Consumer-Oriented Sales Promotion

I. A.

Sales Promotion Overview What are Sales Promotions? All of us occasionally delay a purchase until the wanted item “goes on sale.” Sometimes we make an unplanned purchase because of a coupon. Perhaps our loyalty to some brands we use now began with a free sample. If any of these are true for you, then you took advantage of an extra incentive to buy broadly known as “sales promotion.” 1. Sales promotion definition and classifications. More formally, we define sales promotion as any of a variety of techniques designed to offer purchasers an extra inducement to buy in the form of value or benefits beyond those offered by the product being purchased. The examples in the previous paragraph represent a branch of sales promotion directed at consumers. Not surprisingly, this part of sales promotion is referred to as “consumer-oriented sales promotion.” However, extra inducements to buy may be offered at any point of exchange anywhere in a channel of distribution. Exhibit 1 describes these distinctions and shows the names we will use to classify the various sales promotion techniques. In these notes, we will discuss consumer-oriented sales promotion, which itself may be further categorized in terms of who actually makes the promotional offer to consumers. The names under which these promotions get classified can be confusing, so I encourage you to look carefully at Exhibit 1. In these notes I largely adopt the names most commonly used among promotion professionals, which are sometimes not particularly descriptive. For example, promotional offers made by retailers to consumers are called retail promotions, which seem clear enough. But promotional offers made by manufacturers to consumers are not called manufacturer promotions; they’re called consumer promotions – not to be confused with the broader category of promotion I refer to as “consumer-oriented sales promotion.” Again, look carefully at Exhibit 1. Making these sometimes confusing distinctions is more than busywork, however; identification of the source of the promotion also typically identifies who pays for the promotion. While most consumers care little about who funds promotional offers, promotion managers care deeply about such matters. Promotion managers keep a keen eye on what offers competitors make and who pays for them. Moreover, to assure that they receive access to all promotional offers possible, promotion managers want to know what manufacturers and retailers in their channels are offering to other firms. We will

etc. business-oriented sales . or by includes off-invoice discounts. and final producers or manufacturers includes off-invoice discounts. merchandise allowances. Growth of sales promotion. etc. In fact. etc.Consumer-Oriented Sales Promotion – page 2 address these issues more fully later in these notes and in the Web Notes on businessoriented sales promotion. Consumer Promotions inducements offered by manufacturers to consumers includes manufacturer’s coupons. etc. promotional allowances. double coupons. BusinessOriented Sales Promotion Industrial Promotions inducements offered by and to raw materials suppliers component parts manufacturers . In 1997. merchandise allowances. Trade Promotions inducements offered by manufacturers to wholesalers and retailers. merchandise allowances. as a percentage of total marketing expenditures. Trade and Consumer Promotion in a Distribution Channel 2. according to Promo Magazine’s annual survey of marketing managers. all categories of sales promotions have experienced tremendous growth as marketers offering more value to customers has become an increasingly necessary part of overall marketing programs. Retail Promotions inducements offered by retailers to consumers ConsumerOriented Sales Promotion includes price discounts. rebates. bonus packs. special displays. samples. Business Promotions inducements offered by business product suppliers to any other business or organization includes off-invoice discounts. In the past twenty years. Exhibit 1. retail coupons. etc. premiums. sales promotions frequently receive larger combined budget allocations than standard media advertising. features.

Product benefits alone frequently prove insufficient to prompt consumer action much less get their attention. However. Publicly traded companies find themselves especially prone to this orientation. department store sales. Rebates on certain brands of automobiles. while consumer-oriented sales promotions and advertising evenly split the remaining half. Indeed. advertising clutter has forced marketers to find new ways of getting consumer attention. Fourth. as discussed in earlier notes.Consumer-Oriented Sales Promotion – page 3 promotion received almost half of the total marketing budget. retailers frequently serve as the driving force behind consumer promotions. the nature of competition has changed remarkably over recent years resulting in ever greater consumer price sensitivity. they do not. manufacturers make special offers to consumers as a way of counteracting retailer power by strengthening the bonds of loyalty consumers may feel toward the brand. Many investors look to immediate bottom-line results rather than the long-term health or stability of the companies in which they invest. . when possible. Several reasons account for the importance of sales promotion. Responding to this pressure. By 2002. highly segmented consumer markets. the expectation has become so strong that. Finally. marketing managers seek quick fixes for sagging bottom lines. as their use becomes more common. Sales promotions are often seen as ways to boost near term sales. respectively. Thus. The proliferation of brands and brand extensions. Second. and coupons on many grocery items are only a few areas where consumers have grown to expect price breaks. price deals have become the rule rather than the exception for many products. the allocations shifted back to media advertising. Other times. the growth of retailer power in distribution channels has led to an increase in consumer promotions. Sometimes. and lower brand loyalty have combined to make consumers much more aware of price given that many product categories are populated by several competitors. with business-oriented sales promotions and consumer-oriented promotions receiving 27% and 30%. many consumers will wait for promotional offers rather than buy with no deal. their costs become regular and recurring and therefore potentially self-defeating. The point to this discussion is to correct any misperceptions that promotional budgets tilt heavily in favor of media advertising. marketers increasingly look to sales promotion to find ways of breaking through to customers who face a constant bombardment of promotional messages. which received 37% of promotional dollars. First. manufacturers make special offers to consumers because a powerful retailer insisted that they do so. In truth. consumer promotion’s growth can also be attributed to increased pressure on marketing management for short-term results. Sales promotions of all kind play a large and sometimes even dominant role in marketers’ efforts to get products into the hands of consumers. Third. Either way.

