Sales Promotions Chapter 12

Chapter Overview Consumer promotions  Directed to 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

Push/Pull Promotions Pull: aimed at consumers – consumer promotions Push: aimed at channel members – trade promotions Manufacturer Wholesaler/ distributors Consumers Retailers

Consumer Promotions Coupons Premiums Contests and sweepstakes Refunds and rebates Sampling Bonus packs Price-offs

Coupons Over 188 billion distributed Less than 1% redeemed Average value ~ $1.50 Savings of $2.25 billion Coupon usage  80% of households use  67% willing to switch brands

Coupon Usage Always ~ 21% Sometimes ~ 37% Rarely ~ 17% Never ~ 25%

Influencing Brand Purchases Sampling7.8 Word-of-mouth7.2 Coupons5.9 Advertising5.6 Contests1.2 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 (

Types of Coupons Instant redemption  Lead to trial purchase Bounce back  Encourage repeat purchase Scanner-delivered  Encourage brand switching  Cross-ruffing

Coupon Distribution Manufacturers issue about 80% Freestanding inserts – 88% Freestanding and print most popular  Create brand awareness  Encourage next trip purchase Digital coupons growing  Users more affluent, better educated

Coupon Distribution Print media (90%)  FSI (88%) Direct mail On- or in-package In-store  Scanner-delivered Digital Employee/Sales staff

Percentage of Sales with a Coupon Disposable diapers~17% Detergents~15% Meal starters~14% Dough products (refrigerated)~14% Cereal~13% Wrapping materials, bags~13% Oral hygiene products~12% Household cleaners~12% Product category % of sales using manufacturer’s coupon

Coupon Redemption Rates Instant redeemable~39% Bounce-back, In-Pack~23% Electronic shelf~18% Instant redeemable – cross ruff~17% On-pack ~5% Direct mail ~4% Handout ~3% Free-standing inserts ~1% Type of coupon Percent Redeemed Source: Santella & Associates

Problems with Coupons Reduced revenues Used by brand preference consumers (80%) “Necessary evil”

Premiums Free-in-th In- or on-package Store or manufacturer Self-liquidating

Keys to Successful Premiums Match premium to target market Pick premium that reinforces product and image Integrate premium with other IMC tools  Advertising & POP Don’t expect premiums to increase short-term profits

Contests and Sweepstakes Contests  Require activity, skill  Can require purchase Sweepstakes  Random chance  Must publish odds  Cannot require purchase  Enter as many times as desired

Contests and Sweepstakes Encourage customer traffic  Boost sales? - questionable Extrinsic value  attractiveness of prize Intrinsic value  fun, skill Internet and Social Media  Data capturing opportunities  Low costs

Refunds and Rebates Refunds – soft goods Rebates – hard goods Hassle to redeem Now expected by consumers Redemption rates  30% overall  65% for rebates over $50

Sampling In-store distribution Direct sampling Response sampling Cross-ruff sampling Media sampling Professional sampling 33% who tried a sample made a purchase during same shopping trip 58% would buy product again 25% bought product instead of intended brand

Benefits of Sampling Target specific markets/audience! Introduce new products Encourage trial Generate leads Collect information Boost sales

Bonus Packs Increase usage of product Match or preempt competition May lead to stockpiling Develop customer loyalty Attract new users Encourage brand switching Typical bonus packs are special multi-packs or packages with extra % of product.

Price-Offs Benefits: Stimulate sales Entice trial purchases Reduces customer financial risk Encourages brand switching, stockpiling Problems: Negative impact on profit Encourages price-sensitivity Potential impact on brand image Temporary price reduction

Planning Consumer Promotions (Pull) Advertising vs. Sales Promotion Advertising more profitable, high growth, and premium priced brands. Sales Promotion significant in less popular, low growth, mid to lower priced brands.

Planning Consumer Promotions (Pull) Retailers’ incentive to participate: Increase store traffic Increase store sales Attract new customers Increase basket size

Trade Promotions (Push) 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

Trade Allowances Types: Off-invoice allowance  Price discount  35% of all trade dollars Slotting fees Exit fees Trade allowances: financial incentives to channel members – may be passed on to other members of channel

Slotting & Exit Fees 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 4% of retailers use exit fees, 82% use slotting fees

Trade Allowance Complications Failure to pass allowances on to retail customers  Only occurs 52% of the time  Retailers like only one brand on-deal at a time Forward buying  Pass savings on or pocket higher margin  Additional carrying costs Diversion  Segmentation strategy nullified  Additional shipping costs

Trade Contests Used to achieve specific sales targets. Funds known as “spiff money.” Rewards can be prizes or cash. Can be designed for various channel members. Some channel members do not allow trade contests because of possible conflict of interests.

Trade Incentives Cooperative merchandising agreement Premium or bonus pack Co-op advertising programs Trade Incentives

Cooperative Merchandising Agreement Formal agreement Popular with manufacturers  Retailer must perform marketing functions  Manufacturer maintains control  Longer-term commitments Benefit retailers  Schedule calendar promotions

Cooperative Advertising Manufacturer pays part of retailer’s 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

Trade Shows Business to Business venue  Consumer & BtB goods Few deals finalized Increase in international shows National shows being replaced by regional and niche shows Niche shows  better prospects, Lower costs

Trade Shows - Attendees Education seekers Reinforcement seekers Solution seekers Buying teams Power buyers Competitive interests