Ch-20 (Types and Techniques of Sales Promotion)

8/13/2019 Ch-20 (Types and Techniques of Sales Promotion)

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Copyright 2010, S L Gupta

Excel BooksSalesand Distribution Management Text & Cases (2ndEdition) S L Gupta20-1

Types and Techniques of Sales Promotion

Sales Promotion Management

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Chapter20

Types and

Techniques

of Sales Promotion


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Types of Sales Promotions Generally, there are two major groups that offer sales promotion (our

concern focuses on business activities) manufacturers and retailers.When promotional deals are announced directly by manufacturers, these aretermed as manufacturer promotions and may be directed toward the

consumers or the trade, or both these groups. Promotions offered byretailers to increase store traffic or sales, etc., are calledretailerpromotions(also called as store promotions), and are offered only to customers or end-

users.

Price-cuts, coupons, rebates, bonus packs, exchange offers, financingprogrammes, etc. are examples of price appeals. The appeals of interest

category include premiums, contests and sweepstakes, and free samples,etc.

Sales promotions directed at the trade and sales force date back earlier thanconsumer promotions. Promotions are powerful competitive tools for gettingnew products in re-seller stores, inducing consumer trial, gaining shelf spaceand motivating salespersons and re-sellers.


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Sales Promotions

Tools and Techniques Price deals (price-off, price-cut, cents-off, denote the same thing)

Bonus-packs (price-pack)

Refunds and rebates (both terms are used interchangeably)

Coupons

Contests and sweepstakes Premiums

In-packs, on-packs, near packs and container premiums

Free-in-mail premiums

Self-liquidating premiums

Sampling

Continuity plans

Trade coupons

Trade allowances and deals

Exchange offers

Displays, trade fairs, exhibitions and event sponsorship.


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Price Deals

Price deals are probably the most commonly used promotional techniques.

A price deal for customers means a reduction in the price of the promoted

product which means that the customer saves money on purchase.

Such a deal is designed to stimulate customers to try a new product, to

encourage new users to try an existing product, or to encourage customers

to continue product patronage, increase purchase quantity, purchase

multiple units, and accelerate usage rate, etc.

Such deals are suitable when brand loyalty is low, product category is

considered a commodity and price is the primary consideration of the

customers.


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Price Discounts

Price discounts (also called cents-off deals) are communicated to the

consumers through advertising, at the point-of-purchase, by listing the

reduced price on the package or signs near the product or window display, or

by the sales people.

Such discounts may appear in newspapers, magazines and television

advertisements. Similar discounts are often advertised by retailers in the

local media (called feature advertising) and by manufacturers in national print

and audio-visual media.


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Advantages

i. Flexibility and convenience of implementation.

ii. Retain present customers

iii. Offer immediate value and hence produce stronger consumer response.

iv. Accelerated purchases

v. Since they are for a limited period and keep the consumer out of the market

for a longer period, thereby discouraging competitors.


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Disadvantages

i. May rapidly lose its advantage if competitors announce a similar offer.

ii. Competitors are very likely to retaliate, leading to the danger of triggering a

promotion war, in which no one benefits except the consumer.

iii. Such discounts are short-term and are unlikely to produce any long-term

gains because the incentive is to purchase now by creating a sense of

urgency.

iv. A price discount can make them suspicious about the quality of the item and

they may reject the product (Don E Schultz,Marketing News, August 1990).

v. Price discounting is the primary cause of decrease in brand loyalty.


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Price-pack Deals

Price-packs are also called value-packs. These may take any of the two

forms, bonus pack and banded pack. In case of bonus pack offer, an

additional quantity of the same product is offered free when the standard

pack size of the product is purchased at the regular price. This type of deal is

often seen in case of laundry products, food products and personal care

products, etc.

Banded pack offer, when two or more units of a product are sold at a

reduced price compared to the regular price

The products are generally banded together physically.

Another variation of this technique is buy-one-take-one-free, or some

similar offer (it could be samefor lessor morefor the same).


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Advantages and Disadvantages

Advantages:

i. Generally effective in converting product triers into users.

ii. Extra quantity is an incentive and a reward.

iii. Consumers, who buy bonus packs of consumables, stay out of the marketand are not exposed to competitorsoffers.

