Copyright © 2006 Thomson Business and Economics. All rights reserved. Chapter 18 Sales Promotion

18–2Copyright © 2006 Thomson Business and Economics. All rights reserved. Power Struggles and Sales Promotion Sales promotion plays a key strategic role in the channel of distribution –Big name brands must be supported with sales promotion and POP to get the support of retailers through self space allocation. –The top 10 retailers control 43% of all packaged goods sales so they can dictate which brands get how much shelf space. –Brand marketers spend $30 billion a year on sales promotion and POP to gain favored retailer treatment and to provide incentives to household consumers and business buyers.

18–3Copyright © 2006 Thomson Business and Economics. All rights reserved. Sales Promotion Using incentives to create a perception of greater brand value –Consumer Market Induce household consumers to purchase a firm’s brand –Trade-Market Motivate distributors, wholesalers, and retailers to stock and feature a brand –Business Buyer Cultivate buyers in large corporations who make purchase decisions

18–4Copyright © 2006 Thomson Business and Economics. All rights reserved. Sales Promotion Examples Coupons Price-off deals Premiums Contests Sampling Sweepstakes Brand placements Incentives Loyalty programs Trade shows AllowancesGift Cards

18–5Copyright © 2006 Thomson Business and Economics. All rights reserved. Sales Promotion vs. Advertising Short term demand vs. long term demand Encourage brand switching vs. brand loyalty Induce trial use vs. encourage repeat purchase Promote price vs. promote image Immediate results vs. long term effects Measurable results vs. difficult to measure

18–6Copyright © 2006 Thomson Business and Economics. All rights reserved. Importance of Sales Promotion $107 billion in 2003 Growth rate: 4-8 percent Reasons for growth: –Demand for accountability –Short-term orientation –Consumer response to promotions –Proliferation of brands –Increased power of retailers –Media clutter

18–7Copyright © 2006 Thomson Business and Economics. All rights reserved. Objectives for Consumer-Market Sales Promotion 1. Stimulate trial purchase 2. Stimulate repeat purchases 3. Stimulate larger purchases 4. Introduce a new brand 5. Combat or disrupt competitors 6. Contribute to IMC

18–8Copyright © 2006 Thomson Business and Economics. All rights reserved. Consumer-Market Sales Promotion Techniques 1.Coupons 2.Price-off deals 3.Premiums 4.Contests/sweeps 5.Samples and trials 6.Phone gift cards 7.Brand placements 8.Rebates 9.Frequency programs 10.Event sponsorship

18–9Copyright © 2006 Thomson Business and Economics. All rights reserved. Coupons Entitles a buyer to a price reduction for a product or service –Advantages Give a discount to price sensitive consumer while selling product at full price to others Induce brand switching Timing and distribution can be controlled Stimulates repeat purchases Gets regular users to trade up within a brand array

18–10Copyright © 2006 Thomson Business and Economics. All rights reserved. Coupons (cont’d) Disadvantages –Time of redemption cannot be controlled –No way to prevent current customers from redeeming coupons –Coupon programs require costly administration –Fraud is a serious, chronic problem

18–11Copyright © 2006 Thomson Business and Economics. All rights reserved. Price-Off Deals Offering consumers a reduced price at point of purchase through specially marked packages Advantages –Is controllable by manufacturer. –Affects positive price comparisons. –Increases consumers’ belief in the value of a known brand. Disadvantage –Retailers believe it creates inventory and pricing problems.

18–12Copyright © 2006 Thomson Business and Economics. All rights reserved. Premiums and Advertising Specialties Premiums –Free or reduced price for an item with the purchase of another item. Free premiums provide item at no cost. Self-liquidating premiums require consumers to pay most of the cost of the item Advertising specialties: –A message placed on a free, useful item

18–13Copyright © 2006 Thomson Business and Economics. All rights reserved. Contests and Sweepstakes Contests: consumers compete for prizes based on skill or ability. Sweepstakes: winners picked by chance Both create excitement and interest –But… Legal and regulatory requirements are complex. Consumers may focus on the game rather than the brand. Difficult to get an IBP message across in a game.

