Sales promotion is an action which increases the volume of sales. In a broad sense, the term ‘sales promotion’ refers to promotion because all the activities of personal selling, publicity, advertising and sales promotion lead to the enhancement of sales.
However, the meaning of sales promotion has been technically defined to include display, demonstration, contests and trading stamps.
Philip Kotler defines sales promotion as, “Promotion encompasses all the tools in the marketing mix whose major role is persuasive communication”.
Learn about:- 1. Introduction to Sales Promotion 2. Definition of Sales Promotion 3. Meaning of Sales Promotion 4. Purpose 5. Steps 6. Objectives 7. Importance 8. Evaluation 9. Strengths 10. Reasons 11. Factors 12. Forms 13. Tools 14. Advantages and Disadvantages 15. Significance 16. Guidelines.
Sales Promotion: Definition, Meaning, Purpose, Steps, Objectives, Importance, Evaluation, Strengths and Advantages
- Introduction to Sales Promotion
- Definition of Sales Promotion
- Meaning of Sales Promotion
- Purpose of Sales Promotion
- Steps of Sales Promotion
- Objectives of Sales Promotion
- Importance of Sales Promotion
- Evaluation of Sales Promotion
- Strengths of Sales Promotion
- Reasons of Sales Promotion
- Factors of Sales Promotion
- Forms of Sales Promotion
- Tools of Sales Promotion
- Advantages and Disadvantages of Sales Promotion
- Significance of Sales Promotion
- Guidelines for Sales Promotion
Sales Promotion – Introduction
Sales promotion is an action which increases the volume of sales. In a broad sense, the term ‘sales promotion’ refers to promotion because all the activities of personal selling, publicity, advertising and sales promotion lead to the enhancement of sales. However, the meaning of sales promotion has been technically defined to include display, demonstration, contests and trading stamps.
“It applies to assorted, non-recurrent and somewhat extraordinary non-personal selling efforts.” Many authors have defined sales promotion as non-personal selling, and it is also known as non-recurring promotional efforts.
“Sales promotion consists of a wide variety of promotional tools designed to stimulate earlier and/or stronger market response. They include tools for consumer promotion (e. g., samples, coupons, money-refund offers, prices-off, premiums, contests, trading stamps, demonstrations), trade promotion (e. g., buying allowances, free goods, merchandise allowances, co-operative advertising, push money, dealer sales contests), and sales force promotion, (e. g., bonuses, contests, sales rallies).”
Sales promotion efforts are directed at final consumers and are designed to motivate, persuade and remind them of the goods and services that are offered. Sales persons adopt several techniques for sales enhancement. Creative sales promotion can be very effective. It is the marketing manager’s responsibility to specify promotion objectives and policies.
Sales Promotion – Definition: Suggested by Philip Kotler
Sales promotion generally deals with immediate inducement and simplifies marketing efforts of increasing sales figures. Sales promotion acts as an important tool into sack of marketing promotion mix to sustain in a market of heavily growing competition in every sector of business.
Sales promotion is an important part of investment in overall marketing investment allocation. Money is wisely spent on sales promotion which in return gives great results. It moves the product to the minds of customer which makes them buy the product.
Millions of facebook pages are created for sales promotion of various products and services which are popular and responsible for boosting sales and profits. Blogs about the specifications of product with reviews from the experts is a growing popular trend of promoting a product. Many web sites are operating just to give reviews of the product but are very popular and people actually compare, analyze the review and then purchase appropriate product suiting their demand.
American Marketing association defines sales promotion as, “There marketing activities, other than personal selling, advertising and publicity that stimulate consumer purchasing and dealer effectiveness such as display shows and exhibitions, demonstrations and various non-recurrent selling efforts not in the ordinary routine.”
The above definition clearly state the features of sales promotion with differentiating it with other forms of marketing promotion mix such as advertising and personal selling.
Philip Kotler defines sales promotion as, “Promotion encompasses all the tools in the marketing mix whose major role is persuasive communication”.
From the definitions above some of the characteristics of sales promotion can be described as following:
1. Sales promotion is different than advertising, publicity and personal selling.
2. It boosts other forms of promotion mix to perform their own functions efficiently and with ease.
3. Sales promotion supports healthy relations with customers, dealers and wholesalers, distributors.
4. It includes free sample distribution, display, exhibitions, demonstrations etc.
5. It encourages sale and thereafter profits.
Sales Promotion – Meaning
Sales promotion is said to be a key ingredient in the international marketing campaign. It consists of mostly collection of those short term incentive tools, which are designed to stimulate purchase of a particular product or service. Advertisement plays an important role in the marketing. It offers a reason to buy certain product or service.
On the other hand sales promotion offers an incentive to purchase. It also consists of tools for customer promotion. It includes samples, special discount offer, special prize incentives, cash awards, special price concessions, warranties etc. Trade promotion is another tool for sales promotion.
It includes price off, advertisements allowances and free goods. Business and Sales-force promotion is also a tool used in sales promotion. It consists of trade exhibitions, trade fair, trade shows, sale people contests etc. All these sales promotion tools are used by the most of profit organizations as well as non-profit organizations.
