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Managing The Marketing Communications Process (I)
Sales Promotion Strategy :
1. Introduction : Sales Promotion is a variety of short-term incentives to encourage trial or purchase of a product or service. It’s a key ingredient in marketing campaigns, and consists of a diverse collection of incentive tools, mostly short term, designed to stimulate quicker and / or greater purchases of particular products or services. 2. Characteristics of Sales Promotion : a. Sales promotions are used to intensify a brand contact for customers or prospects, especially when these people are in buying or using situations. Although the primary object of the consumer sales promotion is to affect behaviour, it can (and should) also heighten awareness and reinforce a brand’s image. b. Where the decision process takes weeks or months sales promotion can be used to help move prospects and customer thro’ the decision process. Consumer promotional offers provide tangible added value and are generally available for a “limited time only” to create a sense of urgency, which marketers think speeds up the decision making process. c. Some marketers consider SP as a supplement to Advtg and PS because it can make both more effective. But in reality, as we will see, it is much more than that. Some years back the Adv / SP spending ratio was 60:40, but now it is almost 30:70 and SP spending is still growing
3. Types and List of Tools for Sales Promotion : There are basically three types of sales promotions : a. Consumer Promotion : It may consist of Samples, Coupons, Cash Refund Offers, Prices off, Gifts and Premiums, Prizes, Patronage, Rewards, Free Trials, Warranties, Tie-in Promotions, Cross Promotions, Point of Purchase Displays, Sweepstakes, Lotteries, Games, Rebates, Exhibits, Low Interest Financing, Entertainment, and Continuity Programmes, etc. b. Trade promotions : It may consist of Prices off, Advertising Display Allowances, and Free Goods. Trade-in Allowances, Contests for Sales Representatives, c. Business and Sale Force Promotions : It may consist of Fairs and Trade Shows and Conventions, Specialty Advertising.
4. Advertising vs. Sales Promotion : Often the term sales Promotion is confused with Advertising, because the former frequently use the latter to create awareness of the promotion. The basic difference between Advertising and Sales promotion is that while advertising offers a REASON to buy, sales promotion offers an INCENTIVE to buy. Adv creates awareness and interest and brings about attitude change, SP influences the next steps in buying behaviour, such as desire and action. Marketers know that the prospects may be aware of and even have some interest in a brand but may not have enough desire to seek out the brand or risk buying it. An extra incentive, however, sometimes moves a prospect into the desire and action stages. 5. Definition : Sales promotion is an MC function that offers a tangible added value designed to motivate and accelerate a response. “Adding tangible value” means offering something more to the buyers who respond to SP. Examples may be 20% price off, 20% more goods, free samples of other products, “buy two get three”, one 1
soap case free with two soaps, free talk time with handset, etc. SPs are mostly for a “limited period only”, There are two basic types of SP, like : a. Consumer Promotions : The consumer promotions are targeted and designed for the end users directly. Here, the marketers use a PULL strategy, which is the use of incentives to motivate end users to purchase a brand and thus put pressure on the retailer to stock that brand. The consumers thus “PULL” the products thro’ the distribution line towards themselves. b. Trade Promotions : The trade promotions are targeted and designed for members of the distribution channels, such as distributors, wholesalers, retailers. Here, the marketers use a PUSH strategy, which is the use of incentives to motivate the buying and reselling of products. The traders thus “PUSH” the products down the distribution line towards the consumers.
Consumer Sales Promotion :
1. Consumer Sales Promotion Objectives : Sales Promotions are intended to intensify consumer response. SP’s objectives are behaviour oriented. Consumer SP are designed to do one or more of the following : a. Increasing Trial and Repurchase : Packaged goods brands use sales promotions to encourage trial as well as repurchase. SPs such as special prices and product samples can motivate prospective customers to try something for the first time. b. Increasing frequency and Quantity : Because the majority of the people who take advantage of coupons and price reductions are current customers, a good SP strategy does more than simply offer current customers a discount. It’s designed to increase purchase frequency or purchase quantity at each transaction. To increase the frequency of purchases a company first must calculate the regular purchase frequency, in order to set a goal, and then must design a strategy that will encourage customers to buy the product more often. c. Countering Competitive Offers : The third objective of consumers SP, countering competitive offers, is used frequently in highly competitive product categories. Airlines, rental car companies, and the manufacturers of soft drinks and breakfast sellers, for example, stay abreast of what competing brands are doing and act frequently to counter these efforts.
