 What is meant by Sales Promotion, and why is it needed in an organization

Sales promotion forms a part of the marketing activities of the firm and is thus classified
under the overall seven aspects of the promotional mix. The sales promotion is mainly
done to stimulate the sales of the slow moving products in a particular place.

According to Blattberg & Nesling, (1990), there are basically two types of the sales
promotion performed by the company to the two different sets of stakeholders that
interact with the company. One is the Trade Discount and the other is the customer
discount. The difference between the two is the target of the sales promotion by the
company.

 Trade Sales Promotion

o Need & Advantages

The trade sales promotion is given to the stockists or the retailers or the carry &
forwarding agents (CFA), to incentivise them to keep more of one stock of the
company’s products on their shelf compared to the competitor. This is generally true for
the Fast Moving Consumer Goods (FMCG) sector, which, according to Roussos &
Moussouri (2004), is characterised by high volume and multiple players in the market,
where the capture of the retail space should be effectively done by the company in
order to bolster up the sales of the product. In the semi product semi service sector that
KFC effectively finds itself in, the trade discounts is on a different kind. KFC effectively
runs on a franchisee systems, where the KFC company acts as a franchisor and the
other parties act as the franchisee. Trade discounts are effectively used here to lower
the operating cost of the franchisee, either by giving the necessary manufacturing
implements to produce the food products, produced in the KFC, at a lower price.

Doing this is advantageous for the fledging or start up franchisees, as according to Klien
(1995), this lowers the business running costs, which is one of the biggest concern for
the franchisees. Due to the lower business costs, the franchisee can expand further,
thus allowing more sales of the product, which is a win win situation for both the
franchisor and the franchisee. Klien along with Kasulis et al (1999), also argue that the
trade discounts to the franchisees also improve their purchasing power, which again
would contribute to the proactive expansion of the market. Furthermore, the expansion
also provides the additional revenue streams for the franchisee, which adds on to the
loyalties of the franchisor, making this trade discount a lucrative model for improving the
sales of the products of KFC.

Stanworth (1995) argues that one of the biggest factor important for a good franchisor
franchisee relationship is the fostering of a proper goodwill between the two parties.
Thus effective use of the trade credit by the company would generate a lot of good will
and foster good relations between both the parties involved. This understanding would
generate more sales and thus be beneficial for both the parties.
 Types of Trade sales promotion