Now a days promotion has been recognized by a most accepted tool of marketing. The sales managers are under very much pressure to increase the sales turnover. They use to emphasize more on promotional tools as to increase their turnover.
(i) Increase in the number of brands.
(ii) Increase in competition.
(iii) Decline in the advertising efficiency.
(iv) Rising costs.
(v) Media clutter.
(vi) Legal restraints.
Sales Promotion – Top 10 Tools for Attaining the Following Purposes
The tools of sales promotion vary according to the specific objectives of a manufacturer. The management of the particular organization can play a vital role to cement a long-term business relationship with their customers. Generally a seller use various incentives type of promotion tool to attract new customers in the market. It may also be to reward loyal customers and also to increase the sale to the occasional uses.
(i) Sales promotion tools are used to attract brand switchers.
(ii) It is used to attract those customers who are looking for good value, low price and premiums.
(iii) Sales promotion tools are used to turn up to customers into loyal customers.
(iv) Sales promotion tools are used in the market of high brand similarity.
(v) The sales promotion tools can alter market share permanently market of high brand dissimilarity.
(vi) The sales promotional tools enable a seller to adjust short-term variation in demand and supply.
(vii) The sales promotional tools induce customers to go for new products instead of current ones.
(viii) Sales promotional tools promote higher consumer awareness of prices.
(ix) It is helpful for the manufacturer to adopt a suitable strategy to different market segments.
(x) Sales promotion is useful in increasing consumer satisfaction.
The marketing managers in the modern eras, first plan to spend in trade promotion, then they plan to spend in consumer promotion and finally they use to plan for the advertising. To put advertising on the backseat may be harmful for the company, because it always create and build brand loyalty among the customers.
The sales promotion with its incessant price off may devaluate the product image in the customers mind. However, whenever a product brand is used, price promoted too, the buyer begins to devaluate it. He uses to buy such product, whenever it is offered in the sales.
Further it is also observed practically that the price promotions do not build permanent total category volume. The price competition is often used by the small brand holders, who were keen to enlarge their market share. They find the use of sales promotion beneficial for this purpose because they are not in a position to match the advertising budget of a market leader, who is having substantial financial resources with them.
Such small – share competitors are also not in a position to obtain shelf space without offering substantial trade discounts or allowances or stimulate consumer trial without offering any such incentives. In using sales promotion a company is to take major decisions in this regard. These can be explained as under the major decision in sales promotion.
Sales Promotion – 8 Main Steps: Establishing Objectives, Selecting Consumer Promotion Tools, Selecting Trade Promotional Tools and a Few Others
The following are the main steps involved in sales promotion:
Step # 1. Establishing Objectives:
The sales promotion is established and derived from the basic business and marketing objectives.
These can be established as under:
(i) For Consumers:
For consumers following types of objective can be established:
(a) To encourage bulk purchases through better offers.
(b) To carry out trails among non-uses of products.
(c) To attract switchers from competitors.
(ii) For Retailers:
Generally following types are objectives can be established for the retailers:
(a) To persuade retailers to carry new items.
(b) To encourage off-season buying.
(c) To encourage stocking of required products.
(d) To offset competitive promotions.
(e) To build up brand loyalty.
(f) To gain entry into new retail outlets.
(iii) For Sale People:
It includes the following type of sales promotion objectives:
(a) To encourage support of a new product or models.
(b) To encourage and stimulate off-season sales.
(c) To encourage more sales prospects.
Step # 2. Selecting Consumer Promotion Tools:
The marketer should take following factors into consideration, while selecting consumer-promotion tools:
(i) Type of market.
(ii) Objectives of sales-promotion.
(iii) Competitive conditions of the market.
(iv) Cost effectiveness of each promotional tool.
The following consumer promotion tools are used by the marketers:
(i) Sample and Coupons.
(ii) Cash refund offers.
(iii) A reduced-price back.
(iv) Free gift premium incentives.
(v) Rewards relating to consumer intensity to purchase product or services.
(vi) Free trials and other prizes.
(vii) Purchase displays and demonstrations.
(viii) Product warranties.
The sales promotion tools seem to be more effective, while the same has been used together along with advertising. Most of the multinational companies have appointed their sales promotion manager to help the brand manager to select an appropriate promotional tool.
A manufacturer generally uses different types of trade-promotion tools in his business.
(i) To persuade the wholesaler or retailers to carry the brand.
(ii) To encourage the wholesaler or retailer to keep and carry more number of units than the normal ones.
It may be done by:
a. Product display
b. Brand featuring
c. Price reductions and etc.
(iv) To encourage and motivate the wholesalers and retailers to push up their product as much as possible.
Further it is pertinent to mention here that all kinds of such traders depend on promotion expenditures from the manufacturer only. And no any manufacturer can stop offering trade allowances. The sales forces of a multinational company are at odds over the issue of trade promotion.
They are of the opinion that all kinds of such traders will not be ready to keep the products of the company, unless or until they do not get substantial money for trade promotion. The brand manager, on the other hand will be willing to spend the limited amount of money on consumer promotion, trade promotion and advertising. The manufacturer also faces many challenges in managing trade promotions.
(i) It is difficult for the manufacturer to police the traders to make sure, they are doing what they have agreed upon.