Disadvantages

i. The cost of the additional product may be small to the manufacturer but the

cost of the larger new pack may make the offer expensive.

ii. Retailers break the banding and sell the bonus product at regular price if the

product happens to enjoy brand strength.

iii. In case of consumer durables, such a deal is quite likely to hurt the brand

image and disrupt price-quality perceptions of customers.


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Consumer Sales PromotionThe specific consumer oriented sales promotion are following:

Consum er contests :Some pitches are to be made to promote the brand of

the product. For example Britannia use a pitch line tin-tin- tin-tin.

Consumer Premium: The extra offers deals with the shake of theorganization, discount on the product, offering extra benefits along with the

product, future purchase behaviour.

Trading stum ps:It is deal with the future offering of the product. What extra

advantages given to the particular product in compare to other competitor.

Subsid ised sampl ing of fers :Final product reach into the hand of consumerwith the help of retailer, mall, store home delivery or through mail.

Price of offers:The consumer deals with different offers time-to-time which

influence the consumer to purchase the product. It deals with the concept of

larger and bigger quantity.


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Refunds and Rebates

The terms refund and rebateare used as meaning the same thing. Long

ago, the term rebate was made popular by the automobile industry in

developed countries. There is a subtle difference between these two terms.

The Random House Dictionarydefines a refund as repayment of money, and

a rebate as a return of part of the original payment for some service or

merchandise. This means that a refund is repayment of total money paid for

purchase, while the rebate represents repayment of only part of the money

paid for purchase. However, both these terms are used interchangeably in

the real world of marketing.

Refund offers can induce excitement in consumers at relatively low cost.


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Coupons

Coupons can be considered as certificates offered by retailers or manufacturers

that entitle the owner to some stated savings or claim the specified thing.

Coupons bear a date of expiry and cannot be redeemed after the cut off date.

Offer of a coupon is a very versatile technique and can be used to achieve

many different sales promotion objectives.

Distribution of Coupons

Direct to Consumer

Media Distributed

Product-Distributed


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Coupons can be used to Serve many Objectives

1. To Encourage Product or Service Trial

2. To Encourage Brand Switching

3. To Encourage Repeat Purchase

4. To Supplement Print Media Advertising

5. To Use Price Discrimination


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Advantages:

i. A very versatile promotion tool as they can help in inducing trial of an existing

or new product.

ii. A marketer can use coupons to encourage those who have tried a brand to

become regular users.

iii. It is fairly convenient to reach a large number of prospects with coupons in a

short time.

iv. Coupons can help to load-up the consumers and this may help in blockingthe moves of competitors when there is reliable information.

v. Line-extension products can be introduced easily by enclosing or banding

the coupon with the vehicle product.


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Disadvantages:

i. One major disadvantage of coupons is wrong redemption.

ii. Response to coupon promotion may be unpredictable because of factors

such as media, timing, value, brand share, competitive moves, etc.

iii. In-pack or on-pack coupons generally do not attract new tries.

iv. Coupons for products, whose value is unknown, generally are not quite as

effective as for known and established brands.


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Contests and Sweepstakes A sweepstake is a random drawing and is sometimes called a chance

contest. This too may or may not involve the purchase of any product or

service.

A lottery prize is decided on the basis of chance and requires a

considerationfor entry that may be proof-of-purchase of ticket or a product. According to the American Association of Advertising Agencies, Acontest is

an event that invites the customer to apply skill to solve or complete a special

problem. The same agency says, A sweepstake does not call for the

application of skill on the part of the consumer. Winners are determined by a

drawing from all entry forms. In other words, prizes are awarded on the basis

of chance.

Often, a combination of contest and sweepstakes is employed in some

promotions.

Among all the sales promotional devices, probably the most exciting and

highly rewarding are the contests and sweepstakes.


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Advantages:

i. Contests and sweepstakes can create a high level of awareness and build or

reinforce the image of the product or service.

ii. Consumers may associate the impressive prizes with the product or service.

iii. The promotions are more successful in getting the print advertisement read,

or the audio-visual ad seen.

iv. Contests and sweepstakes can help gain store displays, generate store

traffic and encourage the trial of a product if the prizes are sufficiently

attractive.


