Sales Promotions Chapter 12

Chapter Objectives What are the two main categories of sales promotions and how do they differ? What are the advantages and disadvantages of the various types of consumer promotions? What are the major categories of trade promotions and how are they used? How can a marketing team tie consumer promotions to trade promotions and other elements of the promotional mix? What are the potential limitations when sales promotions programs are being developed for international customers?

Chapter Overview Individuals that use product Consumer promotions Individuals that use product Trade promotions (read on your own) Directed to channel members Possible erosion of brand equity Can differentiate a brand Use varies – product life cycle Sales promotions consist of all the incentives offered to customers and channel members to encourage product purchases.  Consumer promotions are the incentives that are directly offered to a firm's customers or potential customers.   Trade promotions consist of the expenditures or incentives used by manufacturers and other members of the marketing channel to purchase goods for eventual resale.

Promotions Sales promotion is any initiative undertaken by an organization to promote an increase in sales, usage or trial of a product or service Sales promotions are varied.

Consumer Promotions Coupons Premiums Contests and sweepstakes Refunds and rebates Sampling Bonus packs Price-offs Consumer Promotions   The two most general categories of consumer promotions are: Franchise building, which are designed to increase awareness and loyalty. Nonfranchise building, which focus on immediate sales. Figure 12.1 displays the types of consumer promotions including: Coupons Premiums Contests and sweepstakes Refunds and rebates Sampling Bonus packs Price-offs

Three Steps to Effective Sales Promotions When done correctly, promotions get customers out of a holding pattern by giving them an incentive to take action before a limited-time offer expires. Getting customers to plunk down cash or credit cards remains a painfully slow process in this struggling economy. Sales promotions so important When done correctly, promotions get customers out of a holding pattern by giving them an incentive to take action before a limited-time offer expires.

1. Target your effort Promotions can spur purchases by established customers, reel in new customers, draw customers from competitors, get current customers to buy differently, and stimulate business during slow periods. Rarely can one promotion accomplish all of those objectives at once. As a result, advertisers must decide which of the following is most important so that they can target efforts

What do you want customers to do? purchase more frequently, buy in greater volume, or be attracted to new or different offerings Lure new customers into your business? Lapsed customers to give your business another try? Boost business during slow hours, weekdays or particular seasons?

2. Plan Your Incentive Price savings, including discounts, coupons or added value offers Samples or trial offers to provide a low-risk way to try new products or services Events or experiences to generate crowds, enthusiasm, sales, publicity A well-thought-out, properly targeted promotion prompts customers to take action by offering one of these incentives:

3. Know what you want to Achieve Work well when consumers are in need of a jolt to take buying action. Set the number of sales you want to ring up, dollars you want to bring in, customer names you want to collect, buying patterns you want to change, or any other objective you want your promotion to achieve. Then determine what your desired change will mean financially to your business. Promotions work especially well when consumers are in need of a jolt to take buying action. Set the number of sales you want to ring up, dollars you want to bring in, customer names you want to collect, buying patterns you want to change, or any other objective you want your promotion to achieve. Then determine what your desired change will mean financially to your business.

Coupons 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 Coupons   A coupon is a price reduction offer to a consumer. It may be a percentage off the retail price such as 25% or 40%, or an absolute amount (50 cents or $1.00). The percentage of consumer use for coupons is shown in Figure 12.2. The methods used to distribute coupons are displayed in Figure 12.3. Nearly manufacturers distribute 80% of all coupons. A total of 88% of all coupons are sent out through print media with 80% being distributed through free standing inserts (FSI), which are sheets of coupons distributed in newspapers, primarily on Sunday.

Coupons Reynolds web site – coupons distributed on the web site Latest in coupon programs is to link online coupons to your loyalty card. Personally, I find myself using coupons for household products like detergent or soap --- or at least cutting them out. My problem is the follow through: making sure I have the coupons with me when I end up at the store, before the coupons themselves expire. Well, one company has come up with a system to combat that problem, which I hope hits our shores soon. Donna Montado, who writes about couponing at about.com, pointed out a new service called Shortcuts.com. Not available yet in local zip codes, but it allows customers to link coupons to their loyalty shopping card. Then, when you get to the store, the coupons get added to your purchase when you swipe the card or keytag. No paper cuts, no printing, no forgetting them in the glove compartment or the kitchen table.

