Sales Promotion
Introduction
The most marked example of progress in marketing communications is the emergence of Integrated Marketing Communications (IMC). Many organizations now consider IMC to be a key competitive advantage of marketing. The marketing communication industry is passing through critical times as a result of rapid changes in the media and marketing landscapes ( 2001; 2000). With use of sophisticated databases, IMC can show the same powerful innovation and potential contribution that was once associated with great advertising campaigns ( 1998: 2000). Communication tools are no longer one-voice mechanisms, but part of an integrated chorus of communication activities.
IMC attempts to combine, integrate, and synergize different elements of the communications mix, as the strengths of one are used to offset the weaknesses of others. IMC has grown in recognition and importance for effective marketing as driven by the following trends:
§ Allocation of budgets away from mass media advertising
§ increased media fragmentation
§ increasing segmentation of consumer tastes and preferences
§ easier access to consumer databases and computational resources
§ reinforcing consumer loyalty via relationship marketing
§ and, building and increasing a brand’s image based equity
IMC can thus be defined or approached in a variety of ways, although each definition suggests five key features that are significant in IMC (2000).
1. The primary goal of IMC is to affect behavior through directed communication
2. The IMC process should start with the customer or prospect and then work backwards to the brand communicator.
3. IMC should use all forms of communication and all sources of brand or company contacts as prospective message delivery channels.
4. The need for synergy, with coordination helping to achieve a strong brand image.
5. Finally, IMC requires that successful marketing communications needs to build a relationship between the brand and the customer.
A basic IMC principle is that communication is the foundation of all human relationships (2002). Communication is concerned with the exchange of information, ideas, or feelings and the successful development of a communications strategy requires extensive learning and coordination throughout the communications network. Marketing communication is the collective term for all the communication functions used in marketing a product, and the purpose of marketing communications is to add persuasive value to a product for both customers and the company ( 2002; 1998: , 2002).
The distinct tools of the marketing communications mix are:
§ Advertising (1995; 1998)
§ Public relations (1997; 1998)
§ Sales promotion (1995; 2000)
§ Direct marketing (1998; 1998; 1999)
§ Personal selling (2000; 1998)
§ Exhibitions (1993)
§ Point-of-purchase communications (2001)
§ Cybermarketing (2002; 1998)
§ Sponsorship (2000)
In this paper, we will focus the discussion on one of the integrated marketing tools which is sales promotion. Sales promotion has been rapidly increasing its popularity over the past years. This paper will discuss the reasons and the benefits that sales promotion has contributed that leads to its growth.
Reasons of Growth of Sales promotion
Sales promotion has grown substantially in recent years. There are several reasons for this dramatic growth in sales promotion. First, consumers have accepted sales promotion as part of their buying decision criteria. It provides reluctant decision makers with an incentive to make choices by increasing the value offered by a particular brand. Second, the increasing tendency of businesses to focus on short-term results has helped spur growth in sales promotion, which can provide an immediate boost in sales. Product managers also tend to view sales promotion as a way to differentiate their brand from that of competitors in the short term. Third, the emergence of computer technology has enabled manufacturers to get rapid feedback on the results of promotions. Redemption rates for coupons or figures on sales volume can be obtained within days. Finally, an increase in the size and power of retailers has also boosted the use of sales promotion.
In short, the growth of sales promotion is due to its demand for accountability, short-term orientation, consumer response to promotions, proliferation of brands, increased power of retailers and media clutter.
Historically, the manufacturer held the power in the channel of distribution. Mass marketers utilized national advertising to get directly to consumers, creating a demand for the heavily advertised brands that stores could not afford to ignore. With consolidation and the growth of major retail chains, however, retailers have gained the power to demand incentives from manufacturers to carry their products. Many sales promotions are designed to provide benefits to the retailers.