and consumer-oriented sales promotions can be ideal for that purpose. often at the expense of short term sales. As noted in earlier Web Notes. in retail channels consumer-oriented sales promotions often become tools for short-term fixes to sales. Circumstances frequently legitimately call for boosts to sales. erode consumer confidence in brand quality. consumers may reason that brand quality may be poor. which cannot happen without transactions. Relationship Between Transaction and Brand Building Promotions B. . As Exhibit 2 shows. If the brand must constantly be promoted. When overused. we may view sales promotion as having two sets of time goals. Thus. Although not traditionally used for building brand equity. for example. Time goals of consumer-oriented sales promotion: brand building versus transaction building As just noted. One revolves seeks short-term increases in the number of transactions while the other builds long term brand loyal relationships with customers. the nature of sales promotion is changing to include careful long-term use with the goal of communicating value to brand loyal customers. Or consumers may delay purchasing a brand if they believe that a reduced price or other purchase incentive will soon be forthcoming – a reasonable assumption of a brand is overpromoted. many marketers are now examining how consumer oriented sales promotion can be effectively used for long term goals. Excessive use of some consumer-oriented sales promotion techniques can.Consumer-Oriented Sales Promotion – page 4 TransactionBuilding Sales Promotion Immediate Purchase Incentive brand equity deterioration Product Sales BrandBuilding Sales Promotion Brand Equity Enhancement Exhibit 2. However. This distinction is illustrated in Exhibit 2. the “ultimate goal” of all promotional activities is to build sales in some way. the paths toward sales differ depending on whether the sales promotion is intended to be transaction building or brand building. however. they can actually hinder a brand’s ability to build equity among target markets. As such. marketers for many successful brands believe that consumer-oriented sales promotions can do just that.

For one thing. b. This can occur by speeding consumers’ decisions of whether to buy. Not so with . circumstances frequently call for them. Also. As we shall see in later sections. No set of individual sales promotion tools are designed exclusively to short term build transactions. nothing works quite as well as price. On occasion. Competitors may launch promotion activities aimed at one’s own customers. promotions help move price up their list of their evaluative criteria. many consumer promotions offer consumers nonprice inducements. c. Transaction building sales promotion. As noted earlier.e. For example. I apply the term “transaction-building sales promotion” to promotions designed to create short term temporary increases in product sales. Second. short term sales increases may be desired in response to a competitive situation requiring immediate action. Seasonal merchandise must regularly be adjusted several times per year. Retailers may adjust product mixes in which case some products may be sold off to make way for others. characteristics of transaction building sales promotions. they tend to be price oriented. how transaction building sales promotions works. Consumers not actively in the market for a product may notice a sales promotion offer and decide to make the purchase on the basis of the offer. Consumers on the fringe of a market. considering a purchase at some later date may decide to make the purchase now given the extra inducement. when to buy and what to buy. when used to build short term sales.. in which case they must be defended. reasons for transaction building sales promotions. though as we’ll see later. As noted above. However for faster short term results. I’ve even seen sales promotion used to disrupt a competitor’s field marketing research activities. no single set of consumer promotion tools exists as purely transaction building. they attempt to accelerate consumer decision processes. some clearly work better than others toward this goal. transaction building promotions require minimal consumer effort to participate. The need for inventory adjustments can arise for many reasons. Transaction building sales promotion works to spur short-term sales through two basic mechanisms. however. consumer-oriented sales promotion tools share certain characteristics. First.Consumer-Oriented Sales Promotion – page 5 1. Transaction building sales promotion can also be used to adjust inventories. they create criteria against which to judge the suitability of each alternative. Many promotions require fairly extensive consumer involvement to obtain the inducement. Consumers actively in the market for a product may stop their evaluation of purchase alternatives when presented with the extra inducement to buy and settle immediately on the product making the offer. transaction building consumer promotions attempt to increase the relative position of price as an evaluative criterion. manufacturers overproduce and require sales promotion to encourage consumers to buy more than necessary for immediate needs and store the excess for later use (i. although I caution against the overuse of transaction building sales promotions. By increasing the value of the offer to consumers. “stock up”). As consumers search and evaluate alternatives for purchase. a.