d. Building Customers’ Databases and Increasing Customer Retention : Companies that know who their current customers are can use SPs to build database with customer contact information. They can then plan programmes to reward and retain customers, particularly the most profitable ones. e. Cross Selling and Extending the Use of a Brand : Cross selling encourages current customers to try additional goods or services provided by a company. Because customers already are familiar with the brand and trust it enough to make repeat purchases, selling them on other products under the same brand or made by the same company can be more cost effective than selling to those unfamiliar with the brand. Promotions also can be used to extend the use of a brand. f. Reinforcing the Brand Image and Strengthening Brand Relationship : Although SPs by design add something extra to a brand offering, what is added should not only be compatible with the brand’s image, but also reinforces that image.
2. Sales Promotion Tools : Many SP tools exist to accomplish the above objectives. The following are some of the major ones :
a. Premiums : A premium is an item offered free or at a bargain price to reward some type of behaviour like, buying, sampling and testing. The most effective ones are those, which are available instantly. “Free” is the most powerful word that the company can use for these premiums. But to get this “Free” a purchase is necessary, generally at a full price. The cost of the premiums generally low compared to the main product, at around 10 % of it. If more, then the SP is not commercially viable. b. Specialties : These are items given free to the customers and other stakeholders, to keep a brand’s name at the top of the mind. Generally no purchases are necessary for these and the items are of low cost like, calendars, coffee mugs, key rings, etc. But for organisational buyers (B2B) it can be expensive gifts to the concerned officers like, Cell Phones, Suitcases, wrist watches, CD players, etc. c. Coupons : Coupons are certificates with a stated price reduction on a specified items and generally valid for a specified period of time. These are distributed by the retail stores, thro' newspapers, magazines, brochures, etc. These coupons don’t enhance the brand image, but boost the sales in the short term, encourage first purchase/trials and brand switching.
d. Price Reductions : This is a kind of short-term price reduction, where the prices are less than the regular ones. It can take the form of coupons, free goods, free extra, etc. The retailers advertise price reductions each week / month for particular brands for which they also get trade promotional allowances. Other forms are less/no down payment, instalment, low interest credit, etc. e. Rebates (Cash Refunds) : These are another type of price reduction, which can have different forms like immediate (for mostly clothes, dresses), on demand (by sending rebate forms with proof of purchase). Failure to take advantage is known as “Slippage” and the company stands to gain from it, by offering high value rebates (People who don’t claim cover the cost of those who claim). f. Sampling : Sampling is offering free samples of products to prospective customers (or of new products to existing customers) and the opportunity to try a product before making a buying decision. This is one of the most expensive tools of SP, but it is also one of the most effective and most credible one, because it actually involves the actual use and performance of the product. (Perfume sellers heavily depend on it). It can be distributed on purchase of related products or to all the buyers who visit a retail store. A similar case to this is “combination or combo offer” where closely related items are offered free like blades with safety razor, conditioner with shampoo, toothbrush with toothpaste, etc.