In marketing, sales promotions are non-personal promotional efforts that are designed to have an immediate impact on sales. Sales promotion is media and non-media marketing communications employed for a pre-determined, limited time to increase consumer demand, stimulate market demand or improve product availability. In short, sales promotion is a promotional method which uses special short term techniques to persuade members of a target market to respond or undertake a certain activity. As a reward, marketers offer something of value to those responding generally in the form of lower cost of ownership for a purchased product, for example lower purchase price or money back, or the inclusion of additional value-added material, for example something more for the same price.
Oftentimes, sales promotion is confused as advertising. For instance, a television advertisement mentioning a contest awarding winners with a free trip to may give the contest the appearance of advertising. The delivery of the marketer’s message through television media is certainly labeled as advertising, however, what is contained in the message, namely the contest, is considered a sales promotion. There are two factors which differentiate the two marketing tools. These are whether the promotion involves a short-term value proposition, for instance the contest is only offered for a limited period of time, and whether the customer must perform some activity in order to be eligible to receive the value proposition, for instance, customer must enter contest. The inclusion of a timing constraint and an activity requirement are hallmarks of sales promotion.
Sales promotions are used by a wide range of organizations in both the consumer and business markets, though the frequency and spending levels are much greater for consumer products marketers.
Sales promotion may not seem as stylish and sophisticated as mass media advertising, but expenditures on this tool are impressive. In recent years, sales promotion expenditures have grown at an annual rate of about 9 to 12 percent, compared to a 6 to 8 percent rate for advertising (2000).
Consumer-product firms have made a tremendous commitment to sales promotion in their overall marketing plans. During the 1970s, consumer goods marketers allocated only about 30 percent of their budgets to sales promotion, with about 70 percent allocated to mass-media advertising. Today, some estimates show that for many consumer goods firms, the percentages are just the opposite, with nearly 75 percent being spent on sales promotions (1998).
Objectives of Sales Promotion Sales promotion is an integrated marketing communication tool that is used by marketers to achieve the following objectives. First, sales promotion aimed to build product awareness. Sales promotion techniques are used especially when the product being promoted is new in the market. In order for the customer to be aware of the availability of the product, sales promotion is an effective way. Several sales promotion techniques are effective in exposing customers to products for the first time. These customers can serve as key promotional components in the early stages of new product introduction. Moreover, as part of the effort to build product awareness, several sales promotion techniques possess the added advantage of capturing customer information at the time of exposure to the promotion. In this way sales promotion can act as an effective customer information gathering tool which can then be used as part of follow-up marketing efforts. In addition, sales promotion also aimed to create interest from the potential customers. Marketers find that sales promotions are very effective in creating interest in a product. This objective of sales promotion was in fact the most important use of sales promotion especially in the retail industry. An appealing sales promotion can significantly increase sales and customer traffic. Internet marketers can use similar approaches to bolster the number of website visitors. Another important way to create interest is to move customers to experience a product. Several sales promotion techniques offer the opportunity for customers to try products for free or at low cost. Moreover, sales promotion is an important information provider. Generally sales promotion techniques are designed to move customers to some action and are rarely simply informational in nature. However, some sales promotions do offer customers access to product information. For instance, a promotion may allow customers to try a fee-based online service for free for several days. This free access may include receiving product information via email. Especially with a new product proper information dissemination is very important for the customers to buy the product or service. Furthermore, sales promotion also stimulates customers demand. When the customers already is aware and much informed with the specific product or service, next to it is the most important use of sales promotion, to build demand by convincing customers to make a purchase. Special promotions, especially those that lower the cost of ownership to the customer can be employed to stimulate sales. Finally, sales promotion reinforces the brand. Once customers have made a purchase sales promotion can be used to both encourage additional purchasing and also as a reward for purchase loyalty. Many companies, including airlines and retail stores, reward good or “preferred” customers with special promotions, such as email “special deals” and surprise price reductions at the cash register. With these promotional techniques, the customers would prefer to purchase more and even be a loyal buyer of the product. Types of Sales Promotion
Sales promotion can be classified based on the primary target audience to whom the promotion is directed. These include:
· Consumer Market Directed
With this classification, customers are the primary target of the promotional activities. Sales promotion is primarily intended to appeal to the final consumer. Consumers are exposed to sales promotions nearly everyday, and as discussed later, many buyers are conditioned to look for sales promotions prior to making purchase decisions.