Influencing Brand Purchases On a scale of 1 to 10, the following are the top five influences on the brand purchased by a consumer. Sampling 7.78 Word-of-mouth 7.18 Coupons 5.91 Advertising 5.61 Contests 1.24 Source: The Second Annual Survey of Consumer Preferences for Product Sampling, Santella & Associates (Http://www.santella.com/marketing.htm).

Coupon Distribution Print media (90%) FSI (88%) Direct mail On- or in-package In-store Sampling Scanner-delivered Cross-ruffing Response offer Internet Fax Sales staff

Types of Coupons Instant redemption Bounce back Scanner-delivered Cross-ruffing Response offer Types of Coupons   1. An instant redemption coupon is distributed in retail stores placed on or in packages. 2. A bounce-back coupon is placed inside packages so that customers cannot redeem them quite as quickly, which encourages repeat purchases. 3. Scanner-delivered coupons are issued at a cash register. They are triggered by an item being scanned. 4. Cross-ruffing is the placement of a coupon for one product on another product. 5. Response offer coupons are issued following requests by consumers. Requests may be from a 1-800 number or Internet inquiries.

Coupon Redemption Rates Type of coupon Percent Redeemed Instant redeemable 39.3% Bounce-back 17.2% Instant redeemable – cross ruff 17.1% Electronic shelf 10.2% Electronic checkout 7.8% In-pack 5.8% On-pack 4.7% Direct mail 3.5% Handout 3.1% Free-standing inserts 1.3% Future of Coupons The future of the coupons is filled with fast paced, techy-type platforms for distribution, unlike its ancestral Sunday newspaper inserts. For some learning how it all works is fascinating. For others, the only information they want is what button they need to push. Either way, advertising companies are betting on the future of cell phones and Web sites to put coupons into consumer's hands. Here is a glimpse into the future of coupons. Broadband Video: Broadband video has a strong potential as a powerful extension to television advertising. The TV-like video content can be seen on a Web site using a high-speed broadband connection. Currently there are two types of on-demand Internet video - In-Stream and In-Banner. In-Stream Videos: In-Stream videos, which appear on a Web site, are generally 15 to 30 seconds long and appear when a user clicks on specific content. The advertising is primarily syndicated video content, much like what you see on TV. Generally a banner, which may contain a coupon, is featured as support, along side the video. In-Banner Video: In-Banner video are videos embedded in or expanded from a banner on a Web site. Some of these videos do not begin until the user clicks on them, but some are designed to expand and run whether the user clicks or not. Once expanded, the in-banner ad can feature custom designs that often include a coupon. Mobile Devices: Mobile devices are quickly growing in popularity as a way to distribute coupons since they are in nearly everyone's hands, especially while out shopping or traveling. There are several ways to deliver coupons to a consumer's mobile device including utilizing short message services (SMS), wireless application protocol (WAP) sites and dynamic downloadable applications. Short Message Service (SMS): SMS is available on nearly all of the newer cell phones in the market. Advertisers can design a coupon to be redeemed by the consumer by bringing the phone in-store or via a code that can be entered into a Web site if it's an online purchase. Wireless Application Protocol (WAP) Sites: WAP are sites that are designed for the small screen size of mobile phones. WAP sites can be accessed by the user when they use their mobile Internet browsers. Coupons can be put on the WAP sites, along with other information such as store finders, hours of store operation, directions, etc. Mobile Applications: Mobile phone users can now download a software application or program, typically from a Web site or WAP site, to view, use and save coupons. These software applications are saved to the device deck of the phone and when selected by the user and feature mobile coupons from participating advertisers. Source: Santella & Associates

Problems with Coupons Reduced revenues $500 million illegally redeemed Used by brand preference consumers (80%) “Necessary evil” $500 million illegally redeemed Mass cutting Counterfeiting Misredemption Problems with Coupons   The drawbacks to the use of coupons as a promotional tactic include: Reduced revenues. result from a lower ultimate price being charged. Mass cutting, which occurs when coupons are “redeemed” through a fraudulent retail outlet that does not exist, except at a mail box set up by an illegal “coupon ring.” Counterfeiting, when coupons are copied and then sent back to the manufacturer for reimbursement. Misredemptions, when coupons are redeemed for an incorrect size for which the discount applies, or when clerks honor coupons for merchandise that was not purchased, which can be an error or they can be intentional.