(ii) More traders may be willing in doing forward buying.
(iii) The traders may be doing more diversity. They may be interested in more number of cases than needed in a particular region. They may also be shipping the surplus to their stores in non-deal regions.
Step # 4. Selecting Business and Sales Force Promotion Tools:
The most of the multinational companies use to spend huge amount of money on business and sales force promotion tools. These tools are used to take business leads, to impress and reward customers.
The business and sales promotion tools are useful to motivate sales people to make greater efforts. The multinational companies plan their budget for every such business and sales force promotion tools, which remain fairly constant over the years to come.
(iii) Sales Contests – A sales contest aims at inducing the sales force to make increase in their sales volume.
(iv) Specialty Advertising – Which consists of useful and low cost items and sometime message, which a multinational company want to give to its prospective customers.
Step # 5. Developing the Program:
Marketers use to blend different promotional tools into a total sales promotion programme. A marketer does have several variables to consider, while deciding a particular incentive.
(i) Size of the incentives – A marketer must have to determine the size of the incentives. He is to fix certain minimum incentives, if he is to make success of the programme.
(ii) To establish conditions for the participation – It is for the marketer to establish conditions for the sales promotion. He is to decide that whether, the incentives should be offered to everyone or to the selected groups.
(iv) To decide about distribution vehicle or media – The marketing manager is to decide about the distribution vehicle or media. It can be distributed in the package, in stores, by mail, through advertising or through websites.
(i) Administrative Costs – It consists of printing cost, mailing costs and promotion costs etc.
(ii) Incentives Costs – It consists of cost of premium etc.
Step # 6. Pretest the Programme:
The most of the sales promotion programme are designed on the basis of past experience.
(i) Whether the tools are appropriate.
(ii) Whether the size of the incentives is optimal.
(iii) Whether the presentation method is efficient.
The pretest exercise of the programme can be carried out by asking the sampled consumers to rate or rank about the different types of deals. Such types of trials of the programme can be conducted in the limited geographical areas only.
Step # 7. Implementation and Control of Promotion Programme:
The marketers should prepare implementation and control programmes for every promotion strategy which should cover the following aspects:
(i) Lead Time:
The lead time is prepared prior to launch the promotion programme.
(a) Initial Planning.
(b) Program design.
(c) Approval of distribution media, which consists of package, modification or mailing material.
(d) Preparation of advertising materials.
(e) Purchase and printing of special packaging materials.
(f) Production advance inventories for the release at a specific date.
(g) Final distribution to the trader.
(ii) Sell in Time:
It begins with the launch of promotional programme and ends with the final merchandise in the hands of ultimate customers.
Thus by taking all these factors into consideration the marketer should plan for the implementation and control of promotion programme.
The following methods can be used by a marketer to evaluate the results of programs implemented or launched:
(i) Sales Data Method:
This method is based upon the sales data, which can be collected from various sources. It can be analyzed on the basis of available data that the type of different people who took advantage of such programs. What they were purchasing before the promotion programme and how they are behaving after the launch of such promotional programs. It is also noted and analyzed that what net impact they observed after launching the promotion programme.
(ii) Consumer Survey Method:
The consumer survey method can be used to evaluate the promotion programme. This method is used to know that how many customers recall the promotion programme. What they perceive about it. How many among those took an advantage of promotion. It can also be observed that how the promotion has influenced their behaviour in selecting a particular brand.
The sales promotion can also be analyzed with the help of experimentation method. For example, certain set of customers can be sent coupons to promote and evaluate their behaviour towards particular product. Further the scanner data can be used to know that whether this exercise led more customers to buy the product instantly or in future.
Thus the whole of the process should be evaluated very carefully. It will certainly be helpful to manage the things and can provide an effective feedback for the future course.
Sales Promotion – Dual Objectives with Reasons
Sales promotion and publicity, when combined with advertising and personal selling programmes, really add up to more than the sum of the parts. Sales promotion is that “something extra” (2+2 = 5). It can arouse enthusiasm, create a buying mood or spark an immediate reaction from consumers, dealers and the firm’s salesperson.
Many sales promotion campaigns involve the use of incentives. Incentives are something of financial value added to an offer to encourage some obvious behavioural response. Sales promotion is often thought as special selling effort to accelerate sales. Point-of-purchase displays give a real off, sales rising by 25 to 50 per ‘suasion’ cent or even more.
Sales promotion has dual objectives:
(1) To increase buying response by ultimate consumers, and
(2) To increase selling efforts and intensity by dealers as well as by sales personnel.
The result of an effective total marketing programme is sales success, which entirely depends on positive customer reaction and an intense, well organised selling effort by resellers and salespersons.
One study suggested the following reasons for undertaking actively all form of sales promotion:
(1) Calling attention to new products and product improvements,
(2) Informing buyers of new brand and new package,
(3) Improving market share,
(4) Increasing usage rate by present customers,
(5) Maintaining customer patronage and brand loyalty,
(6) Obtaining dealer outlets,
(7) Securing additional shelf-space and added display,
(8) Creating talking points for salespersons.
