1. PowerPoint Presentation by Charlie Cook The University of West Alabama Eighth Edition © 2010 South-Western, a part of Cengage Learning All rights reserved. Sampling and Couponing CHAPTER 16

2. 1.Appreciate the objectives of consumer-oriented sales promotions. 2.Recognize that many forms of promotions perform different objectives for marketers. 3.Know the role of sampling, the forms of sampling, and the trends in sampling practice. 4.Be aware of the role of couponing, the types of coupons, and the developments in couponing practice. 5.Understand the coupon redemption process and misredemption. 6.Appreciate the role of promotion agencies. 1.Appreciate the objectives of consumer-oriented sales promotions. 2.Recognize that many forms of promotions perform different objectives for marketers. 3.Know the role of sampling, the forms of sampling, and the trends in sampling practice. 4.Be aware of the role of couponing, the types of coupons, and the developments in couponing practice. 5.Understand the coupon redemption process and misredemption. 6.Appreciate the role of promotion agencies. Chapter Objectives After reading this chapter you should be able to: © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–2

3. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–3 Why Use Consumer Promotions? PromotionsPromotions  Accomplish goals that advertising by itself cannot  Induce consumers to buy now rather than later  Encourage the buying of one brand rather than a competitor  Encourage consumers to buy more and more frequently

4. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–4 Brand Management Objectives Brand ManagementBrand Management  Is directed at influencing consumer behavior rather than initiating trade or sales-force action  Objectives are:  Generating purchase trial and retrial  Encouraging repeat purchases  Reinforcing brand images

5. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–5 Consumer Rewards Utilitarian (Functional) Benefits of RewardsUtilitarian (Functional) Benefits of Rewards  Obtaining monetary savings (e.g., when using coupons)  Reducing search and decision costs (e.g., by availing of a promotional offer, consumers do not have to think about other alternatives)  Obtaining improved product quality made possible by a price reduction that allows consumers to buy superior brands they might not otherwise purchase.

6. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–6 Consumer Rewards (cont’d) Hedonic Benefits of RewardsHedonic Benefits of Rewards  Accomplishing a sense of being a wise shopper when taking advantage of sales promotions  Achieving a need for stimulation and variety when trying a brand that might not purchased if it were not for an attractive promotion  Obtaining entertainment value when, for example, the consumer competes in a promotional contest or participates in a sweepstakes

7. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–7 Consumer Rewards (cont’d) Other RewardsOther Rewards  Consumer promotions perform an informational function by influencing consumer beliefs about a brand Timing of RewardsTiming of Rewards  An immediate reward delivers monetary savings or some other form of benefit as soon as the consumer performs a marketer-specified behavior  Delayed rewards are those that follow the desired behavior by a period of days, weeks, or even longer

8. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–8 Major Consumer-Oriented Promotions Table 16.1

9. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–9 Notes on Table 16.1 The classification of promotional tools is necessarily simplifiedThe classification of promotional tools is necessarily simplified Promotions are capable of accomplishing more than a single objectivePromotions are capable of accomplishing more than a single objective Manufacturers use consumer-oriented sales also to leverage trade supportManufacturers use consumer-oriented sales also to leverage trade support Coupons and premiums achieve different objectives depending on the specific form of delivery vehicleCoupons and premiums achieve different objectives depending on the specific form of delivery vehicle

10. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–10 Sampling SamplingSampling  Any method used to deliver an actual- or trial-sized product to consumers Why Sampling Is EffectiveWhy Sampling Is Effective  It gives consumers an opportunity to experience a new brand personally  It allows an active, hands-on interaction rather than a passive encounter, as is the case with the receipt of promotional techniques such as coupons  It is almost a necessity when introducing truly new products that can afford this form of promotion

11. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–11 Sampling Methods and Media Direct Mail Mailed directly to households targeted by demographic characteristics or geodemographicsMailed directly to households targeted by demographic characteristics or geodemographics Newspapers and Magazines Samples included in magazines and newspapers represent cost-efficient forms of sampling for reaching a mass audienceSamples included in magazines and newspapers represent cost-efficient forms of sampling for reaching a mass audience Door-to-Door Distribution Allows considerable targeting and has advantages of lower cost and short lead times between a sampling request and when the samples are delivered to targeted householdsAllows considerable targeting and has advantages of lower cost and short lead times between a sampling request and when the samples are delivered to targeted households On- or In-pack Sampling Uses the package of another product to serve as the sample carrierUses the package of another product to serve as the sample carrier

12. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–12 Sampling Methods and Media High-Traffic Locations Shopping centers, movie theaters, airports, and special events offer valuable forums for sample distributionShopping centers, movie theaters, airports, and special events offer valuable forums for sample distribution In-Store Sampling Providing samples in grocery stores and other retail outlets for trial while consumers are shoppingProviding samples in grocery stores and other retail outlets for trial while consumers are shopping Sampling at Unique Venues Choosing unique locations for sampling products appropriate for people at a certain stage of life, referred to as change-point samplingChoosing unique locations for sampling products appropriate for people at a certain stage of life, referred to as change-point sampling Internet Sampling Distributing samples online through the services of companies that specialize in online sample deliveryDistributing samples online through the services of companies that specialize in online sample delivery

13. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–13 Sampling Charmin via a Fleet of Tractor Trailers Figure 16.1

14. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–14 Major Sampling Practices Targeting rather than mass distributing samples Using innovative distribution methods where appropriate Undertaking efforts to measure sampling’s return on investment Prudent Sampling Practices

15. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–15 Calculating the ROI for a Sampling Investment Table 16.2 Step 1:Determine the total cost of sampling, which includes the cost of the sample goods plus the costs of distribution—mailing, door-to-door distribution, and so on. Assume, for example, that the cost of distributing a trial-sized unit is $0.60 and that 15,000,000 units are distributed; hence, the total cost is $9 million. Step 2:Calculate the profit per unit by determining the average number of annual uses of the product and multiplying this by the per-unit profit. Assume, for example, that on average six units of the sampled product are purchased per year and that the profit per unit is $1. Thus, each user promises the company a profit potential of $6 when they become users of the sampled brand. Step 3:Calculate the number of converters needed for the sampling program to break even. (Converters are individuals who after sampling a brand become users.) Given the cost of the sampling program ($9 million) and the profit potential per user ($6), the number of conversions needed in this case to break even is 1,500,000 (i.e., $9 million divided by $6). This number represents a 10 percent conversion rate just to break even (i.e., 1,500,000 divided by 15,000,000). Step 4:Determine the effectiveness of the sampling. For a sampling to be successful, the conversion rate must exceed the break-even rate with gains in the 10 to 16 percent range. In this case, this would mean a minimum of 1,650,000 people must become users after trying the sampled brand (i.e., 1,500,000 times 1.1) to justify the sampling cost and yield a reasonable profit from the sampling investment.

16. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–16 When Should Sampling Be Used? 1.When the new or improved brand is demonstrably superior or has distinct relative advantages 2.When an innovative product concept is difficult to communicate by advertising alone 3.When promotional budgets can afford to generate consumer trial quickly

17. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–17 Sampling Challenges and Problems Expensive to implementExpensive to implement Mishandling of mailing by distributorsMishandling of mailing by distributors Distribution to the wrong marketDistribution to the wrong market In- or on-package samples fail to capture current non-consumersIn- or on-package samples fail to capture current non-consumers Distribution does not reach sufficient numbers of consumers to justify its expenseDistribution does not reach sufficient numbers of consumers to justify its expense Misuse of samples by customersMisuse of samples by customers Subject to mail pilferageSubject to mail pilferage

18. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–18 Couponing CouponCoupon  A promotional device that rewards consumers for purchasing the coupon-offering brand by providing cents-off savings  Instant coupons  Mail- or media-delivered coupons Couponing BackgroundCouponing Background  Nearly 280 billion coupons are distributed annually in the United States.  Cost to U.S. marketers is about $7 billion a year

19. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–19 Illustration of Cents-Off Coupon Offers Figure 16.2

20. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–20 Coupon Distribution Methods Freestanding Inserts (FSIs)Freestanding Inserts (FSIs) Handouts in storesHandouts in stores Direct MailDirect Mail MagazinesMagazines NewspapersNewspapers In- and On-PackageIn- and On-Package InternetInternet

21. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–21 Full Coupon Cost Table 16.3 1.Face value$1.00 2.Distribution and postage cost0.40 3.Handling charge0.08 4.Consumer fraud (misredemption) cost0.07 5.Internal preparation and processing cost0.02 6.Redemption cost0.02 Total Cost$1.59

22. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–22 Couponing (cont’d) Is Couponing Profitable?Is Couponing Profitable?  Most coupons are redeemed by current brand users  Households most likely to redeem coupons are also the most likely to buy the brand in the first place  Companies have to offer coupons to prevent losing consumers to other brands that do offer coupons

23. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–23 Point-of-Purchase Couponing Instantly Redeemable Coupons Shelf-Delivered Coupons Scanner-Delivered Coupons Point-of-Purchase Coupons

24. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–24 Mail- and Media-Delivered Coupons Mail-Delivered Coupons Have 95% household penetration rateHave 95% household penetration rate Have highest redemption rate of all mass-delivered coupons (3.5%)Have highest redemption rate of all mass-delivered coupons (3.5%) Increase the amount of product purchasesIncrease the amount of product purchases Are relatively expensiveAre relatively expensive Are Inefficient and expensive for brands enjoying a high market shareAre Inefficient and expensive for brands enjoying a high market share FSIs and Other Media-Delivered Coupons 88% of all coupons distributed via Sunday newspaper freestanding inserts88% of all coupons distributed via Sunday newspaper freestanding inserts Provides broad exposureProvides broad exposure Is relatively cheaperIs relatively cheaper Serves both reminder and advertising functionsServes both reminder and advertising functions Redemption rate is very lowRedemption rate is very low Don’t generate much trade interestDon’t generate much trade interest Susceptible to misredemptionSusceptible to misredemption

25. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–25 In- and On-Pack Coupons Are Included either in or on the product’s packageAre Included either in or on the product’s package Cannot be removed at the point of purchase; it’s for next purchaseCannot be removed at the point of purchase; it’s for next purchase May use a coupon to promote one brand by another brand (crossruffing)May use a coupon to promote one brand by another brand (crossruffing) Have bounce-back valueHave bounce-back value Have no distribution costsHave no distribution costs Have higher redemption ratesHave higher redemption rates Offer delayed value to consumersOffer delayed value to consumers Don’t reach nonusers of the carrying brandDon’t reach nonusers of the carrying brand

26. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–26 Online Couponing Are distributed by many Internet sitesAre distributed by many Internet sites Allows consumers print their own coupons, at no additional cost to the advertiserAllows consumers print their own coupons, at no additional cost to the advertiser Has potential for fraud in that criminals can alter their printed couponsHas potential for fraud in that criminals can alter their printed coupons Can be distributed through consumer’s telephone (wireless connection)Can be distributed through consumer’s telephone (wireless connection)

27. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–27 Coupon Redemption and Misredemption Process Figure 16.3

28. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–28 Misredemption Consequences of MisredemptionConsequences of Misredemption  The 3 to 4 percent misredemption rate represents millions of dollars in losses by manufacturers Participants in MisredemptionParticipants in Misredemption  Consumers  Clerks  Store management  Shady clearinghouses  Professional misredeemers

29. © 2010 South-Western, a part of Cengage Learning. All rights reserved.16–29 The Role of Promotion Agencies Specialized Promotion AgenciesSpecialized Promotion Agencies  Work with brand managers to formulate promotion strategies and implement tactical programs. The Rise of the Online Promotion AgencyThe Rise of the Online Promotion Agency  A new generation of promotion agencies emphasize online promotions—coupons, sweepstakes offers, online promotional games, free sample offerings, and online continuity programs