Premiums Free-in-the-mail In- or on-package Store or manufacturer Self-liquidating Premiums   Premiums are prizes, gifts, or other special offers consumers receive when purchasing products. When a premium is offered, the consumer pays full price for the goods or service. Types of Premiums There are four major types of premiums, as summarized in Figure 12.4 Free-in-the-mail premiums, which are gifts individuals receive for purchasing products. To receive the gift, the customer must mail in a proof-of-purchase to the manufacturer who then mails the gift back to the consumer. In- or on-package premiums are usually small gifts, such as toys in cereal boxes (or Cracker Jacks). Store or manufacturer premiums are gifts given by either the retail store or manufacturer when the customer purchases a product. Self-liquidating premiums are used when the consumer must pay an amount of money for the item, which is usually the amount needed to cover the cost of the premium.

In-Mail/Proof of Purchase

For over 24 years, Kangaroo Pouch has been one of the largest, behind the scenes, manufacturers and providers of promotional premiums, marketing items and novelties.  A multi-year "Gold Star" winner for best new products, Kangaroo Pouch items have been featured in Glamour, Cosmopolitan and Elle.  From designing and  supplying 150,000 dobb kits for a recent perfume launch to manufacturing over 70,000 stuffed bears to providing custom vests for the Olympics, Kangaroo Pouch has never missed a beat.  If you are interested in separating yourself from the competition, give Kangaroo Pouch a call

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 Keys to Successful Premium Programs   In building successful premium programs the following items are important, as summarized by Figure 12.5. Match the premium to the target market. The best premiums are those that reinforce the firm’s image. They should not be cheap trinkets. Premiums are more likely to succeed when they are tied into the firm’s products and related in some manner. It is important to integrate premiums with the other components of the IMC program.

Contests and Sweepstakes Require skill Sweepstakes Random chance Contests and Sweepstakes   Contests and sweepstakes are used in consumer markets as well as business markets. A primary factor in the success of this type of appeal is the prize list. Contests Contests normally require the participant to perform some type of activity in order to enter. Sweepstakes No purchase can be required to enter a sweepstakes, and consumers may enter as many times as they wish. Components of Prizes The perceived value of a prize has two components: Extrinsic value, or the actual attractiveness of the item. Intrinsic value, or those associated with playing or participating.

Sweepstakes Sweepstakes Companies TRG excels at standout promotional marketing designed to elicit a strong and positive consumer response that ultimately drives sales. TRG has core experience in creating customized, results-oriented sweepstakes and on-pack promotions. From the creative hook to program design through legal and final shipment, TRG constructs ways for your brand to add value to your consumer. ·  Concept development ·  Rules & regulations ·  Letters of Agreement ·  Indemnification Agreements ·  Contracts ·  Bonding & registration ·  Production: counter cards, tear pads, etc. ·  Mobile campaigns ·  Web design, programming & maintenance ·  Winner selection & notification ·  Prizing fulfillment ·  1099s ·  Database management ·  Customer service

Goals of Contests and Sweepstakes Coordinate with other marketing Encourage customer traffic Boost sales - questionable Intrinsic rewards draw customers back Increase in brand awareness Goals of Contests and Sweepstakes   To create successful contests and sweepstakes, it is important to coordinate the contest promotion with the advertising, POP displays, and other marketing tools. The primary goals of contests and sweepstakes are often to increase customer traffic and boost sales. Brand awareness also increases with multiple exposures to an advertisement or contest.

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 Refunds and Rebates   Refunds and rebates are cash returns offered to consumers or businesses following the purchase of a product. A refund is a cash return on what are called “soft goods,” such as food or clothing. Rebates are cash returns on “hard goods,” which are major ticket items such as automobiles and major appliances. Problems with these programs include: Costs (lost revenue) The paperwork involved (to file for the money and process the claim) Diminished effectiveness, because people expect them Successful refund or rebate program, must offer a perceived newness or originality. They should generate an impact, or enough to cause an action.

Sampling In-store distribution Direct sampling Response sampling Cross-ruffing sampling Media sampling Professional sampling Selective sampling Sampling   Sampling is the actual delivery of a product to consumers for their use or consumption. Normally, samples are provided free-of-charge. In business-to-business markets, companies often provide samples of products to potential clients. Sampling can also be used in the service sector. Types of sampling, as shown in Figure 12.6, include: In-store distribution, where they are given out in stores. Direct sampling, in which samples are mailed or delivered door-to-door to consumers. Response samples are those made available to individuals or businesses that respond to a media offer on television, the Internet, from a magazine, or some other source. Cross-ruff sampling provides samples of one product on another. A laundry detergent with a free dryer sheet attached to the package is a cross-ruff sample. Media sampling means the sample is included in the media outlet. For example, a small sample of perfume may be included in a magazine advertisement. Professional samples are delivered by professionals, such as when a pharmaceutical company provides doctors with free drug samples. Selective samples are samples distributed at a site such as a state fair, parade, hospital, restaurant, or sporting event.