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 Trade allowances: These are the short term incentives that are offered by the
company to induce a retailer to stock up on a product. The trade allowances
incentivise the associate users of a particular product to use the product for
their service (Tsao, 2010). For example, Hairdressers can go to the
manufacturer to get a discount for buying in bulk. They can get shampoos and
other hair products at a cheaper rate and sell them to consumers at full prices.
Manufacturers with the best trade allowances will get the best displays in the
hair salon. The consequence of this is the Channel stuffing (Lai et al, 2011).
The channel stuffing is defined as the business practice where a company, or a
sales force within a company, inflates its sales figures by forcing more products
through a distribution channel than the channel is capable of selling to the world
at large. In some areas, it is called as dumping (Kotler, 1970).
 Dealer loader: An incentive given to induce a retailer to purchase and display a
product. It’s generally in the form of a gift offered to a retailer by a manufacturer
as a bonus for purchasing the manufacturer’s merchandise; also called dealer
loader. This gift can be in the form of a premium or of a discount on inventory.
The rationale of the same is to give the retailer an incentive to stock ones
product rather than the other’s products and services (Feighery, 1999).
 Trade contest: This is a contest to reward retailers that sell the most products
of a particular company. Generally the amount of inventory that are given to
each of the retailer is recorded, and the retailer taking the highest amount of the
stocks in a particular region, is awarded certain gifts and incentives to the owner
of the particular retail store. According to Michael & Ogwo (2013) in Nigeria, this
contest is generally between the identically sized retail stores and there are
many sub categories of the store based on the size and the location of the store
to make it competitive to all the participants.
 Training programs: dealer employees are trained in selling the product.
Kirckpatrick (1998) argues that this is generally the case for more specialised
products that are put for sale that requires some sort of knowledge that has to
be passed on to the buyer. Examples of the same include medical equipments
or business to business products that are sold in bulk. Another common product
is the automobiles. Auto dealerships have been sending their employees to
sales training for many years and traditional sales training is still indispensable
for auto dealership salespeople (Dehejia & Wahba, 1999). As the internet has
become more central to how customers search for vehicles, however, training
for internet marketing has become an essential part of the sales process.
Fortunately, a new breed of programs and trainers has emerged to fill this need
for auto dealerships. The dealers who take advantage of training now will be the
market leaders in the future. The fact that the sales process begins online
impacts everything within the store from appointment setting and greeting to
desk information and F&I all the specialised processes has made the aspect of
 dealer training an indispensible part of the trade promotion, so that the dealer
can pay more.
 Push money: also known as “spiffs”. An extra commission paid to retail
employees to push products. They are the Cash incentive paid by a
manufacturer or distributors to the retailers to stock up on a product and display
it prominently to stimulate its sales. A spiff is a bonus, usually paid in cash,
given out to a salesman for doing something special. Caliderero & Coughlan,
(2007) argue that the usage of the cash incentive may be for pushing the oldest
stock in the retail store. It is the ultimate form of the trader sales promotion,
used by the company to finally get rid of an unsold inventory. Very prevalent in
the auto industry (Rechtin, 2007).
 Trade discounts (also called functional discounts): These are payments to
distribution channel members for performing some function. Trade discounts
and allowances are price reductions given to middlemen (e.g. wholesalers,
industrial distributors, retailers) to encourage them to stock and give preferential
treatment to an organization’s products. Haines (2007) gives us an example; a
consumer goods company may give a retailer a 20% discount to place a larger
order for soap. Such a discount might also be used to gain shelf space or a
preferred position in the store. Trade discounts are often combined to include a
series of functions, for example 20/12/5 could indicate a 20% discount for
warehousing the product, an additional 12% discount for shipping the product,
and an additional 5% discount for keeping the shelves stocked with the product.
Trade discounts are most frequent in industries where retailers hold the majority
of the power in the distribution channel (referred to as channel captains). Trade
discounts are given to try to increase the volume of sales being made by the
supplier. The larger the purchase, the larger the discount. It is important that
these discounts are fair and offered to all channel members equally to avoid
channel conflict (Celnicker & Seaman, 1989). One of the main challenges is
diverting, which is when companies sell to channel members at a cheaper rate
rather than pass on savings to consumers.
 Consumer sales promotion
 Need and advantages

The other kind of sales promotion, one that is directed at one of the most important
stakeholder of the company is the aspect of customer sales promotion; this is a vast
field, with the various kinds of the sales promotions. Trade schemes are effective for the
retailer and the dealer to stock on ones product, but sales promotion activity aimed at
the final consumer are called consumer schemes. These are used to create a pull for
the product and are advertised in public media to attract attention (Lichtenstein et al,
1997). Maximum schemes are floated in festival times, like Easter or Christmas.
Examples are buy soap, get diamond free; buy biscuits, collect runs; buy TV and get
some discount or a free item with it and so on. Consumer schemes become very
prominent in the ‘maturity or decline’ stages of a product life cycle, where companies vie
to sell their own wares against severe competition.
The reasons of doing the consumer sales promotion are many and varied. As per
Chandon et al (2000), the main aim of the consumer sales promotion is to increase and
simulate sales of a particular product. As a discount, or the reduction of the marked
price, allows for more people to buy the product at the lower price points. This aspect is
true across the lower price points and may not work for a product which is status or
luxury oriented.

Customer Sales promotions typically increase the level of sales for the duration they are
floated. Usually, as soon as the schemes end, the sales fall, but hopefully, settle at a
higher level than they were before the sales promotion started. For the company, it can
be a means to gain market share, though an expensive way. For consumers, these can
offer great value for money. But sustained sales promotions can seriously damage a
brand and its sales, as consumers wait specifically for the sales promotion to buy and
not otherwise. Therefore, sales promotions are to be used as a tactical measure as part
of an overall plan, and not as an end itself.