 2007 Thomson South-Western Consumer-Oriented Promotions: Sampling and Couponing

Why Use Consumer Promotions? Promotions accomplish goals that advertising by itself cannot: –Buy now rather than later –Buy your brand rather than a competitor's –Buy more and –Buy frequently. –Consummate the transaction

Brand Management Objectives and Consumer Rewards (1) Generating trial purchases (2) Encouraging repeat purchases (3) Reinforcing brand image Three general categories of objectives

Marketer Objectives and Consumer Rewards All promotion techniques provide consumers with rewards Typically in the form of cash savings or free gifts Consumers are more responsive to immediate than delayed rewards Consumer Rewards

Varieties of Sales Promotion Methods SamplingSweepstakes CouponingBonus Packs RebatesPremiums Price-offsLoyalty programs GamesPhone cards ContestsEtc.

Classifications of Promotion Methods

Caution is in Order! The classification of promotional tools is necessarily simplified Promotions are capable of accomplishing more than a single objective Manufacturers use consumer-oriented sales also to leverage trade support Coupons and premiums achieve different objectives depending on the specific form of delivery vehicle

Sampling The premier sales-promotion device for generating trial usage by delivering an actual- or trial-sized product to consumers

Sampling Direct mail Mailed directly to households Targeted by demographic characteristics or geodemographics Newspapers and magazines Door to door by special distribution crews On- or in-pack sampling High-traffic locations In-store sampling Internet sampling

Sampling The Sunday newspaper is an increasingly attractive medium for broad-scale sampling Direct mail Newspapers and magazines Door to door by special distribution crews On- or in-pack sampling High-traffic locations In-store sampling Internet sampling

Sampling Allows considerable targeting Lower cost than in- store or direct-mail sampling Short lead times Direct mail Newspapers and magazines Door to door by special distribution crews On- or in-pack sampling High-traffic locations In-store sampling Internet sampling

Sampling Uses the package of another product to serve as the sample carrier Direct mail Newspapers and magazines Door to door by special distribution crews On- or in-pack sampling High-traffic locations In-store sampling Internet sampling

Sampling On- or In-pack Sampling

Shopping centers, movie theaters, airports, or special events Change points – colleges, marriage offices Direct mail Newspapers and magazines Door to door by special distribution crews On- or in-pack sampling High-traffic locations In-store sampling Internet sampling

Sampling Provide product samples in grocery stores and other retail outlets for trial while consumers are shopping The most frequent form Direct mail Newspapers and magazines Door to door by special distribution crews On- or in-pack sampling High-traffic locations In-store sampling Internet sampling

Sampling Brand managers are increasingly distributing samples online Specialized online sample delivery firms aid this process (e.g. StartSampling) Direct mail Newspapers and magazines Door to door by special distribution crews On- or in-pack sampling High-traffic locations In-store sampling Internet sampling

Major Sampling Practices Targeting rather than mass distributing samples –Targeting middle school kids, young adults, business executives, newlyweds, etc. –Warner Lambert and “anti-itch cream” Using innovative distribution methods where appropriate –Progresso Soup & “Soupermen” –Guinness Beer and Irish festivals –ConAgra and Marie Callender frozen foods –Ben & Jerry’s “Urban Pasture” Undertaking efforts to measure sampling’s return on investment –Break even point at which sampling costs equal profits from conversions

When Should Sampling Be Used? Brand is demonstrably superior/has distinct relative advantages –When consumption is the best influencer of attitudes Concept is difficult to communicate by advertising alone –Charmin Toilet tissue –Olestra made fat-free Pringles Can afford to generate consumer trial quickly

Problems with Sampling Expensive Mishandling in distribution Distributed to the wrong market In- or on-package samples do not capture current non-consumers Can fail to reach sufficient numbers of consumers to justify its expense May be misused by customers Pilferage (P&G’s Vidal Sassoon’s Wash & Go shampoo in Poland)

Couponing Coupon A promotional device that provides cents-off to consumers upon its redemption

A Buy One Get One Free Coupon Offer

Couponing Background Around 250 billion coupons are distributed annually in the United States. Cost to U.S. marketers is about $7 billion a year.

