Sales Promotions Chapter 12 Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 12-1

Chapter Objectives 1.What are the two main categories of sales promotions and how do they differ? 2.What are the advantages and disadvantages of the various types of consumer promotions? 3.What are the major categories of trade promotions and how are they used? 4.How can a marketing team tie consumer promotions to trade promotions and other elements of the promotional mix? 5.What are the potential limitations when sales promotions programs are being developed for international customers? Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 12-2

Sales Promotions and Hook Fans Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall  Corpus Christi Hooks – Double A  Affiliate of Houston Astros  Attendance – 7,000 per game  Thrives on consumer promotions  30 promotional nights (72 home games)  Discounts and giveaways  Sponsorships and trade promotions  Whataburger Field  “Postgame catch” and “Kids Day”  Fun, family entertainment 12-3

Chapter Overview Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Consumer promotions  Individuals/businesses that use product Trade promotions  Directed to channel members Possible erosion of brand equity Can differentiate a brand Use varies – product life cycle 12-4

Consumer Promotions Coupons Premiums Contests and sweepstakes Refunds and rebates Sampling Bonus packs Price-offs Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 12-5

Coupons Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 323 billion distributed 3 billion redeemed (0.93%) Average value was 89 cents Savings of $3.47 billion Coupon usage  78% of households use  64% willing to switch brands 12-6

Coupon Usage Always – 20.7% Sometimes – 37.7% Rarely – 17.0% Never – 24.6% Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 12-7

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Influencing Brand Purchases Sampling7.78 Word-of-mouth7.18 Coupons5.91 Advertising5.61 Contests1.24 On a scale of 1 to 10, the following are the top five influences on the brand purchased by a consumer. Source: The Second Annual Survey of Consumer Preferences for Product Sampling, Santella & Associates ( 12-8

Coupon Distribution Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Print media (90%)  FSI (88%) Direct mail On- or in-package In-store Sampling Scanner-delivered Cross-ruffing Response offer Internet Fax Sales staff 12-9

Types of Coupons Instant redemption Bounce back Scanner-delivered Cross-ruffing Response offer Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 12-10

Coupon Redemption Rates Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Instant redeemable39.3% Bounce-back17.2% Instant redeemable – cross ruff17.1% Electronic shelf10.2% Electronic checkout 7.8% In-pack 5.8% On-pack 4.7% Direct mail 3.5% Handout 3.1% Free-standing inserts 1.3% Type of couponPercent Redeemed Source: Santella & Associates 12-11

Problems with Coupons Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Reduced revenues  Used by brand preference consumers (80%)  “Necessary evil” $500 million illegally redeemed  Mass cutting  Counterfeiting Misredemption 12-12

Free-in-th In- or on-package Store or manufacturer Self-liquidating Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Premiums 12-13

Keys to Successful Premiums Match premium to target market Carefully select the premium Pick premium that reinforces product and image Integrate premium with other IMC tools Don’t use premiums to increase short- term profits Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 12-14

Contests  Require skill Sweepstakes  Random chance Rewards  Extrinsic  Intrinsic Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Contests and Sweepstakes 12-15

Goals of Contests and Sweepstakes Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Coordinate with other marketing Encourage customer traffic  Boost sales - questionable Intrinsic rewards draw customers back Increase in brand awareness 12-16

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Refunds and Rebates Refunds – soft goods Rebates – hard goods Hassle to redeem Now expected by consumers Redemption rates  30% overall  65% for rebates over $

In-store distribution Direct sampling Response sampling Cross-ruffing sampling Media sampling Professional sampling Selective sampling Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Sampling 12-18

Benefits of Sampling Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Introduce new products Generate interest Generate leads Collect information Internet sampling Boost sales 12-19

Sampling Programs Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Problems  Cost  Distribution Effective sampling  Component of IMC plan  Stimulate trial usage  Target audience of sample 12-20

Increase usage of product Match or preempt competition Stockpiling of product Develop customer loyalty Attract new users Encourage brand switching Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Bonus Packs 12-21

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Price-Offs Temporary price reduction Stimulating sales Reduces financial risk Brand switching Stockpiling 12-22

Price-offs Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Proven to be successful  Appeal of monetary savings  Reward is immediate Problems  Can have a negative impact on profit  Encourages consumers to become more price-sensitive  Potential image on brand image 12-23

Promotion Combinations Overlay Intra-company tie-in Inter-company tie-in Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 12-24

Planning Consumer Promotions Types of consumers  Promotion prone  Brand loyal  Price sensitive Retailer incentives  Increase store traffic  Increase store sales  Attract new customers  Increase basket size IMC Plan Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 12-25

Trade Promotions Types of trade promotions  Trade allowances  Trade contests  Trade incentives  Trade shows For manufacturers, trade promotions  Accounts for 70% of marketing budget  Often 2 nd largest expense  Accounts for 17.4% of gross sales Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 12-26

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Trade Allowances Off-invoice allowance  Price discount  35% of all trade dollars Slotting fees Exit fees 12-27

Slotting Fees Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Retailer justification  Cost to add new products to inventory  Requires shelf space  Simplifies decision about new products  Adds to bottom line Manufacturer objections  Form of extortion  Divert money from advertising and marketing  Detrimental to small manufacturers 12-28

Trade Allowance Complications Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Failure to pass allowances on to retail customers  Only occurs 52% of the time  Retailers like only one brand on-deal at a time Retailers can schedule and promote on-deal brands Forward buying  Pass savings on or pocket higher margin  Additional carrying costs Diversion  Pass savings on or pocket higher margin  Additional shipping costs 12-29

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Trade Contests Used to achieve sales targets. Funds known as “spiff money.” Rewards can be prizes or cash. Can be designed for various channel members. Some organizations do not allow trade contests because of possible conflict of interests

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Trade Incentives Cooperative merchandising agreement Premium or bonus pack Co-op advertising programs 12-31

Cooperative Merchandising Agreement Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Formal agreement Popular with manufacturers  Retailer must perform marketing functions  Manufacturer maintains control  Longer-term commitments Benefit retailers  Schedule calendar promotions 12-32

Cooperative Advertising Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Manufacturer pays part of retailer’s ad costs Retailer must follow specific guidelines  No competing brands Retailers accrue monies  Amount is based on sales Allows retailers to expand advertising Manufacturers gain exposure in local markets 12-33

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Trade Shows Few deals finalized at trade show International attendees want to make deals Increase in international trade shows National shows being replaced by regional and niche shows Niche shows  Provide better prospects  Lower costs 12-34

Trade Show Attendees Education seekers Reinforcement seekers Solution seekers Buying teams Power buyers Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 12-35

Concerns of Trade Promotions Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Corporate reward structure Used for short-term sales goals. Tend to be used outside of IMC Plan. Costs Over-reliance to push merchandise. Difficult to reduce – competitive pressures Potential erosion of brand image