Sales Promotion – Top 7 Importance
Sales promotion acts as a bridge between advertising and personal selling. Due to the adversity of markets, the importance of sales promotion has increased tremendously. Sales promotion helps remove the consumer’s dissatisfaction about a particular product, manufacturer, and create brand-image in the minds of the consumers and the users.
Sales promotional devices are the only promotional devices available at the point-of-purchase. An advertising medium reaches the prospects at their homes, offices, etc. and may soon be forgotten. The sales promotional devices at the point-of-purchase stimulate the customers to make purchase promptly on the spot.
Business firms use promotional tools to achieve the following benefits:
1. Attracting Attention – The first aim of sales promotion is to attract the attention of the prospective buyers and inform them about the availability, characteristics and uses of a particular product.
2. Highlighting Utility of Product – Promotion helps in letting the people know about the utility of the new products. It also tells them how the concerned products will be helpful in satisfying their specific demands.
3. Stimulation of Demand of New Product – Promotional activities are used to create interest in the new product and to persuade people to buy the same. This helps in launching the new product.
4. Product Differentiation – Promotion helps in differentiating a particular product of the firm from the competing products of other firms. A firm can also use data revealing how its product compares with the other products.
5. Synergy in Promotional Activities – Sales promotion activities supplement personal selling and advertising efforts of the firm. They add to the overall effectiveness of the firm’s promotional activities.
6. Stabilisation of Sales Volume – In the modern age of competition, it is an important purpose of promotion to help in stabilising sales volume by reassuring the customers about the quality and price of the product. It is possible that a customer using a particular brand, may buy another because the other brand is promoted in an effective manner.
7. Performance Appraisal or Marketing Control – The management of a company can keep an effective check on the results achieved through sales promotion schemes, because it is in a position to analyse the costs incurred and the benefits derived.
Sales Promotion – Evaluation
Evaluation of sales promotion programme is made to measure its effectiveness, and to ascertain the short comings, if any, so that improvements can be made in future. Producers spend considerable amounts on sales promotion activities by allocating a major portion of the marketing budget for sales promotion programme. But, it has been noticed that they spend very small amount and time to evaluate and finding out the achievements or the drawbacks, if any.
Need for Evaluation:
Evaluation is the basic need for the success of any activity. Regular evaluation of sales promotion programme is necessary for its success.
The need for evaluating the sales promotion programme arises on accounts of the following reasons:
1. Taking corrective steps in case of any drawback is noticed.
2. To measure the effectiveness and achievements of objectives.
3. Identifying growth and development opportunities.
4. Facilitate for future planning.
5. To fix accountability on concerned authority.
6. To encourage for research and innovations.
7. Motivate and appraise the employees who have contributed more efforts.
8. To know the maturity of limit of sales promotion programme.
9. To study the new and modern tools of promotion.
10. To get allocated maximum budget for sales promotion.
On the basis of evaluation results, if necessary efforts will be made to bring quicker the activities of the distributors, middlemen and retailers, and necessary guidance is given to the sales force also. Besides these, ineffective sales promotion techniques can be given up and new or the latest techniques can be adopted. Evaluation is also helpful to change the cost estimates, budget and coordinate efforts of communication medias, to frame more sound and profitable sales promotion programme.
It is also essential to fix accountability on the sales force, identification of growth opportunities, encouraging research, etc. In short, evaluation of sales promotion programme becomes the basis of future planning.
Sales Promotion – Strengths
(1) It stimulates positive attitudes toward the product.
(2) It gives extra incentive to the consumer to make a purchase.
(3) It gives direct inducement to take immediate action now rather than later.
(4) It has flexibility and it can be used at any stage of a new product introduction.
Sales promotions are very effective:
(a) When a new brand is introduced,
(b) When we have to communicate a major improvement, increase our product,
(c) When we want to amplify the results of the advertising,
(d) When we want to increase the number of retail stores to sell our products.
Sales Promotion – 12 Basic Reasons (Merchandising Aids)
The following are the basic reasons for sales promotions:
1. Introduction of a new product.
2. Stimulus for a new use of a product.
3. Encouragement for increasing frequency of purchase.
4. Appeal to a special area of the market.
5. Combination offer to encourage the use of other products.
6. Creation of dealer interest and inducing them to stock the articles.
7. Securing shelf space in the retail window.
8. Counter-balancing price competition.
9. Special training of salesmen.
10. Seasonal and grand reduction sales.
11. Capturing bargain hunting and non-brand conscious buyers through bargain sales.
12. Acceleration to slow-selling lines.
Thus, sales promotion is used at the time of introducing a new consumer product, to secure maximum dealer stocking, display space and attention of customers. Sales promotion involves a lot of expenditure. It also has difficulties. But because it pays rich dividends, sellers have accepted it as an important item in the marketing mix.
Not only does it give profit but it also serves other purposes such as provision of information, creation of demand, repeat buyers, sales stabilisation and quick inventory turnover. The successful promotional effort has many ingredients such as personal selling, sales promotion devices, advertising, public relations and publicity.
Sales Promotion – 12 Major Factors Influencing Sales Promotion Growth:
There are many of powerful reasons that are favorable to the growth of sales promotion.