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Disadvantages:

i. Contests and sweepstakes generally are not effective in generating trial of a

new product.

ii. Heavy media expenditure is often required to make these events successful.

iii. It is generally not possible to pre-test a contest or sweepstakes programme

and could prove to be quite risky.

iv. The promoter has to check thoroughly the rules and regulations that may

vary from state to state.

v. Designing a contest or sweepstakes requires lengthy lead-time.


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Premiums

A premium (gift) is a reward given to the consumer for performing a particular

act, generally purchasing a product or service. The premium may be free or

available to the consumer by paying a price well below the regular market

price.

There are many varieties of premiums which are sometimes referred to as

direct premiums and mail premiums. Direct premiums are used to reward the

customers immediately at the time of purchase, and mail premiums require

the customers to take some action, such as mailing the proof of multiple

purchases to the marketer. After the receipt of the proof, the marketer sends

the premium to the consumer.


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In-pack, On-pack and Container Premiums In-pack premium :The premium is enclosed inside the product pack. Such

premiums are generally small and low priced, such as a toy, steel bowl, face

towel and many other items.

On-pack premium : As the name suggests, on-pack premium is attached tothe outside of the product package or to the product itself if no outer package

is used.

Near-pack prem ium : Sometimes the premium is bulky in size and hence

cannot be enclosed inside the pack or put on the pack it is kept near the

promoted product and the consumer takes one with the purchased product.

Container-premium: In this type of premium the product itself is packed

inside the premium, which is a container, and this container can be used for

some other purpose after the product has been consumed.


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Advantages

i. Premiums are widely used to reward consumers. They serve as a powerful

means of differentiating the offer at the point of purchase where all the

products are similar and the competition is at parity.

ii. Depending on the preferences, premiums can be selected to appeal to the

target groups in a market.

iii. If the promotion objective is to increase usage, some product related

premium would be more useful.

iv. Near-pack premiums are a strong motivation for retailers to display the

product with premium at a prominent place in the store.

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Disadvantages

i. If the premium selection is poor, it may hurt product sales.

ii. The appeal to the consumer is an important factor and this aspect must be

pre-tested in some way. This would, of course, add to the cost of the

promotion.

iii. Even regular consumers may shy away from the product if the premium does

not measure up to their likes.

iv. Too frequent use of premium with any product is likely to lessen theimportance of the product in the eyes of the consumer.

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Free-in-Mail Premiums

Free-in-mail premiums are unique because the promotion objectives may be

quite different. In-mail premiums do not provide an immediate reward at the

time of purchase, as do the premiums already discussed. Consumers have

to take some action to claim the premium, such as sending the proof of a

single or multiple purchases and wait for some period of time for the delivery

of the premium through mail or courier.

A premium that serves as dealer-loaderis a premium that is kept as display

in the store and after the promotion is over, this dealer-loader is given to

the store manager/owner free. The purpose is to reward the dealer for

stocking the promoted product.

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Advantages

i. Free-in-mail premiums reward present consumers and encourage them to

stay brand loyal and may also increase usage.

ii. Consumers will be less tempted to switch brands as they would be collecting

the required number of purchase proofs to get the premium.

iii. If the objective is to encourage multiple purchases, free-in-mail premiums

could prove to be quite effective because the consumers will have to build up

stocks in collecting multiple proofs-of-purchase to get the premium quickly.

iv. Rate of redemption is generally low in this type of promotion and hence more

expensive premium can be offered. Low redemption occurs because of

slippageeffect.

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Disadvantages

i. It is not possible to measure the sales increase which can be directly

attributed to such a sales promotion because the redemption rates are

usually low.

ii. In some cases the company may be left with more residual stocks of the

premium.

iii. There is need to make some agreement with the premium supplier to accept

surplus stocks otherwise the cost of promotion would be unnecessarily high.

iv. There is also the possibility that the premium stocks may fall short of the

demand, and unless some arrangement has been made with the supplier for

such an emergency, there would be problems.

Ch-20 (Types and Techniques of Sales Promotion)

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