Sales Promotion Management

Business 9318, Winter 2005 Dr. Katherine Gallagher

Objectives
To introduce sales promotion To describe the unique functions of sales promotion To describe the role of sales promotion in an integrated brand communications program To examine some of the more subtle issues about sales promotion

Scope and Role of Sales Promotions

Extra incentive to buy Acceleration tool Targeted to different parties
trade consumers

The Growth of Sales Promotions

Communication dollars have moved away from advertising to sales promotion, due to:
Increased power of retailers Brand proliferation and parity; decreasing brand loyalty Increased promotional sensitivity Increased fragmentation of mass media audiences Short term focus in corporate rewards Increased accountability Competition

Trade Promotions
Directed at wholesalers, retailers, and other marketing intermediaries First step in the sales promotion effort Theoretically, incentives passed on to consumers

Trade Promotions
Objectives
Obtain distribution for new products Maintain trade support for established brands Encourage retail display Build retail inventories Financial incentive Correct timing Minimal retailer effort and cost Quick results Improve retailer performance

Success factors

Consumer Promotions
Objectives
Obtaining trial and repurchase Increasing consumption of an established brand Defending current customers Targeting a specific market segment Enhancing IBC and building brand equity

Profitability
Trade-off:
incremental sales volume reduced margin

Profitability depends on consumers responsiveness to deals within a product category

Consumer Responsiveness to Deals

All Consumers On- and Off-Deal Consumers On-Deal Only Consumers (S8) Switcher s

Loyalists

Non-Deal-Prone Loyalists (S1)

Deal-Prone Loyalists

Non-Deal-Prone Switchers (S5)

Deal-Prone Switchers

Stockpiling Loyalists (S2)

Exceptionist Loyalists (S3)

Stockpiling-Exceptionist Loyalists (S4) Nonstockpiling Switchers (S6) Stockpiling Switchers (S7)

Deal Profitability by Consumer Responsiveness Segment

Promotion insensitives
no additional sales on deal unprofitable

Stockpiling loyalists
sales on deal borrowed from future sales unprofitable

Nonstockpiling promotion sensitives

sales depressed when there are competitive promotions profitable iff MD(SD/SN) > MN

Deal Profitability by Consumer Responsiveness Segment

Stockpiling promotion sensitives
sales depressed due to own deals and competitive deals even more profitable than NPS if MD(SD/SN) > MN

On-deal-only consumers
profitable by definition = SD x MD

Deal Profitability by Consumer Responsiveness Segment

Putting a brand on deal is:
unprofitable if consumers are promotion-insensitive or stockpiling loyalists profitable if consumers are on-deal-only either profitable or unprofitable if consumers are nonstockpiling or stockpiling promotion-sensitive

Considerations in Developing a Sales Promotion

Short term impact
Sales

Long term effect on the brand

Brand equity Profitability

Competitive reaction
Retaliatory promotions

Quick fix?

Franchise-Building and Nonfranchise-Building Promotions

CFB promotions
communicate distinctive brand attributes reinforce brand identity encourage repeat purchase and brand loyalty convert consumers to loyal customers

Non-FB promotions
accelerate purchase decision process generate immediate increase in sales borrow customers from other brands

Sales Promotion and Brand Equity

A brand has equity if consumers have positive, unique, and accessible associations obrand equity p odesirability p qmarcom costs p otrade leverage p oprices p obrand extensions p qprice competition p oprofits

Sales Promotion and Brand Equity

Requirements for successful branding
Consistent quality Differentiable advantage Communication of the differentiable advantage

The problem: commoditization

Difficult to make a product that is truly different Difficult to sustain a differentiable advantage Widely held technical expertise Ever faster dissemination Reverse engineering

Sales Promotion and Brand Equity

The usual response to commoditization
Compete on price Shift marcom $ from advertising to sales promotion

The result
Increased price sensitivity Decreased brand loyalty Decreased brand equity

Sales Promotion and Brand Equity

But
Consumers still need the information that brands convey Consumers may no longer be loyal to one brand, but they are loyal to brands Successful brand differentiation is still possible, through marketing communications

Research Findings
Above average price brands (nonprice message)
Advertising p ?? differentiation ?? price competition p ?? differentiation ?? price competition

Sales promotion

Research Findings (2)

Lowest price brands (price message)
Advertising p ?? differentiation ?? price competition p ?? differentiation ?? price competition

Sales promotion

Research Findings (3)

Avg./lower price brands (non-price/price message)
Advertising p ?? differentiation ?? price competition p ?? differentiation ?? price competition

Sales promotion

Implications
Communicating a unique and valued position leads to an increase in brand differentiation. Communicating a non-unique position leads to a decrease in brand differentiation. Non-unique price messages are dangerous. Especially for above-average price brands, advertising seems more valuable and sales promotion seems less valuable than previously thought.

Sales Promotion Trap

OUR FIRM ALL OTHER FIRMS Cut back promotions Maintain promotions Cut back promotions Maintain promotions

Summary
Sales promotions provide a short term incentive to purchase NOW.
Trade promotions can get dealer support for both new and established brands Consumer promotions can increase trial and/or repurchase and can be used either offensively or defensively.

Profitability depends on deal responsiveness CFB promotions are usually superior Overuse or inappropriate use of sales promotions may harm brand equity Dont fall into the sales promotion trap!