As such. a second characteristic of brand-building promotions. as promotional budgets and long term strategic plans allow. Building brand equity became and remains the key to lasting relationships between brand and consumer. However. transaction building promotions run for relatively limited periods of time. 2. A common example of these types of rewards is airline frequent flyer miles. rewarding loyalty with additional amounts of the brands consumers love only makes sense. These promotional activities work to build brand loyalty. Like Rome. brand loyalty cannot be built in a day – or even a week or month. the value of the promotional offer depends on the amount of product purchased during a given period of time. For promotions of these kinds to work. promotion managers began devising promotional inducements intended not only to gain new customers but more importantly to reward and retain existing ones. Doing less would defeat the purpose of brand building. brand building still takes a back seat to transaction building. of course. In other words. a. Let me make clear that in the world of trade promotion. Programs such as frequent flyer offers remain valid for years. Nonetheless. they directed more energy designing promotional activities directed toward that end. A typical card may be hole-punched or marked each time we purchase from that particular store. When the card has been punched or marked a certain number of times. which still receives the lion’s share of funding. brand building sales promotions possess several characteristics that help distinguish them from transaction building sales promotions. travelers’ bonus miles accumulate as they purchase more tickets. Over the past few decades. Because the purpose of such promotions is to develop the attachment between consumers and brands. Finally. Brand building sales promotion. Since marketers grew to better understand that the true value of brands stems from the emotional connections many consumers make with their favorite brands. Such promotions clearly indicate the long . brand building promotions are less frequently price oriented than transaction building promotions. promotion management witnessed a gradual shift in the focus of some consumer-oriented sales promotion activities to include long term brand building. brand building sales promotions frequently offer accumulating promotional rewards to customers. Third. no set of uniquely brand building sales promotion techniques exist.” b.Consumer-Oriented Sales Promotion – page 6 transaction building promotions. many of us may have in our wallets or purses “frequent shopper cards” of one kind or another. Doing otherwise would defeat their purpose. Hence. and therefore brand value. First. I refer to them as “brand building sales promotions. nature of brand building sales promotions. Similarly. characteristics of brand building sales promotions. they must be valid for an extended period of time. As with transaction building sales promotion. we receive free or discounted merchandise. promotion managers more frequently call for sales promotion activities that help strengthen the bonds between brand and consumer because they better understand how this stabilizes and enhances long term sales growth.

As you might expect. Manufacturers have developed a wide variety of consumer promotion tools for both transaction building and brand building objectives. some of which are discussed below. We can expect that determined manufacturers will develop new and innovative ideas to add to the current kit of sales promotion tools.5 billion dollars. For example. Other large consumer products firms such as . now rebates stand as a regularly employed tool in many product categories.8 billion dollars in 2002. Indeed. Part of couponing’s recent growth is fueled by large consumer products firms such as Procter and Gamble.Consumer-Oriented Sales Promotion – page 7 term orientation of brand building. so much so that in 2002 coupon distribution rose 4. only a few years ago. If encouraging short term sales were the promotional goal. marketer expenditures on coupons rose to around 6. which could delay future consumer purchases. a jewelry store may offer customers a free day at a luxury spa. Other nonprice brand building promotions involve free merchandise or services of the type that reinforces the image of the promoted brand. it might strengthen the jewelry stores image among their target market sufficiently to draw customers back for later purchases. II. In fact. Chrysler pioneered the use of cash rebates. about 75% of all coupons were for grocery products. the emergence of new media. Of that total. A.200 coupons for every person living in the United States! Likewise. a. actual discounts to consumers amounted to about 3. distribute and process the coupons. This represents a major turnaround from P&G’s decision in 1996 to eliminate coupons altogether and switch to an EDLP (everyday low pricing) strategy. The range of options available for offering consumers extra inducements to purchase extends as far as the imagination. Tools of Consumer-Oriented Sales Promotion Consumer Promotion As noted in Exhibit 1. The increasing availability of computer technology. 1. then giving away free product. To put this figure in perspective.3 billion being spent to print. which eight separate times in 2003 created its own newspaper inserts to distribute coupons in major metropolitan areas. trends in couponing. and the growth of Internet usage particularly among affluent consumers suggests that new forms of consumer promotion will emerge and over time become marketing mainstays. that’s almost 1.5% to an all time high of 336 billion. however. Couponing. makes little sense. Coupons produced by manufacturers for use by consumers are called manufacturers’ coupons and they remain very much a part of the consumer promotion landscape. It’s unlikely that such an offer would spur short term jewelry sales. with the remaining 3. consumer promotion refers to promotional activities originating with manufacturers and directed toward consumers. The idea is to reinforce the jewelry brand’s image of self-indulgence and leisure.