Benefits of Sampling Introduce new products Generate interest Generate leads Collect information Internet sampling Boost sales Benefits of Sampling   The benefits of sampling include the ability to introduce new products, generate interest in products, and collect information about consumers.

Sampling Programs Problems Effective sampling Cost Distribution Component of IMC plan Stimulate trial usage Target audience of sample Problems with Sampling   The primary disadvantage of this form of promotion is the cost. Also, many times people simply discard the sample without even trying the product. Successful Sampling Programs Sampling must be a central part of the IMC plan. The primary purpose of sampling is to encourage a trial use by a consumer or by a business. Sampling is most effective when it is used to introduce a new product or a new version of a product to a market.

Bonus Packs Increase usage of product Match or preempt competition Stockpiling of product Develop customer loyalty Attract new users Encourage brand switching Bonus Packs   When an additional or extra number of items of a product is placed in a special package, it is called a bonus pack. Types of Bonus Packs Figure 12.7 identifies the major objectives of bonus packs, including: Increase usage of the product Match or pre-empt competitive actions Stockpile the product Develop customer loyalty Attract new users Encourage brand switching Bonus packs can be additional units or a larger size package. Benefits of Bonus Packs Bonus packs reward customer loyalty and allow them to stockpile. They may lead to brand switching if the brand has been used previously. They can build relationships between manufacturers, retailers, and consumers. Problems with Bonus Packs Bonus packs do not tend to attract new customers because they increase purchase risk. Some consumers are skeptical of bonus pack offers. Furthermore, bonus packs are costly in the sense that additional amounts of product are being sold for the same or a similar price. In addition, new packaging and shipping costs may be incurred.

Bonus Pac Tie-In with Coupon & Reward Program

Disney

Price-Offs Temporary price reduction Stimulating sales Reduces financial risk Brand switching Stockpiling Price-Offs   A price-off is a temporary reduction in the price of a product to the consumer. Price-offs are normally used to stimulate sales of an existing product. Price-offs are easy to implement and can have a sudden impact on sales.

Price-offs Proven to be successful Problems 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 Benefits of Price-Offs Price-offs can stimulate sales. They can encourage brand switching. They provide and immediate reward to customers. Problems with Price-Off Promotions   The primary problems that occur with price-off promotions include: It normally takes at least a 20% increase in sales to offset each 5% price reduction. Consequently, although a price-off offer may have a large impact on sales, it can be devastating for profit margins. Price-off programs can encourage consumers to become more price sensitive. Too many price-off offers can create a detrimental impact on the firm’s image.

Promotion Combinations Overlay Intra-company tie-in Inter-company tie-in Overlays and Tie-Ins   When companies combine two or more consumer promotions activities into a single campaign, it is called an overlay. Another common strategy is to develop a consumer promotion with another product or company, which is called a tie-in. Intracompany tie-ins are the promotion of two different products within one company using one consumer promotion. An intercompany tie-in is when one company joins with another.

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 Planning for Consumer Promotions   It is vital for consumer promotions to support the brand image and the brand positioning strategy of a product. In terms of sales promotions, consumers can be divided into three general categories: Promotion prone consumers, or individuals who regularly respond to coupons, price-off plans, or premiums. Brand loyal consumers, or consumers who purchase only one particular brand and do not substitute regardless of any deal being offered. Price sensitive consumers, for whom price is the primary if not the only criterion used in making a purchase decision.

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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 2nd largest expense Accounts for 17.4% of gross sales

Trade Allowances Off-invoice allowance Slotting fees Exit fees Price discount 35% of all trade dollars Slotting fees Exit fees

Slotting Fees Retailer justification Manufacturer objections 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

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 Retailers can schedule and promote on-deal brands Forward buying Pass savings on or pocket higher margin Additional carrying costs Diversion Additional shipping costs

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.

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

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 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

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

Trade Show Attendees Education seekers Reinforcement seekers Solution seekers Buying teams Power buyers

Concerns of Trade Promotions 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.