18–14Copyright © 2006 Thomson Business and Economics. All rights reserved. Samples and Trial Offers Sampling –Giving a consumer an opportunity to use a brand on a trial basis with little or no risk Types of sampling –In-store– Newspaper –Door-to-door– On-package –Mail– Mobile Trial offers –Used for more expensive items –Consumer tries product for a fixed time

18–15Copyright © 2006 Thomson Business and Economics. All rights reserved. Phone and Gift Cards Manufacturers offer either for free or for purchase debit cards. –With phone time –Or with preset spending limits Examples –Offers from Lexus, Oldsmobile, and The Gap.

18–16Copyright © 2006 Thomson Business and Economics. All rights reserved. Rebates Money back offer requiring the buyer to mail a request for money back from the manufacturer. Often tied to multiple purchases. Many consumers fail to bother sending the request.

18–17Copyright © 2006 Thomson Business and Economics. All rights reserved. Frequency Programs Also known as “continuity programs” –Offer customers discounts or free products for repeat patronage –Common in the airline, travel, and restaurant businesses

18–18Copyright © 2006 Thomson Business and Economics. All rights reserved. Objectives for Promotions in the Trade Market Objectives: Use a “push” strategy –Push a product into the distribution channel towards the consumer Obtain initial distribution Increase order size Encourage cooperation with consumer market sales promotions Increase store traffic

18–19Copyright © 2006 Thomson Business and Economics. All rights reserved. Trade-Market Sales Promotion Techniques Incentives: Push money Allowances: Merchandise allowances, slotting fees, bill-back allowances, off- invoice allowances Sales Training Programs Cooperative (Co-Op) Advertising

18–20Copyright © 2006 Thomson Business and Economics. All rights reserved. Business Market Sales Promotion Techniques Trade Shows Business gifts Premiums and advertising specialties Trial offers Frequency programs

18–21Copyright © 2006 Thomson Business and Economics. All rights reserved. Rewind Video Rewind Video Rewind Video Rewind Video  Click Bar To Start Video  Next Slide Next Slide Next Slide Next Slide Trial offers are very effective in the business market. Why?

18–22Copyright © 2006 Thomson Business and Economics. All rights reserved. Sales Promotion, the Internet, and New Media Sampling removes risk associated with consumer trial. Internet firms use incentives to make Web sites “sticky.” Internet is used to implement sales promotions and distribute coupons.

18–23Copyright © 2006 Thomson Business and Economics. All rights reserved. Risks of Sales Promotion Creates a price orientation Borrows from future sales Alienates consumers Time and expense Legal considerations

18–24Copyright © 2006 Thomson Business and Economics. All rights reserved. Point-of-Purchase (P-O-P) Advertising Materials used in the retail setting to attract shoppers’ attention to a brand, to convey primary product benefits, or highlight pricing information. Objectives for P-O-P Advertising –Draw consumers’ attention to a brand in the retail setting. –Maintain purchase loyalty among brand loyal users. –Stimulate increased or varied usage of the brand. –Stimulate trial use by users of competitive brands.

18–25Copyright © 2006 Thomson Business and Economics. All rights reserved. P-O-P Advertising and the Trade and Business Markets Product displays and information sheets encourage retailers to support one distributor or manufacturer’s brand over another. –P-O-P promotions can help win precious shelf space and exposure in a retail setting. –A P-O-P display is designed to draw attention to a brand, increase turnover, and possibly distribute coupons or sweepstakes entry forms. –To combat losing business to online shopping, retailers are trying to enliven the retail environment, and P-O-P displays are one strategy.

18–26Copyright © 2006 Thomson Business and Economics. All rights reserved. Coordination Challenge Message coordination Media coordination Research conclusions: –Short-term effects can be dramatic. –Short-term effects are often not profitable. –Rare for long-term effects to occur. –Most power effects result from advertising and sales promotion being used together.