stored. coupon redemption rates are quite low in the . These consumers would likely put off making a purchase unless a price break was available. marketers frequently make coupons a bit more difficult to use by distributing them through media where the coupon must be clipped and by shortening the period in which the coupon is valid. strategy issues for couponing. As such. One potential problem with this strategy arises when significant numbers of regular brand loyal users redeem the coupons. often clipped. Marketers frequently use coupons as much as part of an advertising strategy as a promotion strategy. but can actually reduce dollar sales. and ConAgra also used newspaper inserts multiple times during the year to distribute millions of coupons on their popular brands. the only people willing to go to such measures are those for whom price ranks high as an evaluative criteria. even if they are confident in low redemption rates.Consumer-Oriented Sales Promotion – page 8 Heinz. The costs of coupon use extend well beyond their face value. In fact. Coupons must be located. the processing charge of each coupon redeemed. coupons tend to be used most for transaction building rather than brand building. Tellis (1998) develops a simple mathematic relationship that can assist promotion managers in calculating or estimating the overall cost of a coupon distribution. the profit from the coupon offer (the product of the incremental increase in unit sales from the coupon and the firm’s profit margun oer unit sold) must equal or exceed the costs associated with the coupon promotion. which includes the face value of each coupon redeemed. brand loyalty tends to be the single best predictor of coupon use by American consumers. b. and the total costs of distributing all coupons. a coupon promotion will be profitable for a firm if: bm ≥ r (p+d) + f where: b = the incremental change in unit sales after the coupons gave been distributed r = the total number of coupons redeemed m = the firm’s margin per unit sold d = the face value of the coupon p = the processing costs for each coupon f = the distribution costs for the coupons According to this calculation. According to Tellis. carried and redeemed on a specific product of a specific size. Marketers must take care to control the cost of coupon use. For the most part. By their very nature. These people make ideal targets of transaction building promotions. Using most types of coupons generally requires some planning by consumers. This is in part due to the fact that price sensitive consumers use coupons most. Nestle. coupons will not provide the intended short term boost in sales. they provide the extra boost in sales that is the goal of these promotions. As we will see shortly. their use as a transaction building tool is something of a double-edged sword. In response. In cases where coupons are largely redeemed by brand loyal consumers.

consumers redeemed only about 3. Other media such as direct mail.0% 0.7 billion – an overall redemption rate of just over one percent.0% Media in which coupons must be located by thumbing through pages of advertising. coupon distribution and redemption.5% 5.7% 1. Because consumers receive the vast majority of coupons through regular print media advertising. a coupon’s appearance in an advertisement acts almost like advertising copy. though still quite low overall. As noted above. in-package coupons or electronically dispensed coupons feature somewhat higher redemption rates.Consumer-Oriented Sales Promotion – page 9 United States. chances become quite good the consumer will not notice or will simply ignore the on-pack instant coupon. of the 336 billion coupons distributed in 2002. he or she may still mentally process the coupon’s appearance in the advertisement and form an impression of the product based on that information. Analysis of coupon redemption by method of distribution shows a predictable pattern. for example. This approach also gives marketers the ability to emphasize the great deal they’re offering while not being forced to provide that deal to everyone in the market for the product. Consumers need only remove them at the check stand and redeem them on the spot. The coupons that garner the highest redemption rates tend to be distributed through media that make them easy to use. if store personnel do not initiate redemption by removing the coupon for the consumer.5% 8. The main point to the mathematical relationship is to emphasize that the costs of the coupon promotion are not limited to the redemption value of the coupon itself. Even this ease of use leaves 65% of these coupons unredeemed! Indeed. As such. coupon redemption by American consumers remains quite low. The coupon may enhance a message of value being delivered by the advertisement. Thus. Processing and distribution can add per coupon costs that can easily exceed the coupon’s face value. then clipping the coupon offer the lowest redemption rates. On-pack instant coupons appear attached to labels.9% 3. In fact. Even the most convenient of coupons boast redemption rates of only 35%. marketers use coupon offers as a means of drawing attention to an advertisement carrying a coupon knowing full well that very few will be redeemed. Promotion managers must weight these costs when evaluating the merits of a coupon promotion. . even of the consumer has no real intention of redeeming the coupon.0% 35. c. Daily newspaper Sunday newspaper supplement or insert magazine (both on-page and pop-out) direct mail electronically dispensed in-pack on-pack instant 0.

the presumption of sampling is that the consumers being targeted have never tried the product before. To build quick transactions. sampling remains by far the best promotional method to induce trial. For example. Marketers use sampling most heavily in product categories such as food. As the old saying goes. or considerable time has elapsed since they last used it. in-store food sampling can prove quite effective. Effective sampling isn’t possible for all products. sampling plays an important role in promotion. experience is the best teacher. particularly impulse shoppers. Providing free samples of a product that even in small quantities costs a lot adds considerably to the expense and may render the product a poor candidate for a sampling promotion. and cosmetics. Shoppers are in the store inches away from the product itself. Studies estimate that 75% of households who receive a sample eventually use the sample. Certainly this is true in marketing. Simply describing product benefits through media advertising cannot provide the depth of understanding that actually trying a product brings to consumers. Of course. How does a consumer sample furniture. over the counter medicines. No matter the purpose. this caveat rests in part on the marketer’s confidence in the samples to produce paying customers. Other types of sampling are better suited to brand building. b. placing samples on or in packages of complementary products often builds loyalty among brand loyal users of the product on which the sample was attached. sampled products must be of a nature that permits the benefits to be realized even when used in very small quantities. This means that the product can be divided into .Consumer-Oriented Sales Promotion – page 10 2. Sampling a. In either case. sampling in promotion strategy. to purchase a package. products making good candidates for sampling have a relatively low per unit value. The temporal and spatial proximity of the sample to the product itself is the main reason why in-store food sampling proves so effective for transaction building. however. personal care items. Promotion managers use sampling both for brand building and for transaction building. particularly when trying to bring new customers to a brand. Overall. sampling is expensive. Thus. effective sampling procedure. These products share several characteristics that make them well-suited for sampling. for example? So one important key to effective sampling is using it with a product well-suited for it. Food manufacturers frequently set up small sampling stations in grocery stores to offer shoppers small bites of a featured product. Second. First. Placing a sample of frosting inside a box of cake mix may eventually lead to repeat sales of the frosting among brand loyal users of the cake mix. Such tactics often convince shoppers.

