4550: Promotion Strategy II Professor Campbell 2/24/05

Plan for the Day Consumer promotions –Online promotions –Testing Trade promotions Putting promotions in perspective

Online Promotions Advantages +Real-time tracking + Message execution + Product movement + Easily/fast modification +Data capture +Follow-up opportunities +Costs + Reach & Frequency + Redemption +Friendly target?

Online Promotions, continued... Disadvantages: –Response rate prediction –Lack of “real” consumer interest –Often does not build equity Usage

Questions for Online Promotions Does this NEED to be online? –(to meet objective) Is this something that will work better online than in traditional media? What does this say about the brand?

Testing Promotions Is the promotion offer being processed by target consumers as intended to meet communication goals? How does the promotion affect brand equity? –Consumers’ attributions for the promotion need to be understood

Trade Promotions Promotions (ie, short-term incentive) targeted to some member of the channel of distribution –Should be based on well-defined, specific objectives –Should have measurable goals

Trade Promotions: Objectives

Trade Promotions Point-of purchase displays Trade deals/ Buying allowances –Price-offs/ Off-invoice –Free goods –Slotting allowances Dealer loaders Comarketing –Co-op Ads –Account Specific Promotions Market Development Funds Dealer contests & incentives –Push $$/Spiffs

Price-offs Advantages +Quick implementation +Evoke strong response and fast response Disadvantages –Cost –Short-term impact –Does not help brand equity and can hurt it Usage »Short-term competitive response

Tradeoffs among Promotions Manufacturer Factors Pass Through Unplanned Costs Ability to Forecast Costs Lead Time Source of Offer Immediacy of Impact Added Cost to Retailer Effect on Brand Equity Consumer Factors Timing of Reward Consumer Effort Impulse of Planned? # of Units can Purchase % Regular Users Price Reductions Unsure Incomplete Pass Low Short Retailer High Shelf Talker Negative Immediate Low Impulse Yes Moderate Bonus Packs Yes Residual Stock Moderate Long Manufacturer Moderate Handling Depends Immediate Low Impulse Yes Moderate Coupons Yes Misredemption High Moderate Manufacturer Low Checkout Time Depends Delayed Moderate Planned No High Trial Sizes Yes Residual Stock Moderate Long Manufacturer Moderate In-Store Handling Depends-Neutral Immediate Low Impulse Yes Low

Generalizations about Promotion Types Advertising Franchise Building Brand Benefit Emphasis High Marketer Control Pull Strategy Longer-Term Impact Investment Financing Long Time Horizon Image oriented Consumer Promotion Trade Promotion Non-franchise Building Price Emphasis Low Marketer Control Push Strategy Short-Term Impact Pay-as -You-Go Financing Shorter Time Horizon Action oriented

Promotions Usage of promotions grew dramatically during the ‘80’s and early ‘90’s –60% of consumer goods firms were spending more on promotions than ads –80% of consumers made use of promotions Trend then began reversing – average of 47% of budget went to promotions – average of 44% of budget went to promotions Now appears to be increasing again –Retailer power & expectations

Limitations

Other “Promotions” Because of limitations, promotion expenditures are increasingly going to non- sales promotions, e.g., event sponsorship –Global trend –Consistent with “micro-marketing,” “relationship marketing”

Setting the Marketing Communications Mix Decide on target market and marketing communications objectives –What effect do you want to have on the consumer? Then decide which communications tools appear to be the best for achieving the desired effects

What can we do to Generate Trial?

What can we do to Generate Usage?

Think about Brand Building Non-Brand-Building Promos –Accelerate purchase process and generate an immediate increase in sales Brand-Building Promo –Communicate brand attributes and contribute to the development and reinforcement of brand identity

Base the marketing communications mix on consideration of the communications objectives and how best to achieve them

In Conclusion... Some promotions are likely to be necessary –Consumer: may be the best route to objectives –Trade: may be best route to objective but also may not have much latitude Interest should be in incremental sales (versus short terms spikes in the sales curve) Promotions (like everything else!) should be considered in terms of likely effects on brand equity

Conclusion, continued… Advertising and promotion work together –Prior attitude-building advertising creates higher perceived value from a brand’s promotion –Prior attitude-building advertising creates resistance in the consumer to other brand’s promotional activities Synergies among marketing communications activities can make or break the overall plan.