Chapter 17
Promotions
CHAPTER CONTENT
CHAPTER KEY POINTS
1. What are the current trends and practices in planning promotions?
2. What are the tools of consumer promotion and how are they used?
3. What are the types and purposes of trade promotions?
4. How do multiplatform promotions – sponsorships and events, loyalty programs, and
partnership programs – work?
5. What are the critical promotional practices in integration?
CHAPTER OVERVIEW
This chapter is about the fun, creative, and exciting ideas that the promotion industry uses
to spur action and build strong brand relationships. This chapter explains the difference
between consumer and trade promotions, as well as other programs, such as loyalty
programs, tie-ins, and sponsorships that integrate advertising, public relations, and
promotion efforts.
CHAPTER OUTLINE
WHY SALES PROMOTION?
When a marketer increases the value of its product or brand by offering an extra
incentive to purchase it, the marketer is creating a sales promotion. In most cases,
the objective of sales promotions is to encourage action by adding value to the
brand. Also called ‘marketing’ at the retail level, sales promotion works with
other aspects of the marketing mix to motivate consumer action and maximize the
marketing investment.
The professional sales promotion industry, with annual revenues of about $12
billion, is estimated to include some 8,000 companies representing advertising
and large marketing firms that specialize in sales promotion, such as Carlson
Marketing.
The Promotion Marketing Association (PMA) is the professional organization
serving this industry. Founded in 1911, the organization promotes excellence in
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promotion marketing and showcases such practices in its Reggie Awards
programs.
Although the breadth of the industry has exploded with the new opportunities
provided by the Internet, a simple definition identifies the key elements of
promotion marketing as follows:
“The media and non-media marketing pressure applied for a
predetermined, limited period of time at the level of consumer, retailer, or
wholesaler in order to stimulate trial, increase consumer demand, or
improve product availability.”
By further examining this definition, we see that: 1) it acknowledges that
consumers are an important target for promotions, but so are other stakeholders,
2) media are carriers of a message that motivates the target and that media can be
nontraditional or even human, such as sales staff, and 3) sales promotions are a set
of techniques prompts members of three target audiences, i.e., consumers, sales
reps, and the trade, to take action, preferably immediate action.
Sales promotion affects demand by offering an incentive to act, usually in the
form of a price reduction, but it also may offer an additional amount of product,
cash, prizes and gifts, premiums, special events, and so on.
Principle:Sales promotion is primarily designed to affect demand by motivating
people to act.
Why Is Sales Promotion Growing?
In many marketing savvy companies, sales promotion budgets are larger than
advertising budgets. Until the early 1980s, advertising was the dominant player,
but during that decade more marketers found themselves driving immediate
bottom-line responses through the use of sales promotion.
Accountability
In terms of the need for accountability for marketing communications efforts,
most U.S. companies focus on immediate profits, a drive that sales promotion
satisfies. Because the benefits of advertising are often more apparent in the long
term, companies invest more money in sales promotions because they want quick
results. Product managers are under pressure to generate quarterly, or even
monthly or weekly, sales increases. The pressure for short term profits leads to
bigger sales promotion budgets.
Another aspect of accountability is result driven. Sales promotions are relatively
easy to evaluate in terms of their impact on sales and whether a sales promotion
strategy has accomplished its objectives. Because promotions operate in a finite
time frame and deliver action, it is relatively easy and quick to evaluate their
success because there is usually an immediate response of some kind.
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It is also easier to compute a return on investment (ROI) for promotions than for
advertising. This process, known as payout planning, means that the results
derived from a promotion can be estimated and compared to the projected costs of
the effort. If the promotion does not deliver more than it costs, it is not a good
idea, at least financially. While there may be other reasons for conducting a
promotion, the go/no-go decision is based on the effort’s ROI.
Media Shifts
Advertisers also cite other economic reasons for the shift. Traditional media costs
have escalated to the point where alternative types of media must be considered.
As networks have raised their advertising prices, their share of prime-time
television viewers has dropped dramatically. The proliferation of media and
competition for audiences’ attention also factor into the need for accountability.
Advertisers, therefore, are exploring marketing communication forms that cost
less and produce immediate, tangible results. Sales promotion can deliver these
results.
Global incentive programs are also experiencing explosive growth, and much of
that relates either to IMC or changes in global media. Some of the reasons for
this growth include the interest of multinational corporations in aligning all units
with corporate goals, increasing bottom line efficiency, and taking advantage of
the rise of the Internet.
Marketplace Changes
Other reasons for the move to sales promotion match changes in the marketplace
such as these:
Consumer behavior: Shoppers today are better educated, more selective, and
less loyal to brand names than in the past, which means they are more likely to
switch brands.
Pricing: Consumers have come to expect constant short-term price reductions,
such as coupons, sales, and price promotions.
Market share: In most industries, the battle is for market share rather than
general product growth. Sales promotion encourages people to switch
products, thus increasing market share.
Parity products: Sales promotion is often the most effective strategy for
increasing sales of a parity product when the products in the category are
largely undifferentiated. When products are similar, promotions become the
tiebreaker in the consumer’s decision making.