Finally. of course. Marketers now make extensive use of premiums in a variety of widely differing arrangements designed both for brand building and transaction building. Second. As with promotion in general. the premium may simply serve as an incentive to buy the brand a sufficient number of times to obtain the premium. These premiums provide “instant gratification” to consumers in the form if an immediate reward for buying the brand. the premium is free. premiums and promotion strategy. Sampling methods differ by means of sample delivery. No matter how well a sampled product performs. Ideally. consumers will not delay for long purchasing a product selected on the basis of sampling. often from several purchases of the brand. the stocks of premiums are turned to cash. mail sampling. types of premiums. consumers claim “mail in” premiums by submitting proofs of purchase. is the free toy found inside each box of Cracker Jack. Virtually all premium promotions fall into one of three categories. b. by the consumers who buy them. With mail in premiums. consumers need not mail additional payment. “ Consumers actually purchase self-liquidating premiums from the manufacturer by mail. 3. The age old classic example. Premiums a. premiums may be classified as “self-liquidating.Consumer-Oriented Sales Promotion – page 11 small portions for distribution to consumers and that each portion is capable of producing benefits salient enough to the consumer to prompt later purchase. if the consumer rarely purchases it or purchases it at long intervals. In essence. the imagination presents the only limitation to sampling delivery methods. Some companies offer samples via the Internet. When used as transaction builders. products with relatively short purchase cycles make better candidates for sampling promotions. The first are “inpack” (or “with purchase”) premiums. and in-store sampling. Premiums can work well either as brand builders or transaction builders. chances are good tthat he or she will forget about the promotion and sampled brand by the time the next purchase occasion arises. or liquidated. Commonly used methods include are door-to-door sampling. c. customers may request samples online and have them delivered to their homes or offices. Finally. Many college students receive bags full of sample sized packages of personal care items as they prepare to move into university housing. Manufacturers then mail the premium to consumers. Additionally marketers often attach samples to the packages of other products. or arrange to distribute samples at events where large crowds are present. sampling methods. consumers receive these premiums either attached to the purchased product or available in the store. . Many firms reward consumer purchases with (usually small) gifts. As the name implies. The name self-liquidating implies that the premium is sold at or below the manufacturer’s cost.

though brand loyal customers will certainly appreciate the savings. Because it is a price based promotion. Such premiums might entice some consumers to buy the product once in order to get the shirt. One way to accomplish this is to require multiple purchases to obtain the premium. However. For regular purchasers of the product. consumers new to the brand may appreciate the extra value a bonus pack provides. the effects of bonus packs on the value of a brand among brand loyal consumers is not known. Promotion managers could logically assume that bonus packs may slow sales among brand loyal consumers. For example. while the china itself is a significant enough premium that consumers not only appreciate the opportunity to purchase it at a substantial discount but remember how they obtained it. suppose a manufacturer offered a free t-shirt to consumers who mailed in a proof of purchase of the manufacturer’s brand. requiring multiple purchases provides the product with several opportunities to prove itself and win the consumer’s loyalty. children frequently select products based more on the premiums than the product itself. Another way that premiums build brands is to remind consumers of the promoted brand. bonus packs have their pros and cons. Other common consumer promotions a. it may have a larger impact on transaction building than on brand building. after which time they would return to their preferred brand. the premium serves as a “thank you” to loyal customers who would have bought the brand anyway. price off packs. For brand building. bonus packs.Consumer-Oriented Sales Promotion – page 12 For example. Bonus packs are most typically associated with transaction building. Indeed. but may serve brand building purposes as well. However. children may influence their parents to purchase a particular brand of cereal based on the free toy offered inside. For both strategies. b. Some manufacturers offer price reductions by printing the discount right on the package. For transaction building. Even without the logo printed on the premium. The fine china and dishwashing liquid relate closely together. carefully selected premiums may remind consumers of the brand awarding the premium. for some product categories. Marketers frequently emblazon premiums with the brand logo in order to remind consumers where the premium originated. Cascade dishwashing soap recently offered fine china as a selfliquidating premium to consumers who provided a certain number of proofs of purchase. . For consumers new to the brand but interested in the premium. Likewise. Bonus packs are simply packages containing an extra amount of the product but sold at the price of a regular sized package. Larger more expensive premiums tend to promote brand building. 4. consumers loyal to a particular brand may view the bonus pack like a small premium – a thank you for being good customers. consumers unfamiliar with a brand may hesitate from purchasing a bonus pack because the extra quantity represents a slightly larger purchase commitment to an untried brand.