· Trade Market Directed
Trade Market directed is a classification which targets not only the customer but also the business partners and distributors. Marketers use sales promotions to target all customers including partners within their channel of distribution. Trade promotions are initially used to entice channel members to carry a marketer’s products and, once products are stocked, marketers utilize promotions to strengthen the channel relationship.
· Business-to-Business Market Directed
A small, but important, sub-set of sales promotions are targeted to the business-to-business market. While these promotions may not carry the glamour associated with consumer or trade promotions, Business to Business promotions are used in many industries.
Consumer Sales Promotion
Consumer sales promotion is a term promotional technique which is used to entice and induce consumer to try and purchase the product and service in some way. Consumer sales promotions are directly associated with product purchasing. These promotions are intended to enhance the value of a product purchase by either reducing the overall cost of the product or by adding more benefit to the regular purchase price. As we noted above, promotion techniques can be used to achieve other objectives such as building brand loyalty or creating product awareness. Consequently, a marketer’s promotional toolbox contains a large variety of consumer promotions.
The following are the different types of consumer sales promotion techniques:
1. Coupons
2. Rebates
3. Promotional Pricing
4. Trade-In
5. Loyalty Programs
6. Sampling and Free Trials
7. Free Product
8. Premiums
9. Contests and Sweepstakes
10. Demonstrations
11. Personal Appearances
Trade Sales Promotions
Trade sales promotion is a promotional technique which aimed to push the product through the channel by encouraging channel members to purchase and also promote the product to their customers. For instance, a trade promotion aimed at retailers may encourage retailers to instruct their employees to promote a marketer’s brand over competitors’ offerings. With thousands of products competing for limited shelf space, spending on trade promotion is nearly equal that spent on consumer promotions.
Many sales promotions aimed at building relationships with channel partners follow similar designs as those directed to consumers including promotional pricing, contests and free product. In addition to these, several other promotional approaches are specifically designed to appeal to trade partners. These approaches include:
1. Point-of-Purchase Displays
2. Advertising Support Programs
3. Short Term Allowances
4. Sales Incentives or Push Money
5. Promotional Products
6. Trade Shows
Business-to-Business Sales Promotions
The use of sales promotion is not limited to consumer products marketing. In business-to-business markets sales promotions are also used as a means of moving customers to action. However, the promotional choices available to the B-to-B marketer are not as extensive as those found in the consumer or trade markets. For example, most B-to-B marketers do not use coupons as a vehicle for sales promotion with the exception of companies that sell to both consumer and business customers. Rather, the techniques more likely to be utilized include:
· price-reductions
· free product
· trade-in
· promotional products
· trade shows
In addition to the classification of sales promotion according to the target market, it is also classified according to the primary objective of the promotion. Sales promotion is also classified as monetary sales promotion and non-monetary sales promotion.
Majority of past studies concentrated mostly on the effectiveness of consumer sales promotion on the monetary gains of the promotional technique (1990; 1996; 1994). However, in practice, a range of both monetary and non-monetary sales promotions are used ( 1990; 1998), and there are important differences between them. Monetary promotions, for instance, shelf-price discounts, coupons, rebates and price packs, tend to provide fairly immediate rewards to the consumer and they are transactional in character; non-monetary promotions for example, sweepstakes, free gifts and loyalty programs, tend to involve delayed rewards and are more relationship-based.
In assessing the effectiveness of sales promotions, it is necessary to examine both types.
Below are two case studies which promotes effective sales promotion.
Case Study 1
Pernod Ricard S.A. Creates Highly Effective Trade Promotion Strategy by Streamlining Call Centers
Selling spirits into supermarkets and licensed premises is a complex process. Companies in this industry must know who their trade customers are, understand their buying patterns, keep them stocked, and develop compelling promotions to stimulate consumer demand. To improve its ability to manage relationships with both on-trade and off-trade outlets, deployed Oracle’s Siebel Consumer Goods to 600 sales and marketing professionals and Siebel Business Analytics to 20 staff members across France. Since deploying the Siebel applications, the company has reduced the time it takes to plan and organize individual trade promotions and has improved customer account management. Pernod has also enhanced its ability to anticipate and respond to consumer needs, as well as deploy its new commercial strategy in the on-trade business.
