11.6. Sales Promotion
Sales promotions are short-term activities designed to generate a temporary increase in sales of the products. Sales promotion has many guises, from money-off offers to free travel opportunities. The purpose of sales promotion is to create a temporary increase in sales by bringing purchasing decisions forward and adding some immediacy to the decision-making process. Sales promotions have four characteristics, as Follows –
- Attractiveness. This is the degree to which the customer perceives the promotion as being desirable.
- Fit to product category. A promotion which has no relationship with the product is less likely to appeal to customers.
- Reception delay. If the promotional gift or discount will not arrive for some time, it is less attractive.
- Value. High-value promotions work better than low-value ones, but it is the value as perceived by the customer which is important.
These characteristics interact with each other, so that an unattractive offer may still work if it is a good fit with the product category (for example).
Following are some of the techniques of sales promotion –
- Free ‘taster’ samples in supermarkets – When a new product has been launched on the market. This technique works by allowing the consumer to experience the product first-hand, and also places the consumer under a small obligation to buy the product. The technique is effective, but expensive.
- Money-off vouchers in press advertisements – This technique has the advantage that the company can check the effectiveness of the advertising by checking which vouchers came from which publications. It tends to lead to short-term brand switching: when the offer ends, consumers frequently revert to
- their usual brand.
- Two for the price of one – it May encourage short-term brand switching. Appeals to the price-sensitive
- consumer, who will switch to the next cheap offer next time. Can be useful for rewarding and encouraging existing customers.
- Piggy-backing with another product – this one is good for encouraging purchasers of the coffee to try the whitener. Can be very successful in building brand penetration, since the consumer’s loyalty is to the coffee, not to the whitener. Will not usually encourage brand switching between the ‘free sample’ brand and its competitors. Can also use vouchers on the backs of labels of other products.
- Instant-lottery or scratchcards – it is commonly used in petrol stations. The intention is to develop a habit among motorists of stopping at the particular petrol station. In the United Kingdom, for legal reasons, these promotions cannot require a purchase to be made, or be linked to spending a specific amount, but few people would have the courage to ask for a card without buying anything.
- Free gift with each purchase – it is often used for children’s cereals. Can be good for encouraging brand switching, and is more likely to lead to permanent adoption of the brand because consumers do not usually switch brands when buying for children. This is because the children are not price-sensitive, and will want their favourite brand.
Sales promotion will often be useful for low-value items, and is most effective when used as part of an integrated promotion campaign. This is because advertising and PR build sales long term, whereas sales promotion and personal selling tend to be better for making quick increases in sales. The combination of the two leads to the ratchet effect: sales get a quick boost from sales promotions, then build gradually over the life of an ad campaign. Care needs to be taken with sales promotions. Firstly, a sales promotion that is repeated too often can become part of the consumer’s expectations. Secondly, brand switching as a result of a sales promotion is usually temporary, so it is unlikely that long-term business will be built by a short-term sales promotion.
Thirdly, the promotion will benefit consumers who would have bought the product anyway, so a proportion of the spend will have been effectively wasted (though this is true of most promotional tools). Good targeting can help overcome this, but care should be taken that existing customers do not feel that they have been unfairly dealt with because they did not receive the promotional offer.
Fourthly, discounting on price can seriously damage brand values because the product becomes perceived as being cut-price. Since price is widely used as a signal for quality, the potential for damage is obvious.
Sales promotions can be carried out from manufacturer to intermediary (trade promotions), from retailer to consumer (retailer promotions) or direct from the manufacturer to the consumer (manufacturer promotions).
Trade promotions can be used for the following purposes:
- To increase stock levels - The more stock the intermediary holds, the more commitment there will be to selling the stock and the less space there is for competitors’ stock.
- To gain more or better shelf space - The more eye-catching the position of the product in the retail shop, the more likely it is to sell.
- To launch a new product - New products always carry an element of risk for retailers as well as manufacturers. This means that the manufacturer may need to give the retailer an extra incentive to stock the product at all.
- To even out fluctuating sales - Seasonal offers may be used to encourage retailers to stock the products during slack periods. For example, the toy industry sells 80% of its production over the Christmas period, so it is common for firms to offer extra incentives to retailers to stock up during the rest of the year.
- To counter the competition - Aggressive sales promotion can sometimes force a competitor off the retailer’s shelves, or at least cause the retailer to drive a harder bargain with a competitor. Retailer promotions are used for the following purposes:
- To increase store traffic - Almost any kind of sales promotion will increase the number of people who come into the shop, but retailers would commonly have special events or seasonal sales.29
- To increase frequency and amount of purchase - This is probably the commonest use of sales promotions: examples are two-for-one offers, buy-one-get-discountoff-another-product, and so forth.
- To increase store loyalty - Loyalty cards are the main example of this (although these have other uses). Using the loyalty card enables the customer to build up points, which can be redeemed against products.
- To increase own-brand sales - Most large retailers have their own brands, which often have larger profit margins than the equivalent national brands. Ownbrands sometimes suffer from a perception of lower quality, and therefore increased sales promotion effort may need to be made. In fact, own brands help to increase sales of manufacturers’ brands, but since heavy own-brand consumers contribute less to the retailer’s overall profits (because they spend less overall) retailers might do better to encourage sales of manufacturers’ brands as a way of encouraging bigger-spending customers.
- To even out busy periods - Seasonal sales are the obvious examples, but some retailers also promote at busy times in order to ensure a larger share of the market.
Manufacturer promotions are carried out for the following reasons:
- To encourage trial. When launching a new product the manufacturer may send out free samples to households, or may give away samples with an existing product.
- To expand usage. Sales promotion can be used to encourage re-invention of the product for other uses.
- To attract new customers.
- Trade up. Sales promotions can encourage customers to buy the larger pack or more expensive version of the product.
- Load up. Encouraging customers to stock up on a product (perhaps in order to collect coupons) effectively blocks out the competition for a period.
- To generate a mailing list for direct marketing purposes (for example by running an on-pack competition).
- To enhance brand values by (for example) running some types of self-liquidating offers. For example, a promotion offering a discounted wristwatch that carries the brand logo might encourage sales of the product as well as ensuring that the brand remains in the forefront of the consumer’s attention.
Often, the gains made from sales promotions are only temporary, but in many cases this is acceptable since a temporary shift in demand is all that is required to meet the firm’s immediate need. Also, much sales promotion activity is carried out with the intention of spoiling a competitor's campaigns: using sales promotion to respond to a competitive threat, particularly by offering a price incentive, can be very fast and effective.
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