As such. However. its sponsor. contests frequently require judging as well as the development of rules and criteria for winning. unlike sweepstakes which are simple to administer. they cannot be limited to those who purchase the product. no rebate offers. Legal restrictions governing sweepstakes have left them somewhat out of favor with promotion managers. sweepstakes and contests. They may even participate in the contest or sweepstake. Sweepstakes winners are determined strictly by random drawing while contests require participants to perform some task or display some talent in order to win. but their purchase patterns change little as a result.Consumer-Oriented Sales Promotion – page 13 Price off packs hold strong appeal for marketers because of their simplicity. Often unforeseen circumstances arise that cast controversy on the contest and by extension. Sweepstakes and contests are not synonymous. c. and even no advertising because the offer itself is obvious and printed prominently on the package itself. Not only do retailers attempt to forecast demand of an item that’s put on sale. . Price cuts. Promotion by either contest or sweepstakes generally attempts to build transactions by generating excitement about the brand. They require no coupon distribution. Contests determine winners by their display of some talent or participation in some competition. Marketers promoting by means of sweepstakes must provide an easy mechanism for nonpurchasers to enter and must note that no purchase is necessary to enter in all material promoting the sweepstakes. Their goal is to vary the prices of sets of products so as to produce maximum profits for their entire inventory of goods. B. they attempt to predict how that price change will affect sales of complimentary and competing goods. The mathematical models used for these types of calculations can be quite sophisticated and impressive. Modern retailers use the same technique. Because sweepstakes winners are determined by chance. participation can be limited to those who purchase the product. The only major administrative tasks for price off packs are arrangements with retailers to honor the lower price and to reimburse retailers the difference between the discounted price and the retailer’s regular price. though their approach to the practice is much more scientific and calculated. Retail Promotions 1. These activities serve to draw in new purchasers but have little effect on brand loyal purchasers. Otherwise the sweepstakes would actually be a lottery in which the product purchase amounted to buying a ticket. Shopkeepers of old used the basic laws of price and demand to move stubborn inventory through their stores and into the hands of consumers by simply lowering the price. A retail store putting products “on sale” is an age old staple of retail promotions. Lotteries not sanctioned by a government agency are illegal in most states.

consumers may believe that they must purchase all four items to receive the discount when it may be the case that they could buy one for $2. a.” On the other hand. now $499!” The advantage to this approach is that the regular price is provided. which vary on the basis of the information retailers provide when giving the offer. presenting the reduced price.” Of course. third. they may provide the regular and discounted prices together and let the consumer calculate the actual discount.C. presenting the discount as “save fifty percent” or “save half” would be more effective than “save a dollar. as long as the information is accurate and is honored by retailers.” “buy three for five dollars. price reductions can be presented as “buy three get one free. For example.50. price discounts and the law. Two. It would probably be more effective to present the price reduction as “save one hundred dollars” rather than save “ten percent.T. Two reasons may account for the effectiveness of this approach. When choosing between these two methods. Similarly. One. t may be simply that consumers perceive this method as being suggestive of larger discounts. suppose a retailer reduces the price of an item from two dollars to one dollar. For now. suppose the price of an item regularly marked for one-thousand dollars was reduced to nine hundred dollars. Fourth. For example. According to Tellis (1998).” or “get three for the price of two. the fourth tends to elicit the strongest sales response acres a variety of consumer product categories. retailers may present the discount as the percentage difference between the regular and discounted prices. the F. if a price reduction is presented as “buy four for ten dollars. we focus on the mechanics of retail price cutting. consumers frequently believe that the discount does not apply unless they buy the total number stated in the offer. retailers rely on four basic approaches to presenting price cuts to consumers. For this relatively inexpensive item. and more importantly. The Federal Trade Commission views all four of these methods as suitable ways of presenting price discounts as long as none deceive consumers. In other words. research suggests that consumer response favors the method that suggests a larger numerical savings.Consumer-Oriented Sales Promotion – page 14 We will glimpse briefly at how these mathematical models work later when we examine how to evaluate the success of sales promotions. these guidelines are just that: guidelines. For example.” Research shows that. b. This in turn may depend on how expensive the item is to begin with. First. retailers can frame price reductions in terms of how much more consumers can buy at the reduced amount relative to the regular amount. For example. Second. of the four basic presentation methods for price reductions. though the disadvantage is that consumers must calculate the discount themselves. For the most part. Different people form different perceptions of the same price reductions. the retailer may present the discount on a television by stating that the set “was $699. retailers cannot calculate a . does not consider any as inherently deceptive. retailers may present the reduced price as the dollar difference between the regular and discounted prices. Where retailers frequently run afoul of the law regards what constitutes the “regular” price from which the discount is calculated.