Pernod is one of France’s leading spirits companies, with annual sales of 54 million liters. The company markets a globally recognized portfolio of brands, including Pernod, Pastis 51, Aberlour whisky, Havana Club, Martell, and Zubrowka vodka. Pernod derives 23% of its revenues from overseas markets, and the company operates three manufacturing plants across France. In its home country, Pernod’s products are marketed through two distribution channels.
The “off-trade” channel, which includes up to 10,000 hypermarkets and supermarkets, contributes 64% of the company’s total sales volumes. Pernod has the second-largest sales force in this sector of any French spirits company, with 80 staff members responsible for organizing sales promotions and providing distributors with specific services such as special instore promotional events or the latest information on the spirits market.
The “on-trade” sector spans more than 80,000 bars, hotels, and restaurants, each of which has a dedicated sales contact, a specific product range, and a unique promotional strategy. Pernod has up to 300 sales professionals targeting this important sector.
Prior to implementing the Oracle solution, Pernod used two separate, outmoded, and expensive-to maintain systems to manage relationships with its on-trade and off-trade customers.
According to , Pernod’s Chief Information Officer, this commercial strategy needed to change. “We wanted all our customers to experience the same high-quality service regardless of the channel they used–either direct or indirect,” he said. “Our two disparate legacy systems made it difficult to create a clear picture of our customers’ and end consumers’ needs. We needed to replace these fragmented systems with one unified sales, marketing, and service platform.”
Rich and Flexible Consumer Goods Functionality
Pernod implemented Siebel Consumer Goods to 600 connected and remote staff members across France. For the first time, sales, marketing, finance, and other departments share a single, comprehensive view of on-trade and off-trade customers across all channels. Pernod uses Siebel Consumer Goods to manage every aspect of the customer relationship–beginning with preplanning sales calls and scheduling customer appointments. When a salesperson visits or contacts a customer, the salesperson records all the details of the meeting into Siebel Consumer Goods, running on a Fujitsu tablet PC. Siebel provides a consolidated view of the customer, including the customer’s profile, buying patterns, and pricing.
During each visit, customers can place sales orders directly with the Pernod representative and inquire about existing orders. Rich analytics functionality enables the sales teams to evaluate trade promotions, compare their performance against pre-established targets, and improve the effectiveness of future campaigns based on past experience.
Effectively Manage Trade Promotions
By providing a single view of the customer, Siebel Consumer Goods enables Pernod’s sales and marketing teams to effectively manage trade promotions, including the use of posters, point-ofsale materials, branded glassware, and promotional events in bars and nightclubs. Pernod uses the Siebel application to manage thousands of product tasting sessions that the company conducts each year in supermarkets. Pernod also uses Siebel Consumer Goods to profile and target individual retail outlets, schedule appointments, book hostesses, arrange the delivery of products and promotional stands, as well as analyze the results of each tasting session. Moreover, the company has reduced the time it takes to plan and organize individual trade promotion campaigns. “The marketing functionality in Siebel Consumer Goods is excellent,” Meunier said. “Last year, we launched a new product called ‘51 Lemon.’ Siebel was instrumental in helping us to execute the entire campaign launch. We used it to monitor sales in real time at the outlets where the product was being sold.”