Some of the major factors contributing to the growth of sales promotion are described below:
Factor # 1. Increasing Competition:
It is becoming increasingly clear that introduction of economic liberalization the changes has gained momentum. It was not very long ago that customers would book a certain brand of scooter and wait for few years to become the proud owner of one. TV sets and VCRs, computers and cordless telephone sets, brought to India by NRIs, and if sold, would fetch a substantial profit. The poor customers found themselves at the receiving end, having hardly an alternative choices in most product categories.
It was easy for most firms to sell whatever they would produce. The gap between demand and supply was very wide. Now things are rapidly becoming different in designs uses, services, etc. and because of this macro-environmental change, marketers are trying to gain customers’ attention, win their confidence and retain them by providing value and service for their money. Perhaps the customer is slowly gaining his rightful position and is on its way to becoming the king.
Factor # 2. Customers have Become more Price-Sensitive:
Customers in general have become more conscious about prices. This increased price sensitivity is a direct result of rampant inflation. Some researchers feel that this increased price sensitivity of customers is a result of frequent sales promotions because consumers become conditioned to promotion. One thing is very clear that economic recession is likely to fuel this trend further as consumers and dealers become more sensitive towards prices.
Factor # 3. Sales Promotions Generally Create an Immediate Positive Impact on Sales:
Advertising, personal selling and other methods of promotion produce a slower sales response as compared to sales promotion. Also since sales promotions are mostly for a short duration, or a specified period, this leads to a sense of urgency in consumers to buy now. Thus creating an immediate, positive impact on sales.
Factor # 4. Products have Become more Standardized:
In most consumer product categories, there is a proliferation of brands, many of them are line extensions. Most brands are being perceived by consumers to be more or less similar within a given price range because of the inability of manufacturers to develop truly differentiated products.
Under these circumstances advertising messages are unable to strongly influence the consumers’ perceptions and create brand franchise. As a result of these perceptions of similarity among brands, marketers have no way but to compete on the basis of extra benefit offered through sales promotion.
Factor # 5. Expectations of Price Decrease:
With the entry of many different brands for consumer durable products in the same product category, consumers anticipate that the prices of durable goods will come down. This encourages them to postpone their purchase. To speed up the purchase in this segment of consumers, sales promotions are an effective as well as attractive method. Consumers evaluate the incentives associated with their purchase decision and are motivated to act now, rather than wait for the anticipated decrease in prices.
Factor # 6. Advertising has Become more Expensive and Less Effective:
All the advertising media have become quite expensive. Audio-visual medium, which is considered as the most effective medium for short-duration ads, may cost in excess of Rs.150,000 for a ten-second exposure during prime time. Firms with a small budget cannot compete with big companies who spend huge sums of money on advertising.
For these small-budget firms, sales promotion is a more cost-effective promotion method to produce sales results. A firm that wants to introduce a personal care non-durable consumer product quickly, and where the consumers’ personal usage experience is more important, a sample drop can be quite effective.
Factor # 7. Emphasis on Sales Volume:
Towards achieving long-term profit goals, manufacturers try to attain high sales volumes. Brand managers and product managers find themselves under pressure to achieve short- term sales results for the sake of their careers. Compared to any other promotional method, sales promotion is a more effective method to generate short-term sales volume. Sales promotion has also become more acceptable to the top management and the incentives to management are tied up with sales volumes.
Factor # 8. Sales Promotions Maximize Profits:
A number of economic theories conclude that a company can maximize profits by using sales promotion. Such promotions can permit price discrimination by allowing the brand to compete in two or more different market segments. Sales promotion may allow a premium brand to compete with a lower-tier brand among price sensitive consumers. For example, a premium brand of toilet soap may be on promotion in some price sensitive markets while in the remaining markets it is sold on its normal price.
Factor # 9. Introducing an Element of Interest Promotions:
There are a number of promotions which are often called ‘interest-promotions.’ Some of the more popular interest-promotion techniques are samples, scratch cards, contests and sweepstakes, free premiums and mail-in premiums. These promotions create an element of interest and excitement; consumers enjoy these and respond enthusiastically to such promotions.
Factor # 10. Unplanned Buying is Increasing:
It appears that the number of marginal customers is on the increase. Displays at the point-of- purchase lead to unplanned purchases by consumers. This is particularly the case if the items on display are not expensive.
Factor # 11. Sales Promotion Specialists are Available:
As a result of economic liberalization, the number of management institutions has increased. This has led to the availability of specialists who are not only well paid but can be handle this specialized work more efficiently in the current market conditions where sales promotion has become more important.
Factor # 12. Excess Stocks and Quickest Way to Clear:
Because of increasing number of brands; it is becoming difficult for manufacturers and dealers to anticipate sales in the future. This, at times, leads to excess inventories and the quickest way to clear the piled up inventories is to go for sales promotion.
The above-mentioned reasons for the rapid growth of sales promotion are just some important ones. It is difficult to say with any confidence the relative importance of these reasons. Of course, it can be said that they all contribute; however, the degree varies depending upon the economic conditions, product category, level of competitive activity and consumer behaviour, etc.
To explain one major reason for the growth of sales promotion, Blattberg and Neslin (Sales Promotion, Concepts, Methods and Strategies, Prentice-Hall, Englewood Cliffs, New Jersey, 1990) have discussed a theory, ‘Prisoner’s Dilemma.’