These retailers operate on razor thin margins everyday. This typically permits retailers greater flexibility in creating coupon promotions. Likewise. Large retailers. arbitrarily published by manufacturers. little is known about the general couponing habits of all but the largest national retailers. That is. Another tactic retailers use to give the appearance of price reductions is to present the discount relative to some arbitrary “reference price. retailers may offer a coupon discount for one item if consumers purchase another usually more popular item.” Clearly. though they issue considerably less than consumer products manufacturers. Indeed. First. That is. That said. which allows retailers to claim discounts well below MSRP. manufacturers cannot make such blanket offers. retailers more frequently use coupons to offer free merchandise or free services to their customers. retailers frequently base their discount calculations on “MSRPs” or “manufacturer’s suggested retail price. retailers are more likely than manufacturers to cross promote merchandise. Finally. Small retailers. retailers routinely modify the dollar amounts offered by manufacturers’ coupons. refrain from price promoting for all but the most important of occasions. Retailers frequently issue their own coupons to consumers. In response. These advantages may lead you to wonder why retailers do not coupon more often and manufacturers less often. the retailer can target the offer to coupons for certain goods or from certain manufacturers.Consumer-Oriented Sales Promotion – page 15 discount from a regular price when the product in question is rarely or never sold at that regular price.C. Third. relative to manufacturers. retailers more frequently offer blanket discounts by coupons. a retailer may distribute a coupon offering “10% off any merchandise in the store. Indeed. 2. tend to be higher than average retail prices. which regular couponing can do. do not wish to sensitize their customers to price. we do know anecdotally about some ways retail coupon promotion differs from couponing by manufacturers. Indeed. As long as retailers disclose how they calculate the reduced price. which affords them little incentive to offer coupons. The answer may relate to the retailer’s size. retailers differ widely in terms of their size. Such variation makes systematic study of their overall promotional strategies extremely difficult. In other words. Managing coupon deals on a large scale becomes more costly and effortful than simply putting the item on . or state regulatory agonies. on the other hand regularly compete on price. Therefore. Retail coupons. retailers are free to offer coupons on the multitude of brands that they carry. ranging from small single outlet sole proprietorships to some of the world’s largest corporations. they tend not to come under the scrutiny of the F.T. Second. retailers may do so with other retailer coupons. who really cannot afford to compete on price against larger retailers. retailers are dispersed throughout all of our country’s towns and cities.” These prices. retailers are more likely than manufacturers to offer nonprice promotions by coupon. a retailer may decide to double or even triple coupon face values. Unlike manufacturers. This is because retailers are more numerous and diverse than manufacturers. who obviously can only offer coupons on their own brands. That is. For example.” which may bear no relationship to the item’s regular price. Discounts calculated from such unrealistic regular prices may be seen as deceptive.

retail displays provide a highly effective means of drawing consumer attention to a promotional offer. Many retailers design into their stores large open areas near the store entrances to hold large retail displays. attention itself is needed for a variety of more specific purposes. Promotion managers understand full well that drawing attention to a promotion is the first essential ingredient in its success. front-of-store displays. in-aisle displays are less desirable locations. the front of the store is the most valued location for retail displays. most shelving aisles end into high traffic aisles or walkways that funnel consumers to particular store departments or to cash registers. Retail displays may also be placed in shelving aisles. As a general rule. After the front of the store. Moreover. or the trade deals being received from the manufacturer. some retail space is more desirable than others. Retailers offer this location to manufacturers willing to provide valuable trade deals or other merchandising assistance.Consumer-Oriented Sales Promotion – page 16 sale for some period of time. In retailing. Thus. as shoppers walk near the display. where promotions rely so heavily on the store’s physical environment. c. the shelf talker speaks to them. endcap displays. These professionally prepared retail displays frequently boast highly complex and elaborate designs with moving parts or interactive features. This is because a given aisle will receive less traffic than other store locations.” which use a motion sensor to trigger a brief recorded message. Because all customers entering the store pass by these displays. the more desirable that space is for a retail display. 3. endcaps exist at both ends of a shelving aisle. Retailers can create their own retail displays or rely on manufacturers to provide them with retail display materials. Clearly. the nature of the product being promoted. in-aisle displays. and permit sampling or inspection of new products. because of in-aisle space limitations. drawing their attention. the more people that walk past a space. Endcaps are simply end of aisle shelving. Such devices should be used sparingly as they run the risk of annoying shoppers. Retailers select the location for in-store retail displays depending on the importance of the retail promotion. many use “shelf talkers. coupon promotions at the retail level are generally reserved for special occasions or unusual circumstances. Displays frequently give prominence to price cuts. b. endcap displays nearest the cash registers are more valued display space. Manufacturers are often eager to provide especially large retailers with display materials in their efforts to help retailers merchandise the manufacturers’ products. as with smaller retailers. Naturally. Therefore. highlight many consumer promotional offers such as premiums or bonus packs. endcaps are valued most as retail display space. Relative to the front of the store and endcaps. Retail displays. As a general rule. Although attracting attention remains the top and overriding purpose of retail displays. To boost the attention given to in-aisle displays. . a. these displays tend to be smaller and may draw less consumer attention. introduce new products or services. Depending on store layout.