g. Sweepstakes, Contest and Games : A contest is a brand-sponsored competition that requires some form of skill and effort(like quizzes which are not based on chance, but knowledge and skill). A sweepstakes is a form of sales promotion that offers prizes based on a chance drawing of entrants’ names. These tools gain attention for a brand message and increase store traffic. Normally these tools don’t generate a high rate of response, but they are helpful in creating a database. A game is an SP tool that has the chance element of sweepstakes, but conducted over a longer period of time like lottery, bingo, etc. These SP tools are expensive, need careful planning, need to follow strict statutory regulations and transparency, need to be advertised and publicised properly to be successful. 3. The Media of Consumers’ Sales Promotion : Every SP needs a vehicle to carry it. Marketers use a wide range of ways and media to deliver promotional offers. A clearcut analysis needs to be done involving all these media and a decision should be arrived at. 3
a. Coupons may appear in mass media ads, direct mail, on packages, on the back of receipts, b. Samples can be handed out in stores at exit or purchase, c. Contests are announced in ads, and at events,
d. Displays are specially designed and delivered by sales rep or distributors, e. The most effective media is the Internet, which is extensively used by the marketers today to deliver SP offers. Even there are now specialised Internets dealing with the SP activities. 4. Determining Sales Promotion Strategies : Most consumer SPs show a more direct impact on sales than Adv, the SP has a tendency to be overused or misused because of this. Some say that SPs are simply a way to “buy sales” as opposed to convincing people that a particular brand is of good value and moving them strategically thro’ a buying process. But whatever may be the conflict between the SP and Adv, marketers must focus on SPs’ strengths. To that end, SPs are now becoming more strategic (tricks, illusions, deceptions) than tactical (logical and calculated skills) in using SPs to build brands and move customers and prospects thro’ the decision making process, rather than just reduce the price to move more items. Marketers must face the challenge of adding real brand building value with SP- that kindles genuine consumer, retailer and client interest. a. Driving Motivation Thro’ Partnership Strategies : The real challenge is to develop the SP strategies that motivate people to respond in the way intended or/and identified in the SP objectives, and at the same time to maintain the commitment to the larger marketing objectives of strengthening the brands’ perceived value. SP strategies use partnership programmes, such as cross promotions and tie-in promotions, to enhance the brands’ value to consumers. Tie-in promotions and cross promotions are examples of strategies that combine two unrelated brands or products in order to enhance the image and sales of both. By such combination of efforts companies hope to increase customer response because both products share the image power and attractiveness of each other. They also share the expenses making it prudent financially. b. Driving Retention thro’ Loyalty Strategies : SP is one of the most powerful MC tools to retain customers and to increase the brand’s share of customers’ category spending. Using SPs specifically designed for customer retention is called Loyalty (or Frequency) Marketing. In this programme the company offers premiums or other incentives when a customer makes multiple purchases over time. A loyalty represents a strategy for minimising customer defection and increasing a brand’s share of spending. Relationship marketing talks about moving beyond customer satisfaction and delighting customers, which can be done with the strategic use of SPs. 5. Advantages and Disadvantages of Sales Promotions : We’ve discussed the various advantages of SP. We’ll now see the disadvantages or limitations, as follows : a. The Cost-effectiveness : The critical decision whether to use SP should be based on their cost-effectiveness. Using a process called payout planning or break-even analysis, planners can evaluate the cost of SPs versus the revenue generate. b. Non-serious Customers : SPs sometimes attract customers who are searching for the best deal, and not for a long-term brand relationship. These are customers who always try to buy what is on sale and are not loyal to any brand.
The Copycatting : As soon as one brand in a category has a successful programme, competitors soon follow suit. This copycatting usually negates the added value advantage and transforms the cost of the programme into just another cost of doing business.
d. Overuse of Promotional Offers : The overuse of promotional offers will negatively reposition the brand. A brand that is always on “sale” or always offering premiums will soon be known as the “price-brand” or “deal brand”, an image that most brands don’t want to have. Most companies limit discounts, not only to protect the profitability of the brand but also to protect the retail price. e. The Challenges for Loyalty Programmes : The challenges for loyalty programmes are keeping an accurate accounting of customer rewards, and managing their disbursement. These programmes can be so much a part of brands’ offering that if there is a problem with the reward programme, the brand relationship can be weakened by the very programme that was designed to strengthen it. f. Attracting new customers at the cost of existing ones : Targeting promotional offer is a sound strategy, but it needs to be done in a way that doesn’t anger / hurt some customer. For example if the price-off is offered to only new customers, then it may put off the existing ones. When these kinds of offers are made, care must be taken to use personalised media so that only non-customers are exposed to the offers.