According to a theory, developed by Neslin and Blattberg, business firms would be better off if they do not go for such promotions and sell the products on list price, thereby earning maximum profits, which is supposed to be the ideal situation for any business. They further say that it is quite reasonable to assume that in a competitive market situation, competing firms are in a non-cooperative setting.
Each competing firm has a fear that if the other firm introduces sales promotion for a competing brand then this firm would increase its market share at the expense of the firm that does not promote. In effect, the firm that does not promote would be the loser. So, assuming that the competition would introduce some promotional scheme anyway, firms decide that it would be advantageous to take the lead in announcing a promotion.
By following this thinking, apparently each firm settles for less than the ideal situation and earns less than the maximum profits. The authors believe that competing firms are involved in this vicious circle of dilemma and apparently there seem to be many hurdles in escaping this situation.
Sales Promotion – 3 Main Forms: Consumer Promotion, Trade Promotion and Sales Force Promotion
Sales promotion may take any or all of the three forms:
1. Consumer promotion,
2. Trade promotion and
3. Sales force promotion.
These forms of sales promotion are also known as tools or methods of sales promotion.
Consumer promotion includes samples, coupons, money-refund offers, prices-off, premiums, contests, demonstrations and trading stamps. These tools are well utilised by marketing management. Samples are free distribution of a product for the purpose of obtaining consumer acceptance. This may be done on a door-to-door basis, via demonstrations, or by mail. It is useful for promoting new products.
Coupons offer a discount on new purchases of a product. They are certificates entitling the bearer to a discount on the purchase of a specific product. Money-refund offers are granted to cash purchasers. Sometimes, customers are given the product at a price below the normal rate. Premiums are merchandise offered at relatively low prices.
Free-in-the mail premium is an item mailed to the consumers. A self- liquidating premium is an item sold below normal price. Firms may offer contests to attract customers by offering substantial cash or merchandise price cuts.
Demonstrations are made to inform the public or consumers in the target market about the attributes and utilities of the product. Trading stamps are a special type of premium received by customers, which can be redeemed for merchandise through stamp redemption.
Trade promotion encourages buyers to buy a larger quantity of the product. It is also known as buying allowance because it is an offer of some discount one each item of purchase above a minimum quantity. Trade promotion may take the form of free goods, merchandise allowances, cooperative advertising, dealer sales contexts, and push money.
Free goods are offered to public and dealers after the purchase of certain items. They boost the sales of a commodity by offering some additional commodities free of cost. For example, a bar of soap is sold by offering a match box free of cost; the sale of a coffee jar of 500 gms is accompanied by a free steel cup, and so on.
Merchandise allowance is offered to compensate dealers for disposing of the manufacturer’s products. Advertising allowance compensates dealers for advertising the product. Sales competitions are arranged, prizes are announced or special offers are made on the sale of new products. Push money is offered to the purchaser or agents to increase the sale of a product.
Salesmen are motivated to sell products by offering bonuses, contexts and sales rallies. They are offered a bonus if the sale increases above the minimum level. Sales contests are organised as an effective measure of sales promotion. The main purpose of sales contests is to increase the sale through retailers or sales persons.
An off-season sale can be motivated by such contests. When the volume of sales is declining, it creates a sense of security and stability. It is also useful in getting repeat orders from present and past customers. To context prizes may be cash awards, merchandise prizes, travel and special honours.
Merchandise prizes are more effective than the cash awards because more contestants are attracted to participate in the context. Young energetic sales personnel are tempted by travel awards, particularly when their spouses are offered this award to visit an exotic land. Sales rallies encourage open participation by retailers and salesmen.
They are publicity honoured at the winning positions. Sales rallies should be designed in such a way as to ensure that every participant has a fair chance of winning the award.
Sales Promotion – Tools of Sales Promotion (For Consumers and Traders)
Types of Sales Promotional Tools Used for Consumers:
Sales promotional campaigns assume various forms.
Some of the common types of sales promotions are:
i. Coupon – In this type, a coupon is placed in the newspapers or in the packet of the product to be promoted. The customer is required to fill out this coupon and then redeem it at the retail outlet, or in some cases, there is a prize attached to the coupon.
ii. Bonus packs – Here, there is more of the product in the same pack than what the customer would usually find, for the same price, or a marginally higher price.
iii. In pack and on pack – Here, an additional product is given free on purchase of a pack, or as a compliment inside the pack.
iv. Speciality container – Here, the product is supplied in the form of a container that is not regularly or usually used for packaging. The design, shape and material of the container may lure the customers to buy the product.
v. Continuity programme / loyalty cards – These are cards which are swiped with every purchase. The customer gains points for every purchase, which can be redeemed. There are also some special privileges for card holders.
vi. Refund – In this case, the consumer is induced to try the product by giving a guarantee that if the product does not perform, the money will be refunded.
vii. Sweepstakes – This is like a lottery, where the consumer is either given a ticket with a number on it, or has to fill a form with a number on it. Through a lottery system, a lucky winner is chosen.
viii. Contest – Some form of contest is held and winners are given prices.
ix. Sampling – Free samples of the product are distributed to entice the consumer to try the product.
x. Price off – Here, a discount is offered on the MRP of the product in order to entice the consumer to buy the product.