Generics are rarely if ever promoted. Finally. That is. More durable goods such as furniture would not experience this kind of incremental increase in sales due to simple increased consumption. Stockpiling occurs almost exclusively in price-related retail promotions. switchers come from users of generic brands or store switching users of other private label brands. or decompose. packaged very simply. distributed nationwide and often globally. Consumer promotions such as couponing or premiums induce almost nothing in the way of stockpiling. into its component parts. except under exceptional circumstances. Brands in consumer product categories can be conveniently grouped into three classes. when national brands are promoted. That is. they tend to switch up in quality. Third. and perceived by consumers to be of low quality relative to private label and especially national brands. however. does not occur uniformly across all classes of brands. Another class consists of so-called store brands or private label brands. most retailers promote so frequently that consumers may feel they won’t miss a promotion on an acceptable brand if they forego extra quantities of a promoted brand. Decomposition of the Promotion “Sales Bump” Retail sales promotions produce a short term spike in sales during the promotional period. When consumers brand switch because of a retail promotion. and may be carried by several competing retailers. some consumers will feel free to use a little more of a brand when they know that brand can be more inexpensively replaced. the sales bump also consists of sales to stockpiling consumers. the sales bump includes brand switching. . which are produced by well-known manufacturers. consumers do little in the way of stockpiling even with price promoted products. increased consumption would apply only to consumable products wit relatively short purchase cycles. When private labels are promoted. which are frequently unnamed.Consumer-Oriented Sales Promotion – page 17 III. Indeed. These brands are owned by a given retailer and distributed solely through that retailer. For another. Stockpiling simply refers to consumers who buy more of a promoted brand than they would have otherwise. Brand switching. One class is national brands. logic and some research points to various sources of the spike in sales. Of course. For one thing. My discussion here draws significantly from his. Although difficult to break down. brands may be generic. First is simply increased consumption of the promoted product. consumers will switch from other national brands or from either private label or generic brands. many consumers lack the space to stockpile promoted goods. sold at very low prices. Second. Retailers generally sell their brands at lower prices than national brands and consumers generally perceive them to be of a lower quality than national brands. Evaluating the Success of Consumer Oriented Sales Promotion Tellis (1998) offers an insightful discussion of retail promotion profitability. A.

The “Sales Bump” from Promoted Brands (adapted from Tellis 1998) Exhibit 3 shows the effect on brand sales of a promotion that lasts one time period. This suggests that for most low priced consumer products such as grocery products.Consumer-Oriented Sales Promotion – page 18 Fourth. Thus.” the increase in profits due to the promotion must exceed the profits that would have occurred had the promotional offer not been made. Bear in mind that we are not considering whether the promotion will make money at all. The profitability of the promotion depends on whether the sales bump produces sufficient revenues to overcome the costs that produced the sales bump in the first place. The sales at t2 represents the bump . consumers will do little store switching unless the alternative store is as convenient and easily accessible as the regular store. B Promotion Profitability Exhibit 3 shows a retail sales curve for a consumer-oriented sales promotion. as mentioned above. We are considering whether the promotion will make more money than not having the promotion. the sales bump may reflect extra sales from consumers who switch stores. during all of period t2. The sales under time periods t1 and t3 through t5 represent the normal anticipated sales of the brand with no promotion. most store switching occurs for more expensive durable consumer goods. Store switching generally occurs only when the extra costs to the consumer associated with shopping at a new store do not exceed the benefit offered by the promotion. For the promotion to be “profitable. Brand Sales increased sales from promotion (“sales bump”) b regular anticipated sales t1 t2 t3 t4 t5 Time (t) Exhibit 3.

we reduce m by the per-unit cost of offering the promotion. . We will label this variable m. we should account for the margin produced by the product at its regular unpromoted price. As the inequality demonstrates. The right hand side of the inequality represents the opportunity cost of holding the promotion. these customers who would have purchased at the regular price can take advantage of the promotion. we must consider a few variables. The product of these variables represents the additional profit earned by holding the promotion. In the case of premiums or other nonprice promotions. To figure whether the promotion would be a profitable investment. Had the promotional offer not been made. First. During the promotional period. Next. The increase in sales over normal levels during the promotional period (b) occur at a lower level of margin than regular sales.Consumer-Oriented Sales Promotion – page 19 caused by the promotion. The area above the regular sales line (b) represents the additional sales from the promotion. Both cases result in a reduction that we will label as d. The promotion will be profitable if: b (m-d) > t2 d The left hand side of the inequality represents the additional profits gained by the promotional offer. that is the regular margin less the discount or cost of the promotion (m-d). unless the increase in profits from having the promotion exceed the lost opportunity of not incurring the costs of the promotion the promotional offer should not be made. we reduce m by the amount of the price reduction. In the case of a simple price reduction. the firm would have achieved its normal level of sales (t2). we must include the reduction of product margin caused by the promotion. Multiplying this figure by the discount (d) provides the lost profit of offering the promotion to people who would have bought without the offer.

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