Professor Chip Besio Cox School of Business Southern Methodist University

What Is Sales Promotion? Promotion tool that offers short-term incentives to encourage customers to purchase, resulting in immediate increases in sales of a product or service. Reasons for rapid growth in sales promotion: Product managers are facing more pressure to increase current sales, Companies face more competition in mature markets, Advertising efficiency has declined, Consumers have become more deal oriented.

How Important Are Promotional Sales? For a traditional high-low retailer, the sales from items in the ad represent approximately 25% of weekly grocery sales items out 40,000 are therefore responsible for one-quarter of a store’s volume Source: Center for Retail Management, Northwestern University

Types of Sales Promotions Consumer Promotions Manufacturer to consumer Trade Promotions Manufacturer to retailer/wholesaler Retailer Promotions Retailer to consumer Business Promotions Manufacturer to business buyer

How Significant Are Trade Promotions? Total Advertising and Promotion Budget % by Spending type Source: A.C. Nielsen

A comparison of push and pull promotional strategies

Effects of Sales Promotion on Consumer Behavior Expand category volume Cause brand switching Cannibalization Change purchase timing Cause stockpiling

Sales promotions can be used to achieve many objectives

SALES PROMOTION CONSUMER-ORIENTED SALES PROMOTION  Coupons

 Deals SALES PROMOTION CONSUMER-ORIENTED SALES PROMOTION

 Premiums Self-Liquidating: Free Toy in Happy Meal Deal-Prone & Value Seeking Consumers SALES PROMOTION CONSUMER-ORIENTED SALES PROMOTION

 Contests SALES PROMOTION CONSUMER-ORIENTED SALES PROMOTION

Value-Based Prizes Experience-Based Prizes  Sweepstakes SALES PROMOTION CONSUMER-ORIENTED SALES PROMOTION

 Samples SALES PROMOTION CONSUMER-ORIENTED SALES PROMOTION

 Loyalty Programs SALES PROMOTION CONSUMER-ORIENTED SALES PROMOTION

 Point-of-Purchase Displays SALES PROMOTION CONSUMER-ORIENTED SALES PROMOTION

 Rebates SALES PROMOTION CONSUMER-ORIENTED SALES PROMOTION

 Product Placement Product Placement SALES PROMOTION CONSUMER-ORIENTED SALES PROMOTION

 Allowances and Discounts Merchandise Allowance Finance Allowance Case Allowance  Free Goods  Floor Stock Protection  Freight Allowance SALES PROMOTION TRADE-ORIENTED SALES PROMOTION Display Allowance

 Cooperative Advertising Cooperative Advertising  Training of Distributors’ Sales Forces SALES PROMOTION TRADE-ORIENTED SALES PROMOTION  Buy-Back Guarantees  Push Money – “Spiffs”  Contests

Retailer Promotions Short-Term Incentives by the Retailer that Encourage Purchase of a Product or Service Feature Advertising Displays Price-Cuts Retailer-Promotion Objectives Retailer-Promotion Tools Contests/ Premiums Free Goods Retailer Coupons Generate Store Traffic Improve the Retailer’s Price Image Generate Profits from Consumers and Manufacturers Reinforce the Store’s Positioning and Image

Business Promotions Short-Term Incentives That are Directed to Industrial Customers Business-Promotion Objectives Business-Promotion Tools Generate Business Leads Stimulate Purchases Reward Customers Motivate Salespeople Conventions Trade Shows Sales Contests Source: Prentice Hall

Key Issues in Executing a Sales Promotion Size of the incentive (depth of discount) What are the conditions for participation? How to evaluate success of the program Structure and distribution of the promotion program Length of the program (limited time) Source: Adapted from Prentice Hall