Sales promotions done for traders comprise of:
i. Volume – Here, the trader is asked to buy a particular volume of goods, and gets some more of it for free, which he can sell. For example – buy 10 crates of Coke and get one crate free.
ii. Prompt payment – If the trader makes an immediate payment, he gets a discount.
iii. Free goods – Here, the manufacturer provides goods to the retailer as free goods for giving away as promotional items. These are generally new products or slow-moving items.
Pre-Testing the Sales Promotion Programme:
To ensure the success of the sales promotion programme, it is necessary to pre-test the programme. The pre-testing would help the marketer to decide if the tool used is appropriate, if the size of the incentive is adequate, and if the presentation method is effective.
Implementing and Controlling the Sales Promotion Programme:
Marketers need to prepare an implementation and control plan for each promotion. A lead time is generally taken into consideration prior to launching the programme. Lead time helps undertake initial planning, design and changes, mailing of the material to be distributed, preparation of the advertising and point-of-sale material, notification to the field sales staff, and establishment of allocations for various distributors, etc. The selling time begins with the promotional launch and ends with the end of the campaign.
Evaluating the Sales Promotion Results:
Analysing and evaluating the result of the sales promotion campaign is very important. Generally marketers use one or a combination of the following three methods to evaluate the sales promotion effectiveness –
i. Sales data,
ii. Consumer surveys, or
Sales Promotion – Advantages and Disadvantages
Sales promotion is normally an adjunct to personal selling or advertising. It can be directed either at consumers, the sales force, or the channel members carrying a product. Typically such promotions are a relatively short-term activity used to stimulate some specific action. Because of the cost and clutter of media advertising, better targeting capabilities, and easier tracking of its effectiveness, sales promotion budgets have overtaken advertising budgets in both the United States and Europe.
Despite its widespread use as the most important element of communication campaigns, at least in terms of money spent, the essence of sales promotion is that it is intended as a very short-term influence on sales. It typically has an insignificant long- term effect, but may be a powerful additional factor to sway short-term sales in the supplier’s favour or to advance sales that would have been made later.
The advantages of sales promotion are as follows:
(i) Sales increase – This is the main short-term benefit.
(ii) Defined target audience – Sales promotion can be targeted to specific groups, especially selected retailers and their customers.
(iii) Defined role – It can be targeted to achieve specific objectives, such as increasing repeat purchases.
(iv) Indirect roles – Other objectives include wider distribution and shelf space.
These are the disadvantages:
(i) Short term – Almost all of the effect is immediate. There is rarely any lasting increase in sales.
(ii) Hidden Costs – Many costs, not least the management and sales force time and effort, do not appear in the direct costs.
(iii) Confusion – Promotions can conflict with the main brand messages and confuse the customer as to what the image really is. For example, during the health and fitness craze of the 1980s in the United States, turkey was aggressively promoted as a low-fat meat with various forms of sales promotion including in-store coupons and loss-leader pricing before Thanksgiving.
Sales promotions were intended to encourage consumers to eat more turkey year round, but unfortunately strengthened turkey’s image as a Thanksgiving meal. Now in the post-health-craze era of the 1990s and beyond, turkey consumption has dropped, as many consumers consider turkey as a health food. The National Turkey Federation always promoted it as a low-fat meat, but it is consumers who have redefined it as a health food.
(iv) Price cutting – This can cause users to expect a lower price in the future and damage quality perception.
(v) Postponement effect – Too many sales promotion efforts in a product category can result in customer refusal to purchase a product at full price and the willingness to defer purchases until the next promotion.
(vi) Significant governmental regulation – Much sales promotion is regulated by governments. As a result, a particular incentive may be permissible in one market but illegal in another. In Scandinavia, for example, every promotion has to be approved by a government body.
In France, a gift cannot be worth more than 4 percent of the retail value of the product being promoted, subject to a maximum of 10 francs. The maximum prize value in the Netherlands is 250 guilders, making certain promotions virtually impossible. All these differing regulations make it very difficult to carry out global sales promotion efforts.
Perhaps the greatest disadvantage of sales promotions is their lack of effectiveness. Researchers have reported that only 16 percent of the trade promotion events studied were profitable, based on incremental sales of brands distributed through retailer warehouses. For many promotions the cost of promoting an additional dollar of sales was greater than one dollar. Yet promotions have become so popular that they now account for more than 65 percent of typical communication budgets.
In line with its essentially short-term impact, a promotion may be expected to achieve certain limited objectives. Some promotions are expressly planned to induce consumers to make a trial purchase of the product or service. Examples include money-off coupons or samples of the product, possibly linked as a free gift with a related product.
Other promotions are designed to achieve extra volume by stimulating the user’s decision at the point of sale; on-package coupons are the obvious example. Another alternative is to offer more of the product (e.g., 20 percent more free) for the same price. Promotions can also be designed to build repeat business. A good example is a coupon for money off the next purchase. Competition among retailers or the sales force may lead to a better display at the point of sale, but it is the extra shelf space that sells the product rather than the promotion itself.