Communication With Distribution Channels : 1. Introduction : To reach their brands to the end users, the companies need distribution channels. Since the same channels generally cater to several companies, there’s a competition amongst the companies to draw attention of the members of the DC. This was traditionally done thro’ “Trade Promotions”. But slowly the relationship building concept has come in which is known as “Channel Marketing” a. Definition of Trade Promotions : These are the discounts and premiums offered to retailers in exchange of their promotional support to the company. b. Definition of Channel Marketing : This is an integrated process that combines personal selling, trade promotions and co-marketing programmes, to build relationship with retailers and other members of the distribution channel. c. Members of the Distribution Channel : These members are known by different names as per their place in the distribution system and the type of products and services : i. Wholesalers : Companies that specialise in moving goods from the manufacturer to the retail seller. They buy goods in large quantities and supply them to many retailers in smaller quantities. Bottlers : This is the case for liquid/fluid goods, where a local company buys the recipe’ and all the ingredients, mixes them in correct proportion and packs in bottles, then supplies to the local market.
iii. Dealers : These are the local companies that buy an inventory of goods from a manufacturer and sell them in their store or showroom. iv. Retailers : These are the owners of stores or shops, which sell general, merchandise to the consumers. Some times these are big companies or the manufacturing companies themselves having a chain of stores all over a region to retail their and others’ products / services.
2. Trade Sales Promotion – The Foundation of Channel Marketing : Moving products from the manufacturers to the retailers is a complex process, which involves the logistics of distribution and warehousing. But this is mostly physical. The real challenges are : a. Persuading Retailers to “Authorise a Brand” : This means creating a willingness in the retailers to carry the company’s brand(s). The retailer must commit to the brand authorisation, and this is the precondition for the next point. b. Persuading Retailers to Promote the Brand : This means motivating the retailers to display the company’s brads positively, and promoting them aggressively to the consumers. This is the area of major spending. The retailer must cooperate with the company for this. 3. Trade Sales Promotion Objectives : After the above challenges are met, comes the fixing of trade promotion objectives. First of all the brands and products must be available on the retail store shelves. Then the marketers can motivate the retailer to promote the brand locally. The primary objectives of trade promotion are : a. Increase Distribution : The first objective is to move more products, thro’ the channel, i.e., to increase the volume of the distribution. This helps in reducing the risk for distributors and retailers. What the members of DC fear most is buying products or quantities they can’t resell. This has to be tackled by the marketers with a suitable strategy. b. Balance Demand and Control Inventory Levels : Knowing how important it is to have products available when customers want them, most marketers try hard to make sure products are always available at retail. Service companies, similarly staff up for traditionally busy times of the day, week, month or year. When companies find they have too many goods at hand or service personnel who are not engaged, they use promotional strategies to balance demand and control inventory levels. c. Respond to Competitive programmes : Trade Promotion can also help a brand respond to competitive offerings. To counter the introduction of a new competing brand, say, company can use a “loading” promotion in which retailers are given incentives to by in larger quantities than usual (to load up on a product). This reduces space and demand for the new brand, making it more difficult for the new brand to get and keep distribution.
d. Elicit Promotional Support to Channel Members : These are some of the specific trade promotion objectives, which would be stated in measurable terms based on the status of the brand and other relevant marketing input : i. ii. To gain more shelf space. To gain better shelf space : The best shelf space is at eye level and near the beginning of the product category. “Beginning” is defined by the direction from which the majority of customers enter a section- the flow pattern of store traffic.
iii. To gain extra brand displays such as end-aisle displays and complementary product displays. 4. Trade Promotion Tools : The essence of most trade promotions is a reduction in price. Price reductions came in many forms, as the following descriptions of promotional allowances :
a. Off-Invoice Allowances : This is the simplest of all promotions, which is a reduction in the wholesale price with no restrictions, for a limited period. The retailer gets 5-20% off on the WP, say for 30 days. Marketers expect that a part or most of it will be passed on to the consumers, although they don’t press the retailer to do so. By this the marketers maintain their share of retail shelf. b. Volume Discounts : This discount is based on the volume as the name suggeststhe more the volume, the more the discount, and hence the more profit to the retailer. Marketers know that the retailers have limited store / warehouse space, and so they’ll put special efforts to sell this volume. c. Performance Allowances : These are the price reductions given to the retailers in exchange for the retailer’s agreement to feature the company’s brand(s) in its own advertising or promotional offers.
