1. 12-1

2. McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. 12 Promotions

3. 12-3 Changes in Advertising and Promotion Spending 19811986199119941998 Advertising Consumer Promotion Trade Promotion 43% 23 34 34% 26 40 25% 25 40 26% 25 49 22% 20 58

4. 12-4 Simplified Channel and Promotion Structure Manufacturer 1 Channel A (Retailer A) Trade promotion Retail promotion Customer Manufacturer 2 Channel B (Retailer B) Customer promotion

5. 12-5 Customer Promotion Objectives Objective Objective Typical Programming I. Long-run (relationship building) A. Awareness enhancement B. Image enhancement II. Short-run (transactional) A. Current customers 1. Buy more 2. Be more loyal 3. Buy now B. Occasional customer (deal prone; brand switchers) Capture next purchase C. Noncustomers Trial Sweepstakes, contests, tie-ins Sponsorships Volume discounts/special “value” packages “In pak” coupons, premiums, frequent buyer programs Rebates, coupons Coupons, displays, rebates Trial sizes, sampling

6. 12-6 Trade Promotion Objectives Objective Objective Typical Programming Transactional: increase stocking levels Transactional: increase sales efforts Relationship building Volume allowances Financing terms Discount/price cuts Slotting allowances Advertising allowances Display allowances Premiums Contests Sales force incentives (not all dealers allow this) Free goods

7. 12-7 Factors Affecting the Advertising and Promotion Budget 1.The product is relatively standardized (as opposed to when the product is produced or supplied to order). 2.There are many end users. 3.The typical purchase amount is small. 4.Sales are made through channel intermediaries rather than directly to end users. 5.The product is premium priced. 6.The product has a high contribution margin. 7.The product or service has a small market share.

8. 12-8 Final Customer Promotions 1.Product-Based Promotions A.Additional volume/bonus pack B.Samples 1.Central location 2.Direct (e.g., mail) 3.Attachment (in/on-pack coupons) 4.Media placed (clip-and-save coupons) 2.Price-based Promotions A.Sale Price B.Coupons 1.Central location (e.g., in-store) 2.Direct (mail) 3.Attachment (in/on-pack) 4.In media (e.g., website) C.Refunds/rebates D.Financing terms E.Frequent users 3.Premiums 4.Place-based promotions 5.Games

9. 12-9 Dealing Patterns in Grocery Products

10. 12-10 Trade Promotions I.Product based A. Free goods B. Consignment/returns policy II. Price based A. Buying allowances B. Financial terms III. Place based A. Slotting allowances B. Display allowances C. Warehousing/delivery assistance

11. 12-11 Trade Promotions cont. IV.Advertising and promotion based A. Co-op advertising B. Selling aids C. Co-op selling V.Sales based A. Bonuses and incentives B. Contests and prizes

12. 12-12 Evaluating Sales Promotions: Tracking Studies

13. 12-13 Coupon Impacts Accelerated regular purchases Regular buyers on the brand simply buy sooner Accelerated captured purchases Purchasers who neither would have brought at the time nor bought the promoted brand but are persuaded to do both by the promotion Unaccelerated regular purchases Regular buyers who use the coupon as a “bonus” price cut Unaccelerated captured purchases Purchasers of other brands who switch to the promoted brand because of the promotion

14. 12-14 Impacts of Promotion Temporary retail price reductions substantially increase sales Higher market share brands are less deal elastic The frequency of deals changes the consumer’s reference price The greater the frequency of deals, the lower the height of the deal “spike”

15. 12-15 Impacts of Promotion (cont) Cross-promotional effects are asymmetric, and promoting higher quality brands affects weaker brands Retailers pass through less than 100% of trade deals Display and feature advertising have strong effects on item sales Advertised promotions can result in increased store traffic Promotions affect sales in complementary and competitive categories

16. 12-16 A BehaviorScan Display Experiment

17. 12-17 Impact of Trade Promotions on Shipments and Consumer Sales

18. 12-18 Promotion Industry Spending by Segment

19. 12-19 Consumer Promotional Budget

20. 12-20 Trade Promotion Budget

21. 12-21 Detailed Promotion Schedule