Sales promotion and advertising should be complementary. The most effective campaign often includes an integrated mix of several types of promotion. Although such an effort may be expensive, corporations such as AT&T, IBM, and Hewlett-Packard have found that by synchronizing their advertising, direct mail, telemarketing, and field sales force, they can increase response and customer satisfaction.
Customer satisfaction is important, as it costs five to seven times more to find new customers than to retain the customers a company already has. Most dissatisfied customers never complain; they just switch to other competitors. The bright side is that totally satisfied customers are six times more likely to repurchase a company’s products over a span of one to two years than merely satisfied customers.
Sales Promotion – Significance
Sales promotion has been accepted by many firms as an effective sales tool. Internal and external factors have assisted in the adoption of sales promotion successfully. The other promotional media are costly and not very effective; sales promotion has proved to be both economical and more effective.
Such sales promotion ideas as mass advertising carry the entire promotion load. Personal selling has a limited scope. Moreover, it has not been properly utilised for the benefit of manufacturing organisations. Sales promotion is more personal than mass advertising, and provides more opportunities for the development of sales.
Sales persons meet several queries and answer specific questions. They sell only those ideas which may be sold and not just what is told them to sell, and offers greater chances of the acceptability of a product Sales promotion stimulates the primary demand for the company’s product Mass sales promotion persuades consumers to purchase goods and services.
Sales promotion alters the market share permanently. It persuades the buyers of the competitors’ product to shift to the product of the company. It helps develop brand loyalty. It has been more effective than advertising. It becomes more effective when used together with advertising.
Sales promotion has become an important tool in developing product symbolization, which is important in increasing the value of the products that consumers use in self-expression. Many create awareness, interest and adoption of the product because it has provided an opportunity for evaluation and trial, and finally confirmation of brand loyalty.
Sales Promotion – Guidelines to Planning Sales Promotion
Planning process starts with situation analysis. To start with, the promotion planners must first consider the corporate policy with regard to sales promotion. The policy may exist in written from or may be part of the top management’s attitude toward sales promotions as followed over the years. Joseph S. Mair has recorded one such policy statement in Hand-book of sales Promotion.
The policy was:
1. “Sales promotion is an integral part of the marketing mix”.
2. “Sales promotion should be used as an offensive weapon in the brand’s marketing arsenal. Promotion should be used as a defensive reaction when a problem arises”.
3. “Sales promotion should extend and reinforce the brand’s advertising and positioning, whenever possible”.
4. “Sales promotion should be developed as campaigns, not as single, unrelated events”.
5. “Good sales promotions are built upon sound strategic planning”.
These five policy statement concerning sales promotion do not appear to be harmful in any way, however, not many business houses share these views. Some companies believe that sales promotion is an unavoidable and costly evil to do business. If possible, it should be avoided, or used as a defensive technique to attract particularly those who are brand switchers.
In most organisations, advertising is thought as having better status than sales promotion because it builds the brand company image. Possibly the most widely accepted view about sales promotion is that it cannot build long term brand following. In spite of these diverse views, company philosophy towards sales promotion affects the objective setting and the criteria for evaluation.
For instance it is only the last few years that an increasing number of sales promotions are being observed in consumer durable and service industries. And since the company philosophies are formed gradually, based on experience or belief, it is quite in the nature of things that perhaps, there is no accepted philosophy on sales promotions in these companies.
In post-independence India, pharmaceutical industry has been using sales promotion as a regular feature, and many companies in their annual marketing plans include sales promotion as an integral part.
Economies which are developing and where competition of some intensity has started in consumer goods and service industries, the companies may not have any definite policy toward sales promotion. Sales promotions may be purely in response to immediate business situations.
The first step in promotion planning is situation analysis. This would include product or brand performance analysis, competitive situation including the promotion activities of major competitors, distribution situation, and consumer behaviour with respect to sales promotions. Political/legal aspects concerning sales promotion are also considered. The analysis would reveal possible opportunities and problems that the firm would like to address to.
Based on marketing objectives and strategies, the promotion objectives would be developed and should be put into writing, along with the evaluation criteria. It is critically important to set unambiguous and measurable objectives, such as by stating the desired sales volume, market share, profitability, product trial among non-users, or inventory clearance, etc.
In view of integrated marketing communication philosophy, sales promotion should not be developed in isolation from advertising or other promotion mix elements. The next step would be the allocation of budget to sales promotion, out of the combined total budget for advertising and sales promotion.
In a multi-product company, individual product or brand managers may have to negotiate among themselves and reach a compromise about the budget and promotion slots. Promotion plans by most companies are generally may also prepare plans covering a period of two or three years. Mangers often face difficulty in deciding about the type of sales promotion most suitable in a certain situation, or what combination of promotion techniques they should use to accomplish the desired objectives.
Considering the objectives and the budget allocation, each promotion event must be carefully created. There is vast choice of promotion tools, and the combinations of these tools seem to be endless. Each sales promotion tools has its own advantages and disadvantages, and these may change when different tools are combined. A clear understanding of various tools and techniques is essential for the planners to make the winning choice from among alternatives.
The subsequent steps relate to sales promotion design issues. There are six steps that focus only on the design issues of sales promotion. The managers should address each step at a time and in a sequence.