Soon, end user consumers will also be able to contact the call center to ask about products and promotions and to make other general inquiries. Pernod has experienced numerous benefits from its Siebel customer relationship management (CRM) system. Most importantly, the company now has a shared, up-to-theminute view of its market. “We now immediately understand what’s happening on the shelves and in the bars and clubs,” Meunier said. “Oracle’s Siebel Consumer Goods has created the framework for a highly effective indirect commercial strategy.” Oracle’s Siebel Consumer Goods is also making the 400 sales professionals significantly more efficient. “They can productively plan their sales calls in Siebel, compile the data they need from the customer, and then move on to the next sales call,” Meunier said. “The improved customer knowledge also means that salespeople are concentrating the appropriate amount of time on the most important customers. This strategy is not only improving our efficiency, but also enhancing customer satisfaction and loyalty.”
Case Study 2
Leading Nursery Distributor Harvests Bountiful Sales Increase with Innovative incentive promotion
Company Profile
One of the largest nursery product distributors, with 31 outlets, serving landscaping contractors in 15 major metropolitan areas. As one of the country’s largest distributors of nursery products, this company knows a thing or two of growing things. In their long history, they evolved from a family-owned greenhouse to a leading national nursery distributor.
Situation
For the previous seven years, the nursery distributor used travel incentives during their business months to help boost sales and fend off intense competition. Their landscape contractor customers, who range from large companies to one-man shows, were awarded vacation packages for increasing purchases. However, when their vacation package vendor suddenly went out of business, they needed some customer care assistance and a new approach to incentives.
Solution
In a fiercely competitive industry, the nursery needed help to maintain or even boost their sales. With the help of the Loyaltyworks team, the company turned from a potential nightmare to a successful incentive promotion. Their vacation certificate vendor suddenly went out of business leaving their customers with worthless certificates. The distributor needed new certificates and heavy customer service support to fix the situation.
Loyaltyworks came through and has helped the distributor to design an incentive program for the coming spring season. In place with the travel incentive promotion with a program using Gifts and Getaways, a complete plat form for incentive promotions based on achieving performance plateaus or levels.
Based on the distributor’s objective, Loyaltyworks helped to establish the promotion structure and value proposition. The structure was composed of multiple reward levels at several hundred dollar increments with a selection of rewards at each level. Customers earned credits, redeemable for rewards, based on incremental purchases made in the spring quarter. The earning potential increased as the customer’s purchase percentage increased. For example, 30% growth in purchases would result in two times more reward credits than a 15% increase.
With thousands of travel and brand name merchandise options in their standard catalog, Loyaltyworks had the ability to put together a powerful reward selection. Travel and merchandise rewards were selected based on the interests of the distributor’s customer based. The rewards were prominently displayed on a promotion-specific Web site, which serve as an invaluable communications tool.
Sales representatives personally invited customers to join in the promotion, and the value proposition proved strong enough that nearly all invited customers participated. When the five-month promotion concluded, the contractors redeemed their credits from a robust reward mix that included golf clubs, fitness equipment, tools and assortment of vacation and sporting event packages.
Loyaltyworks handled the entire rewards fulfillment process from customer service to delivery.
Outcome
The promotion was an unparalleled success which delivers very impressive results. Sales among the customers in the program increased by 208% over the previous year, and the company saw overall sales of 12% during the months of the promotion. Moreover, it was far more cost effective than the travel incentive they had used in the past. The nursery distributor paid a nominal fee for Loyaltyworks to set up the Web site and customized rewards redemption platform. After that, the only costs the distributor incurred were the rewards their customers redeemed for. Plus, because the earning structure was based on incremental sales, the program paid for itself many times over.
Compared to the vacation certificate option, based on breakage model, the distributor found Gifts and Getaways to be a low risk option. With the vacation certificates, the company had to purchase a quantity up-front from a vendor, who based their pricing on the assumption that given percentage of the certificates would never be redeemed. Whereas, with the Gifts and Getaways, the company only paid for rewards based on the achievement of the promotion’s objectives.
Benefits of Sales Promotion
Sales promotions can offer many consumer benefits. Past studies have concentrated on monetary saving as the primary consumer benefit (1993). However, there is evidence to suggest consumers are motivated by several other benefits, including the desire for: savings, quality, convenience, value expression, exploration and entertainment.