The power of the retailer: Dominant retailers, such as Safeway, Wal-mart,
Toys“R”Us, and Home Depot demand a variety of promotional incentives
before allowing products into their stores.
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From the consumer’s perspective, sales promotion reduces the risk associated
with a purchase by giving them something of added value, such as a coupon,
rebate, or discounted price.
Principle: Sales promotion reduces the risk of trying a new product by giving
something of added value to motivate action.
Sales Promotion Planning
Similar to advertising and other marcom areas, promotions are developed with a plan,
sometimes called a creative brief. This summarizes the usual planning decisions, such as
the SWOT, brand positioning strategy, promotional objectives, targeting and consumer
insights, budget, scheduling and timing.
Promotional Objectives
As part of any integrated program, sales promotion has different functions than
other marcom tools. Advertising is usually viewed as a longer-term investment,
since it builds brand equity by establishing a consistent image or feeling about the
brand over time. In contrast, sales promotions are more immediate, involving a
finite time period. In return for taking action, sales promotions offer consumers
something more tangible.
Many of the reasons for using sales promotion focuses around new product
launches and how sales promotions can deliver trial. Sales promotion can make
consumers more brand aware and generate trial as well as persuade them to buy
the product again once they have tried it. It can push the product through the
distribution channel by generating positive brand experiences among resellers and
buyers. It is also good building traffic for a retailer.
Promotions can also build a brand over time by reinforcing advertising images
and messages. Promotions can create an affinity between brands and buyers by
creating brand involvement and positive experiences that people associate with
the brand. When used for brand building, the primary objective in most
marketing communication programs is to build brand awareness as well as drive
behavior.
Promotions are not effective in achieving all marketing objectives. For example,
promotions cannot do much to change negative attitudes toward a product,
overcome product problems, or reposition a brand.
The Issue of Brand Building
For years, a heated debate has focused on sales promotion and brand building.
Advertisers claim the strength of advertising is creating and maintaining brand
image and the price deals emanating from sales promotions negate all of their
hard work by diverting the emphasis from the brand to the price. The result, sales
promotions critics claim, is a brand-insensitive consumer.
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“Too many marketers no longer adhere to the fundamental premise of brand
building, which is that brand franchises are not built by cutting price but rather by
offering superior quality at a reasonable price and clearly communicating that
value to consumers,” according to a Procter and Gamble manager.
The problem is that brand building is a long and time-consuming process of
establishing the brand’s core values. Promotion is relatively short term and can
undermine the brand’s established values if not handled carefully.
Sales promotion experts argue that their practices can help to build brand image.
They refer to the many loyalty programs that have been used by rental car
companies, hotels and airlines to enhance their image. They also acknowledge
that continuous price promotion does not work well with brand building.
According to one industry expert, the solution to the debate is to make advertising
more accountable and promotion more brand focused. In other words, advertising
and promotion need to work more closely together, and greater integration is
needed when planning marketing communication programs.
The Primary Sales Promotion Targets
The most common sales promotion strategies target the three audiences of
promotions: consumer, trade, and sales force. The first two – customer sales and
trade support – have direct implications for advertising and marketing
communication. The third category – sales force promotions – is also important in
building trade support.
The third category, sales force promotion, is also important in building trade
support. Sales force promotions include two general sets of activities. The first set
of activities includes programs that better prepare salespeople to do their jobs,
such as sales manuals, training programs, sales presentations, and supportive
materials. The second set of activities deals with promotional efforts or incentives
for retailers to use as in-store promotions and other programs that motivate
salespeople to work harder, such as contests.
Estimating Performance
Because promotions are so focused on action, it makes sense that sales are the
primary measure of their effectiveness. Response rate is also important to sales
promotions, as are redemption rates.
An important dimension of sales promotion effectiveness is payout planning.
The goal of creating a payout plan is to produce promotions that increase sales
and profits. Needless to say, a promotion should not cost the company more
money than it brings in. The trade press is full of stories about poorly designed or
performing promotions. Such failures hurt companies’ reputations, waste money,
and sometimes even hurt customers.
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Promotional Big Ideas
From this document promotional planners develop their ideas. In fact, a Big Idea
is just as important for sales promotion as it is for advertising. In many cases, the
promotion is part of a bigger integrated marketing communication plan, and
therefore one of the requirements is that the promotion’s Big Idea must support
the campaign’s creative idea.
The challenge is to come up with exciting and interesting promotional ideas that
are involving and capture the attention of the target market, and that includes
consumers as well as trade partners in the industry.
CONSUMER PROMOTIONS
Although trade promotion claims the greatest percentage of the promotion budget,
most people are more familiar with consumer promotions. Consumer sales
promotions are directed at the ultimate user of a good or service. They are
intended to provide an incentive so that when consumers go into a store they will
look for a particular brand. The primary strengths of consumer sales promotions
are their variety and flexibility.
Principle: Consumer promotions provide an incentive so consumers will look for
a particular brand.
