Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1 16 Sales Promotion: Intensifying Consideration Key Points: How do sales promotions add value to a brand offering? What are consumer sales promotions designed to accomplish and what are their strengths and limitations? How do trade promotions work? Chapter Sixteen Chapter

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 2 Chapter Perspective Intensifying the Brand Message Sales promotion is a marketing communication function that adds value to brand messages. It intensifies a brand contact when a customer or prospect is in the critical buy zone. Sales promotions primary job is to impact behavior. Sales promotions are mostly nonpersonal, one-way messages. These types of brand messages are highly persuasive because they provide tangible added value and are available for only a limited time, which can create a sense of urgency.

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 3 Sales Promotion: The Value-Added Function Sales promotion is a short-term, added-value offer designed to encourage and accelerate a response. A consumer sales promotion offer is designed for end users or buyers. A trade sales promotion offer is designed for customers in the distribution channel.

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 4 Consumer Sales Promotion Tools There are many sales promotion tools used in consumer promotion: Coupons Price reductions Rebates Premiums Specialties Sampling Sweepstakes and contests Tie-in promotions Loyalty promotions

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 5 Allocation Of Consumer Advertising And Sales Promotion Dollars In 2000 Figure 16-1, p.570

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 6 Dr. Pepper Exhibit 16-5, p.570

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 7 How Sales Promotion Works Marketers use two basic sales promotion strategies: Push strategies Pull strategies Most sales promotion programs include both push and pull strategies, using both consumer and trade promotions.

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8 Maybelline Hydra-Time Exhibit 16-6, p.571

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 9 Loyalty or Disloyalty? Promotions to reward Loyalists Promotions to encourage Brand-Switching

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 10 Loyalty Programs: The Retention Driver A loyalty program is a strategy for minimizing customer defections and increasing a brands share of wallet. These programs work best when brands have high fixed costs and low variable costs. See next slide:

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 11

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 12 Loyalty Program Strengths The primary benefit or strength is an increased level of customer retention. Other loyalty program strengths include: It can be an excellent vehicle for collection database information. It can also differentiate a brand.

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 13 Loyalty Program Limitations Despite its strengths, loyalty programs have several limitations: Loyalty programs can over-shadow a brand. These programs can take more resources to manage and administer than other forms of marketing communication used by the brand. It it is difficult to determine whether such programs are truly cost-effective.

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 14 Media of Consumer Sales Promotion Businesses use every type of medium to deliver brand messages to consumer and trade audiences. Every sales promotion needs a vehicle to carry it.

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15 Free Samples:

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 17

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 18 Sprint Exhibit 16-14, p.584

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 19 Rebates Increasing What are the advantages of using rebates vs. other promotional pricing methods? Makes products look cheaper Gives price-cutting control to manufacturers Can be rolled out and shut off quickly Gets consumers attention...

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20 Whats the deal here?

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 21 Rebate Secrets 76% of packaged-goods companies used money-back offers in 1996 Redemption rate is only 5-10% for offers up to $10.00 Redemption rate is only up to 20% for $20.00 offers

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 22 Downside of Rebates Consumer resentment Possible damage to company image

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 23 Strengths of Consumer Sales Promotion In terms of the marketing program, sales promotion programs are designed to: Increase distribution Balance demand Control inventory Respond to competitive programs

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 24 Strengths of Consumer Sales Promotion Companies also use sales promotion to achieve certain MC objectives such as: Encourage trial Increase frequency and/or quantity of purchases Build customer databases and relationships Reward and retain customers Cross-sell Extend the use of a brand Reinforce the brand image

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 25 Limitations of Consumer Sales Promotions Sales promotion has a questionable image. Some marketers feel that it is simply a way to buy sales as opposed to convincing people a brand is a good value. Sales promotion is sometimes criticized for primarily attracting those who are only searching for the best deal, not a long-term brand relationship. Competitors may soon follow, which negates the added- value advantage and adds another cost of doing business. The overuse of promotional offers may negatively reposition the brand.

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Trade-Oriented Promotions

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 27 Trade and BtB Promotions Trade promotions are important in gaining the support of a brand by members of the distribution channel. By law trade promotions must be offered on an equal basis to all dealers and resellers who compete against each other.

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 28 Trade Promotion Objectives Trade promotions are used to motivate certain types of actions by channel members such as: Obtain or increase distribution of a brand Have the brand featured in the stores advertising Expand amount of shelf display and/or get temporary off- shelf display

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 29 Types of Trade Promotion Trade promotion tactics include: 1) Slotting allowances 2) Off-invoice allowances 3) Advertising/Promotion allowances 4) Cooperative advertising allowances 5) Buy-back allowances 6) Dealer contests 7) Dealer loaders

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 30 Trade-Oriented Promotions Contests / Dealer Incentives Push Money / Spiffs These types of promos often referred to as Non-Franchise Building -WHY? Consumer Franchise-Building vs. Non-Franchise Building

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 31 Trade-Oriented Promotions Not so clear that theyre always NFB… Stihl Chainsaw Example

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 32 Sampling (Free) Door-to-Door / Direct Mail In-Store / On-Package Known to be effective through Learning Effects Reciprocity also highly likely...

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 33 Couponing / Frequency Marketing Direct Mail / Handout / Electronic / Newspaper / Magazine / In-Pack / On-Pack Show coupon clip Whats happening with coupons? VIDEO CLIP Redemption Rates are down However, still very effective

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 34 Problems with Coupons Costly (2-3X face value to redeem) Too many of them Consumers becoming dependent on them Poor Targeting (waste) Enter some solutions

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 35 New Solutions to Coupons Eliminate them Cut down on waste by improving targeting Catalina Coupons

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 36 Catalina Coupons Available at Schnucks in Columbia Sport-Drink Story

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 37

AVOID Use of Confusing Promotions!

Electronics Boutique - Videogame Trade-up offer.