d. Display Allowances : A type of performance allowance is an “off-shelf display allowance” which is a price reduction for locating an additional quantity of a brand in a high traffic area like the end of an aisle, In exchange for this allowance, retailers agree to give the brand off-shelf display which automatically attract more customer attention and increase sales. e. Buy Back Allowances : When introducing a new product, marketers sometimes offer a buy-back allowance, which is a payment to buy back the current stock of a brand and replace it with a features new product. To further persuade the retailers to take on products, some marketers guarantee protection from risk by offering to buy-back any of their own brands not sold within a specified period. f. Dealer Loaders : This is a high value premium given to a retailer in exchange for the special assortment or a specific volume or during a special SP campaign. Ex.a bottle cooler or a fridge with the soft drinks, which the dealer can keep after the campaign is over.
g. Dealer Contests : To motivate retail dealers and their sales people to reach specific sales goals or to stock a certain product, companies offer dealer contests, competitions awarding dealers special prizes and gifts, when sales reach a predetermined volume or a stated %age increase of last year’s sales. Travel related awards are especially popular. h. Sales Training : In many high-tech or specialty stores, the salesmen help customers by explaining in detail all the features, the correct/efficient method of use. For these, the company provides an extensive training programme to the salesmen of the dealer/retailer, at its own cost, for : i. ii. How to improve sales for the retailer/dealer, To learn about the products in details, and
iii. To impart that knowledge to the consumers, so that they can get the most advantages using that product. These companies also supply the Business Support Materials (BSM) free to the dealers / retailers which may consist of education and training materials, brochures, charts, and facts, figures that are needed to learn the basics of the products and use them correctly. Some companies specialising in PS or DM have an on going training programme for the PS distributors and consumers i. Point-of-Purchase (POP) Displays : These are in-store advertising displays featuring a product. If the POP materials are properly integrated, they have the same look as the brand’s other advertising and reinforce the brand positioning. 7
Some times retailers refer to in-store promotion activities as merchandising. Some marketers use field merchandisers to go into stores and make sure that : i. ii. The marketers’ brand is being properly displayed, That POP displays are up to date and current (where allowed by the retailer),
iii. That perishable products are not beyond the “sale by dates” dates, and iv. That the retailers are providing the in-store support that they have been paid to provide. 5. Trade Promotion Strategies : The challenges for the trade promotion strategies are to decide a mix of promotional ideas that minimises the cost to the company and maximises the support and services of the retailer. a. Deciding the Mix : This “mix” differs from store to store, product to product, which can be arrived at by : i. ii. Having in-depth knowledge of the retailer’s business, What allowances will best help the retailers meet the company’s’ objectives,
iii. What the competitors are offering, iv. What the company can afford, v. What was the retailer’s response to the promotions in the past, vi. What is he sales volume that the company plans to have during promotion, vii. What are the products’ “on promotion” and “off promotion” durations, etc. b. The PUSH PULL Strategies : Consumer sales promotions are PULL strategies, and the consumers thus “PULL” the products thro’ the distribution line towards themselves. Trade promotions are PUSH strategies, and the traders thus “PUSH” the products down the distribution line towards the consumers. Marketers know that once the retailers buy large volumes on discount, they will work hard to make the product sell so that they can earn an enhanced profit. The buyer on the other hand tries to take the advantage of the promotions and get some extra. Thus most of the SP programmes integrate the PUSH and PULL strategies, i.e., having both of consumer promotions and trade promotions almost simultaneously or the TP is slightly ahead of the CP (accurate timing). Thus, just when the retailers are ready with the large stock with trade promotion (push), then the consumer promotion takes place (pull) so that they get the incentive to buy an enhanced quantity. There are some other strategies : c. Complementing Consumer Promotions : For seasonal products, marketers time their trade promotional offering slightly ahead of the peak selling periods, so that the retailers have full stock when the demand is at its peak. There’re some other times like brand repositioning, or increase or change in advertising, when the trade promotions have a major impact. Having stores feature the brand while consumer ads are running generates increased sales over what would result from trade-only promotions.
d. Countering New Competitive Introductions : When a new competitor enters the market or a current competitor introduces brand extensions, most leading brands counter with special promotional offers. The aim is to discourage retailers from taking on the new products or, if they do, to minimise the advertising and display support the new entries receive.
e. Motivating Trade Support with a Mix of Allowances : The primary channel strategy is to create a mix of promotional allowance that is offered to a particular retailer to motivate the retailer’s support of the brand. These allowances are used to help achieve specific objectives such as increasing share of shelf space, increasing immediate sales, or strengthening relationship with retailers.