These benefits are further classified as either utilitarian or hedonic (1994; 1982). Utilitarian benefits are primarily functional and relatively tangible. They enable consumers to maximize their shopping utility, efficiency and economy. In general, the benefits of savings, quality and convenience can be classified as utilitarian benefits. By contrast, hedonic benefits are more experiential and relatively intangible. They can provide consumers with intrinsic stimulation, fun and pleasure. Consistent with this definition, the benefits of value expression, exploration and entertainment can be classified as hedonic benefits.
Based on the distinction between the types of sales promotions and promotion benefits, (2000) showed that monetary promotions provide more utilitarian benefits while non-monetary promotions provide more hedonic benefits. These relationships are a matter of degree rather than absolutes; for example, coupon promotions may still provide some hedonic benefits such as the enjoyment in redemption, although its main benefit of saving is utilitarian (1994).
In accordance with the congruency theory, according to Osgood and Tannenbaum (1955), the basic principle of congruity states that changes in evaluation are always in the direction that increases congruity with the existing frame of reference. In other words, people have a natural preference for consistent information. The principle has been examined in many marketing contexts, including studies of brand extensions and advertising appeals. Applying the congruity principle to sales promotions, it is expected that sales promotions will be more effective when they provide benefits that are compatible with the benefits sought from the promoted product. The relevance of this principle is evident from some past studies of sales promotions. For example, loyalty programs are more successful if they provide incentives that are compatible, rather than incompatible, with the brand (2002). Likewise, (1997) suggest the effectiveness of loyalty programs is enhanced if program benefits directly support the target product’s value proposition.
Congruency effects for sales promotions were directly tested and confirmed by(2000), who showed that monetary promotions are more effective for utilitarian products as they provide more utilitarian benefits, which are compatible to those sought from utilitarian products. In addition, non-monetary promotions are more effective for hedonic products as they provide more hedonic benefits, which are compatible to those sought from hedonic products. For example, price cuts are more effective than free gifts for influencing brand choice of laundry detergent that is utilitarian products whereas sweepstakes are more effective than price cuts for influencing brand choice of chocolates that is a hedonic product. However, it is noted that there are other factors that may impact on the congruency effects, including the product life cycle, purchases situations and consumer demographics. Another possible factor is culture.
Good sales promotion can be an inexpensive way of increasing awareness, of reaching new buyers or extending the buying choices of existing audiences. As an essential part of your campaign they should be planned from the beginning. While sales promotions can often be done cheaply, there should always be a line item for this activity in your budget, no matter how small.
Because sales promotions often involve working with other organizations, they can open doors into the wider community. By building mutually beneficial relationships, you could also be paving the way for sponsorship. Remember never devalue your product. This is really easy to do if you are desperate, which is why the best sales promotions are usually planned well in advance.
In summary, the benefits of sales promotion can be enumerated as follows:
Conclusion
Sales promotion is one of the integrated marketing tools that have gained its popularity over the years. Sales promotions are activities that shape buying patterns attract new audiences or increase sales. Sales promotion is seen as interfacing with price. Sales promotions can include the provision of sampling or learning opportunities, joint promotions or collaborations with third party networks, special events, giveaways and competitions, discounts, incentives, value adding and rewards. Its growth accounts for the acceptability of the customers that sales promotion is part of their purchasing. It is also becomes popular over the companies because of its low cost and short term duration which can substantially increase its sales.
A carefully planned sales promotion can deliver long-term benefits to your organization. Sales promotion can make the customers feel good with the feeling that they have receive discounts or reward in their purchase of the product. It can also stimulate product loyalty among the customer which can boost the sales of the product or service. Too often they are used as an afterthought to get people through the door. Not surprisingly, they usually look like last minute panic measures and that can signal failure, not success.
One well-planned, far-reaching promotion is better than heaps of little one-offs that bear no relation to your overall strategy. The work involved in developing sales promotions can often outweigh the apparent benefit if you measure the results in the broadest possible context. As the sales promotion implies, the ultimate goal is sales or transactions. However, promotions can be planned to increase sales over a long period within a specific market segment, so it is not always about immediate results.
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