4550: Promotion Strategy I Professor Campbell 2/22/05

Plan for the Day Differences between advertising and promotions Types of sales promotions Consumer promotions –Objectives –Types

Sales Promotion “A direct inducement that offers an extra value or incentive for the product to the sales force, distributors or the ultimate consumer with the primary objective of creating an immediate sale.” Louis J. Haugh

What is Advertising? “Non-personal forms of communication, conducted through paid media under clear sponsorship.”

What is (Sales) Promotion? A short-term incentive designed to encourage earlier or stronger target response

Promotion Three general types of promotions –Consumer –Trade –Salesforce

Consumer Promotions: Objectives What kinds of behavior can we influence? –What are the types of objectives that suggest we should use promotions (versus other types of marcom)?

Consumer Promotions: Objectives

Consumer Promotions: Objectives, cont…

Promotion Options There are many different forms of consumer promotions Choose: –to best meet current objectives –with an eye toward longer-term effects on brand Set: – appropriate evaluation criteria

Sampling Advantages: Disadvantages: Usage

Manufacturer’s Coupons Advantages: +Effective +Less expensive +Can be used to build equity Disadvantages: –“Response costs” lower redemption rate can be hard to predict –Costs more than value of coupon –“Slow” –Mis-redemption –Used by current users (+ and -) –Often does not build equity

Manufacturer’s Coupons, continued Usage »New brand »New users entering product category »Price discrimination Target is price sensitive, but not highly time sensitive »Switchers »Increase purchase incidence (or timing) of brand loyals »Get people to “trade up”

FSI’s (Manufacturer’s Coupons, cont…) Headline –Price-based –Brand-based Product Display Attribute Information Other Picture

FSIs, continued Findings from LeClerc and Little (1997) –“Ad execution” does impact response to FSIs –When product category involvement is low: Customers are less likely to be motivated to process; they respond to the “peripheral cue” of an attractive picture –When product involvement is high: Switchers motivated to process, since don’t have a brand in mind; respond to more informational ads Loyals already have a brand in mind, have little incentive to process information; respond more to attractive pictures

Trade Coupons Advantages: +Quick +Localized (can target a particular area) +Relatively inexpensive Disadvantages: –Localized –Does not build brand equity Usage »Gain distribution »Influence switchers »Price discrimination

Numerical Framing

Bonus or Price Packs Advantages +Increases usage (takes consumer out of the market) Disadvantages –Cost –Production timing and cost (SKU) Usage »Good for preempting a new entrant »Good for seasonal products

Other Consumer Promotions Frequency programs Contests –Skill Sweepstakes –Chance Refunds/Rebates Gifts/Premiums

In conclusion… Promotion involves an extra incentive to purchase Consumer promotions can influence a variety of behaviors Promotions should be used to accomplish specific, concrete objectives –Use promotions when you have an objective that is appropriate –Utilize the best type of promotion for specific objective Firms often target customers loyal to competitors’ brands –Switchers Evidence suggests that we may be under-targeting our own customers