Co-Marketing is a major part of the trade promotion strategy, which the Companies use extensively. This is a customised joint effort by a company and its retailer to establish a mutually satisfying balance between price and image in local promotion of the company’s brands. Today because of the retailing revolution, the retailers have tremendous power in local brand promotions, and it has also complicated the process. Retailers often produce their own ads that emphasize their own store brands and feature only the special price of certain price brands. These types of retail ads not only say nothing about the benefits and image of name brand products, but sometimes features competing brands. Thus the concept has been involved to fruitfully associate the retailer with the company in the company’s promotional strategy. 1. Objectives of Co-Marketing Communication : In the past most of the promotional offers were designed to help the company drive the channel and retailer support with only price deals. Co-Marketing seeks to integrate the company’s needs of promoting the brand messages with the retailers’ primary needs of pricing strategy, traffic building promotions. In this concept both the company and the retailer together create promotions to satisfy both the sets of objectives at the same time. This comarketing dimension of channel marketing can persuade retailers to use ads and other forms of MC not only to announce price specials, but also to reinforce brand image and positioning. The following are some of the objectives : a. Building Traffic : Retailers love popular brands, for they attract customers to their stores. Hence the retailers frequently use leading national brands as “Loss Leaders”. Loss leaders are brands, which are sold at or below their cost to the retailer in order to draw consumers into stores. This is critical to the companies of these brands. On the one hand they like the volume the store draws on the lowprice feature, but on the other hand they don’t like their brands selling just on price, for these may cheapen the brand’s image, and customers may become price sensitive. b. Maintaining Brand Consistency : Co-marketing gives the company more say in how the promotion shall be carried out. More often it’s difficult than not. Because the objectives of the company and the retailer vary, and at times may be in conflict. Retailers of large chains are concerned about the following : i. ii. Building their store brand Generating store traffic by carrying and featuring the brands their customers want
iii. Maximising their overall profitability by carrying and promoting the brands that have the highest margins or sales per unit area of the store, thus eliminating from their stores the brands that have low returns iv. Enhancing their brand image by selling brands that they can price lower than can competing retailers or brands from companies that offer some marketing support v. Promoting entire categories, which means including multiple brands and not favouring one brand over another. 9
Integration and Customisation : Basically the co-marketing is a programme which is shared financially by the company and the retailer, which brings in benefit to both parties and both have vested interest in it. The company generally includes some marketing mix along with the customisation. Today, because of the no. of retailers all around it’s become a challenge for the company. From a retailer’s perspective, co-marketing is equally challenging, because many different manufacturers are constantly offering competing programmes. Apart from account specific print and broadcast ad, companies may also provide special packaging, in-store sampling and events such as cooking classes or fashion shows in departmental stores. Co-marketing programmes can also provide in store fixtures and displays, incentive programmes for sales associates, and loyalty programmes (featuring the marketers’ products) that retailers can use with their customer database. Companies that bring innovative and exciting comarketing programmes to retailers can differentiate themselves from competitors and strengthen relationships with their retailers- by building business for retailers and for themselves as well.
2. Why Co-Marketing is Important : Day by day the expenses on co-marketing keeps increasing as more and more companies are going for co-marketing. These are the reasons : a. Some marketers believe that traditional mass media are loosing effectiveness as consumers are exposed to an increasing no. of traditional ad messages. b. The economic down turn at the beginning of the 21st century forced marketing managers to be more accountable for results and co-marketing efforts are easier to measure than mass media advertising. c. An increase in competitive brands including store brands, has created a cutthroat competition for retail shelf place and floor space. Co-marketing programmes help companies negotiate premium floor space and gain additional store marketing support.
d. Retailers are reluctant to share customer purchase data with companies unless the companies offer them enough promotional support to make it worthwhile. Retailers view their customers information as proprietary and don’t want to breach the trust of their customers by wide spread use of the data. e. Due to retail consolidation and proliferation of mega store there has been a power shift from companies to retailers. The no. of organised retail chains are increasing day by day, and big companies are entering into this business because of these reasons.
© Himansu S M / Written Oct-2006, Published Feb-2010