Tools of Consumer Promotions
Following is a summary of common types of consumer promotions:
Price deals. A popular sales-promotion technique is a price deal—a temporary
price reduction or a sale price, or even freebies. Freebies, however, can be killers
if the company does not adequately predict the consumer response. One result of
price deals can be price wars. There are four common price deals:
1. A cents-off deal is a reduction in the normal price charged for a good or
service (for example, “was $1,000, now $500,” or “50 % off”) announced
at the point of sale or through mass or direct advertising.
2. Prize-pack deals provide the consumer with something extra through the
package itself—a prize in a cereal box, for instance.
3. Bonus packs contain additional amounts of the product free when
consumers purchase the standard size at the regular price.
4. Banded packs are more units of a product sold at a lower price than if they
were bought at the regular single-unit price. Sometimes the products are
physically packaged together, such as bar soap and six-packs of soft
drinks.
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Refunds and rebates. A refund or rebate is a marketer’s offer to return a certain
amount of money to the consumer who purchases the product. Sometimes the
refund is a check for a certain amount of money, while at other times it may be a
coupon to encourage repeat use.
Sampling. Allowing the consumer to try the product or service is called
sampling. Advertisers can distribute samples to consumers in numerous ways.
Sampling tables, particularly for food products, can be set up in stores. Small
samples of products can show up with newspapers, on house doorknobs, in
doctors’ and dentists’ offices, and, most commonly, through the mail. Advertisers
can design ads with coupons for free samples, place samples in special packages,
or distribute samples at special in-store displays.
Product samples influence consumers more than other types of in-store
promotions, according to one survey. Sampling is not just an in-store activity. It
has also become a mainstay of interactive promotions on the Internet.
Premiums. A premium is a tangible reward for a particular act, usually
purchasing a product or visiting the point-of-purchase. Premiums are a type of
incentive that works by adding value to the product. Examples of premiums are
the toy in Cracker Jacks, glassware in a box of detergent, and a radio given for
taking a real-estate tour. Premiums are either free or low in price.
The two general types of premiums are direct and mail. Direct premiums award
the incentive immediately at the time of purchase. There are four variations of
direct premiums: (1) store premiums, given to customers at the retail site; (2)
in-pack premiums, inserted in the package at the factory; (3) on-pack premiums,
placed on the outside of the package at the factory; and (4) container premiums, in
which the package is the premium.
Mail premiums require the customer to take some action before receiving the
premium. A self-liquidatorpremium usually requires that a payment be mailed in
along with some proof of purchase before the customer receives the premium. The
payment is sufficient to cover the cost of the premium. Another type of mail
premium requires the customer to save coupons or special labels attached to the
product that can be redeemed for merchandise.
Coupons. There are two general types of couponsthat provide a discount on the
price of a product: retailer and manufacturer coupons. Retailer-sponsored coupons
can be redeemed only at the specified retail outlet. Manufacturer-sponsored
coupons can be redeemed at any outlet distributing the product. They are
distributed directly (direct mail, door-to-door), through media (newspaper and
magazine ads, freestanding inserts), in or on the package itself, or through the
retailer (co-op advertising). Manufacturers pay retailers a fee for handling their
coupons. Coupons have also moved online.
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Contests and sweepstakes. Contest and sweepstakes promotions create
excitement by promising “something for nothing” and offering impressive prizes.
Contests require participants to compete for a prize or prizes based on some sort
of skill or ability. Sweepstakes require only that participants submit their names
to be included in a drawing or other chance selection. Sweepstakes are now
offered via mobile marketing. A game is a type of sweepstakes. It differs from a
one-shot drawing type of sweepstakes because the timeframe is longer, so it
establishes continuity requiring customers to return several times to acquire
additional pieces (such as bingo-type games) or to improve their chances of
winning.
Specialties:Specialty advertising presents the brand’s name on something that is
given away in an attempt to remind consumers about the brand. Items include
calendars, pens and pencils, T–shirts, mouse pads, tote bags, and water bottles.
The ideal specialty is an item kept out in the open where other people can see it,
such as a coffee mug.
Promotional Media
The types of sales promotions just listed can be delivered in various media,
including print, broadcast, and online. Direct mail has dominated the delivery of
special promotions but much of that has moved online. The Internet is
particularly useful for distributing coupons, inviting participation in games and
sweepstakes, and even in sampling. In-store promotions using posters, shelf
talkers, displays, and other types of signage are particularly effective at reaching
people who are making a purchase decision.
Internet promotion is one of the hot areas of sales promotions. Many advertising
campaigns include a campaign-dedicated website designed as a tie-in. Coupons
can also be delivered via the Internet, and several sites have been designed for
this, such as Catalina’s ValuePage website (www.valupage.com).
Promotional Campaigns
Special promotions are usually approached as a campaign because they involve a
variety of media and reach many stakeholders. They also have a limited time
frame. Promotional planners are continually looking for new ways to engage
consumers. The Internet has opened up new opportunities, particularly with viral
media, that drives a high level of social interaction that reinforces the involvement
dimension of promotions. Big Ideas are critical to effective promotional
campaigns.
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