Coupon Distribution Methods Freestanding insert (FSI) is preferred –Valassis Inserts, News America Marketing The establishment of cooperative coupon programs –Val-Pak Direct Marketing Systems

Economic Impact Face Value$1.00 Distribution and postage cost.40 Handling charge.08 Consumer misredemption cost.07 Internal prep and processing cost.02 Redemption cost.02 Total Cost$1.59

Is Couponing Profitable? Households most likely to redeem coupons were also the most likely to buy the brand in the first place However, companies have to offer coupons to prevent losing consumers to other brands that do offer coupons

Point of Purchase Couponing Peelable from the package at the point of purchase Represent an immediate reward An alternative to price-off deals Redemption rate about 30% Instantly Redeemable Coupons Shelf- Delivered Coupons Scanner- Delivered Coupons

IRCs vs. FSI coupons IRCs and FSIs with face values of 50 cents and $1 IRCs outperformed FSIs in sales 50 cent IRC outperformed $1 FSI –High value FSI coupons signal high prices and scare customers away High value FSI coupons attract current brand users but scare away potential switchers

Point of Purchase Couponing Instant Coupon Machines, Smart Source TM Machines are attached to the shelf alongside coupon-sponsoring brands Redemption rate about 11% Instantly Redeemable Coupons Shelf- Delivered Coupons Scanner- Delivered Coupons

Shelf-Delivered Coupons Instant coupon machine (so called SmartSource)

Point of Purchase Couponing Catalina Marketing Corp. offers two programs Reward is delayed Potentially very effective because they provide a way to carefully target coupon distribution Instantly Redeemable Coupons Shelf- Delivered Coupons Scanner- Delivered Coupons

Point of Purchase Couponing Delivers coupons based on the particular brands a shopper has purchased Directed at competitive-brand users Redemption rate about 9% Scanner- Delivered Coupons Checkout CouponCheckout Direct

Point of Purchase Couponing A coupon for the sponsoring manufacturer’s brand is automatically dispensed for use on the shopper’s next purchase occasion Directed at users who satisfy a manufacturer’s prescribed demographic or product-usage requirements E.g. Baked Lays targeted super heavy users (at least 8 times in the past 12 months) of Tostitos Lays. Scanner- Delivered Coupons Checkout CouponCheckout Direct

Mail/Media Delivered Coupons Highest household penetration Highest redemption rate of all mass-delivered coupons (3.5%) Increase the amount of product purchases Mail-Delivered Coupons Relatively expensive Inefficient and expensive for brands enjoying a high market share

Mail/Media Delivered Coupons 87% of all coupons distributed via Sunday newspaper freestanding inserts Broad exposure Relatively cheaper Reminder function Advertising function FSIs and Other Media-Delivered Coupons Redemption rate is very low Don’t generate much trade interest Susceptible to misredemption

In- and On- Pack Coupons Included in- or on- product’s package Cannot be removed at the point of purchase; It’s for next purchase A coupon for one brand is promoted by another brand (crossruffing); e.g. General Mills cereal boxes carried coupons for their granola bars. Has bounce-back value No distribution costs Redemption rates are higher Delayed value to consumers Don’t reach nonusers of the carrying brand

Online Couponing A number of Internet sites now distribute coupons. Consumers print their own coupons, at no additional cost to the advertiser. There is a great potential for fraud with these coupons that consumers can print themselves so it remains to be seen how popular this method will remain

Redemption Process and Misredemption Manufacturer Redemption Center ConsumersRetailersClearinghouse * Organized criminals * Terrorists * Media employees * Crooked retailers (A) (B)(C) (D) (F) (M) (E) M: misredemption

The Consequences Estimates of the misredemption have ranged from a low of 15% to a high of 40%. True misredemption rate is about 3 or 4% representing millions of dollars lost by manufacturers.

The Participants Consumers present coupons that have expired, for items not purchased, or for a smaller size than specified by the coupon. Clerks take the coupons to the store and exchange them for cash without making a purchase. Store Management: retailers may boost profits by submitting extra coupons in addition to those redeemed legitimately. Shady Clearinghouses engage in misredemption by combining illegally purchased coupons with real ones and certifying the batch as legitimate.