effects seems to be well documented in the literature. It issuggested that SP can build brand awareness and motivate trial, provide more specificevaluation methods, as they are more immediate and operate in a specific time frame,(Pham, M.T., Cohen, J.B., Pracejus, J.W. & Hughes, G.D., 2001), influence sales,(Roberts, John H., 1995) expand the target market (Robertson, T.S.,1993) and achievecompetitive advantage.( Rothschild, M.L. &Gaidis, W.C.,1981). According to theirpurpose, SPs are often successful in inducing action, as they encourage consumers toact on a promotion while it is still available. Also, the strength of SP lies in itsflexibility to quickly respond to competitor attacks contributed by Sandra Luxton(2001).Despite these benefits, the question remains whether these effects are made at theexpense of the long term impact that SP may have on companies. Sawyer, A. and P.Dickson (1984) and Simonson, I., and Z. Carmon (1994) proved that there is evidencepointing towards SP having a negative effect on brands, especially in relation toadvertising. It is argued that SP does not have any brand-building impact and couldlead to diminishing effects for the brand, particularly well-established ones. In fact,the Ehrenberg et al. study showed that price-related promotions do not have any effecton brand performance, either in terms of sales or repeat purchase. 37
  39. 39. According to the authors, this is due to the fact that promotions influence existingcustomers in the first place, with some rare exceptions shared by Simonson, I., andZ. Carmon (1994). This is a concern for companies, whose main objective it is totarget new customers or gain more long-term profit, as new customers might only takeadvantage of the promotion and then go back to their preferred brand. Also, evenwhen the existing customers are targeted and the response is satisfying, theseconsumers‗ price sensitivity may be enhanced, causing difficulties in the long run. Apremium brand needs to justify its high price and its image, and often does so throughadvertising, but are these media expenditures a waste of money if the image isdamaged through other communication channels? Perhaps the easiest advice would beto simply avoid SP due to this potential risk, but as we have seen in the FMCGmarkets, SP cannot easily be avoided and market characteristics force companies toaddress this issue. In addition, it is arguably the FMCG markets that face the largestissue of competition and lack of differentiation among products; and these are all theproblems that successful branding might ease.Also, as previously implied, retailers and the characteristics of the retail environmentplay an important role in customers‗ perception of a brand. Not surprisingly, it hasbeen found that the context in which a brand is seen influences the brand imageperception, and might damage the brand in some cases. For instance, display featuresin a store may trigger different responses in consumers. If a company has investedmarketing communications efforts in establishing a high-quality brand image and theproduct is then placed in an undesirable context (for instance, in proximity to thebrands associated with lesser quality), consumers may perceive less brand valueincorporated by Wakefield, K. L. and Jeffrey J. Inman (1993). Thus, it may be theretailers who have ultimate control over the brand image.The SP activities of companies could have an additional impact on the whole marketcategory as well. It is found that a successful price promotion did expand the categorywhile the promotion lasted, while having a negative long-term effect of decreasedsales in the period after the promotion. A reason for this might lie in the fact thatpeople tend to buy greater quantities during the promotion, and this leads to weakerdemand once the promotion has finished. Another, equally distressing theory aboutthe promotional impact on the category is that since SP tends to encourage brandswitching, the category does not benefit as a whole as people switch to even lowerprices. 38
  40. 40. 6.9 Price sensitivityOne of the most discussed negative effects concerns consumer price sensitivity.Findings show that SP tends to increase consumer price sensitivity, due to theformation of reference prices. When consumers buy a product, they start to comparethe price to the reference price, as opposed to the actual one. If a consumer is used tobuying two coffees for the price of one, when the SP is removed, the actual price ofthe coffee suddenly seems more expensive. However, this implies that, in order forconsumers to become too price sensitive, promotions would have to happenfrequently, since consumers do not tend to always remember prices. Naturally,different consumers react differently to prices and SP, depending on their ownpredispositions and preferences. For instance, customers loyal to a specific brand willperhaps not switch even when presented with the most tempting offer while othersactively search for the best offer available. Promotions can, however, lead to a greaternumber of people becoming offer-seekers as, Mela et al., (1997) found that, lookinglong-term, price promotions do make both loyal and non-loyal customers moresensitive to price 39
  41. 41. 7.0 Research Methodology 7.1 Research Design A research design is a framework or blue print for conducting the research project. It details the procedures necessary for obtaining the information need to structure and/or solve research problems. The research design lays the foundation for conducting the project. The descriptive research design is being used to study the formulated problem. Primary and secondary data has been collected according to the need of the study. For collecting primary data, structured questionnaire has been prepared considering objectives of the study. More over important factors has been considered to measure the interested variable of the study. 7.2 Product categories under study DETERGENTS: Washing Powder for Clothes TOILETERIES: Soaps 7.3 Sampling Design & Data Collection The universe of the study consists of the retail consumers in Navi Mumbai. Sample Size: 100 Sampling Method: Convenient Sampling Method Data Type: Primary Data & Secondary Data Data Collection Tool: Structured Questionnaire Scope of Research: 3 Retails Malls inNaviMumbai. D‘Mart (New Panvel), Big Bazaar (Kharghar) & Reliance Fresh (CBD Belapur) Method:Questionnaire is one of the tools of the primary data collection. In this research consumer responses have collected through questionnaire. 40
  42. 42. 8.0 Data Analysis 8.1 Data Collection & InterpretationQ1. Which brand of Soap / Detergent do you use? Bathing –soaps Respondents Lux 41 Hamam 3 Lifebuoy 14 Pears 8 Others 34 Bathing soaps 50 40 30 20 10 0 Lux Hamam Lifebuoy Pears Others Respondents 41 3 14 8 34Interpretation:The above question has been formed to know the soaps and detergents at the top of the mindof the customers. It shows those consumers‘ purchase and use of that particular brand. It willhelp to the company to know the market scenario and the major brands in the market.From the above result it is clear that out of 100 customers more than 40 are consumers arehaving the same brand as theirpreferred brand, whereas ―Others‖ category is also showinghigher numbers than the other 3 major players(Hamam, Lifebuoy, Nirma). 41
  43. 43. Detergent powder Respondents Tide 19 Rin 14 Surf 35 Ariel 18 Others 14 Detergent Powder 40 35 30 25 20 15 10 5 0 Tide Rin Surf Ariel Others Respondents 19 14 35 18 14Interpretation:From the above result it is clear that out of 100 customers 35 are purchasing the same brandof detergent, whereas all others are on same level. 42
  44. 44. Q2. Do you always buy the same brand of Soap / Detergent? Particulars Respondents Yes 56 No 44 Brand loyal 60 50 40 30 20 10 0 Yes No Respondents 56 44Interpretation:The objective behind the formation of this question is to know the level of brand loyalty ofthe consumers towards the brands of soaps available in the market. The above figure showsthat on 56% of the respondents are loyal to their brands of detergent/soap. FMCG are such amarket where the level of loyalty remains low and this is because of many reasons. 43