Tag: Financial Institutions and Markets BMS Notes

Sales promotions have traditionally been heavily regulated in many advanced industrial nations, with the notable exception of the United States. For example, the United Kingdom formerly operated under a resale price maintenance regime in which manufacturers could legally dictate the minimum resale price for virtually all goods; this practice was abolished in 1964.

Most European countries also have controls on the scheduling and permissible types of sales promotions, as they are regarded in those countries as bordering upon unfair business practices. Germany is notorious for having the most strict regulations. Famous examples include the car wash that was barred from giving free car washes to regular customers and a baker who could not give a free cloth bag to customers who bought more than 10 rolls.

Advantages of Sales Promotion

Strengthens Customer Involvement and Loyalty: Sales promotion can be the primary mechanism organizations use to interact with their customers and ultimately build a stronger connection (e.g., offer customer rewards).

Helps Create Awareness of New Products: Sales promotion is a highly effective methods for exposing customers and business partners to new products and for moving customers to take an action (e.g., sample a product).

Can Be Quick to Develop: Compared to other types of promotion, some sales promotions can be quickly created and made available within a market (e.g., creation and distribution of email coupon).

Helps Reduce Inventory: Sales promotion can be used to rapidly reduce inventory in situations where product replacement is needed (e.g., products nearing expiration date; clearing inventory to make room for new models).

Used to Support Other Promotions: Sales promotion is often used as a supporting feature of other methods of promotion (e.g., salespeople may give promotional items to give to sales prospects).

Disadvantages of sales promotion

• As the sales promotional activities are short-lived, the results of such activities will also be short-lived. The moment the various inducements offered by the marketer are withdrawn, the demand is bound to fall.
• The number of sales promotional activities to be performed are too many, distribution of free samples and gifts, making such offers as price off and money refund, holding contests, participating in trade fairs and exhibitions, display and demonstration of goods and so on.
• As far as the various types of discounts (cash discount, off-season discount and festival discount etc.) are concerned, there is always a feeling that these are not real and the price would have already been hiked.
• Sales promotion offers such as price cut, discount, free gift etc., may sometimes create an impression that these are being done to sell a poor-quality product.
• Sales promotion is generally required to promote sales of those brands which are not so very popular. Popular brands move fast in the market without much effort. Brand popularity can be secured mainly by means of advertisement and personal selling.
• Another drawback of sales promotion is that there is a tendency on the part of all the competitors to use the same method of sales promotion at the same time. Such an approach may not benefit all. For example, if all the manufacturers of air-conditioners offer off season discount (during winter), the consumer may only decide based on brand popularity.
• The marketer cannot use any sales promotional tool at any time. Certain tools are to be used only in the introduction stage of a product, while others will be used in the growth and maturity stages. Indiscriminate use will not produce the expected results.
• Sales promotion, by itself, cannot produce results. It can only supplement advertising and personal selling which are vital for a business.
• It involves additional expenditure on the part of the business. Apart from the heavy expenditure to be incurred on advertisement and personal selling, the business may have to spend further on sales promotion. This leads to an overall increase in promotional costs.
• Sales promotion is non-recurrent in nature. It cannot, therefore, be used continuously. The marketer has to select the most appropriate tool of sales promotion and the same shall be introduced at the right time.

Sales promotion aimed at consumers is called ‘consumer sales promotion ‘. It aims at stimulating consumers.

• Opportunity: A promotion allows brands the opportunity to communicate on packaging and enables them to focus campaigns around an event. Communication is a skill that creates formidable relationships with consumers that make your brand unique.
• Reputation: A brand is not the only one who can communicate a consumer promotion. Word of mouth is one of the most positive forms of communication, especially if it is coming from a friend or colleague, as they are usually a trusted and reliable source. Give your consumers a reason to be surprised and they will make sure your reputation thrives.
• Differentiation: A brand needs to be different to survive, and a consumer promotion can be a fantastic way to make a brand stand out from the crowd. It holds the potential to add unique value to a customer through a competition or unique experience, creating a reason to choose your product in a crowded market.
• Revenue: Simply put, more sales from your promotion will create higher revenue. However, brands need to always calculate their costs and ensure they are aware of how many people may redeem the promotion and ensure that it is a profitable endeavor.
• Focus: A consumer promotion often becomes an event for the company, which then allows it to focus all its channels of marketing. A focused approach can force a firm to change the way they market themselves and create brand engagement through those changes.
• Information: When customers attempt to redeem promotions, brands can often retrieve data such as email addresses and their home address. This creates the opportunity to target a customer through segmentation; you can then use direct mail or email campaigns to create personalized marketing.
• Incentive: All the points above drive sales and make consumers’ decision-making much simpler. If a brand is offering a similar product but something additional, then the consumer will often want more for their money.

Objectives of Trade Promotion

Support other forms of promotions

If you are running an advertisement and marketing campaign in a particular geography, you need to ensure that your dealer is also carrying ample stock. On the other hand, there are other trade promotions which can run down to the retailer level as well. The company might not reimburse to the distributor only. They can reimburse the retailer as well. And at such times, the distributor needs to support the company in such forms of trade promotions to perform better and bring in more sales.

The company can also support the distributor with co-branding By giving a set percentage of advertisement money to the distributor, provided he also contributes towards the advertisements. Through these means, the brand is expanding its own presence in the market and also ensuring that there is enough pull and push in the market for its products to be liquidated at the ground level.

The above were the 6 objectives of trade promotions adopted by any company. The main thing is – these objectives are achieved if the trade promotions are done in a smart manner and the benefits are actually passed on to the dealer or distributor.

Many times, there are too many channel conflicts when the company commits something and does not deliver. At other times, the company runs so many promotions that the dealers expect promotions each and every time and they do not promote the product when no trade promotions are available.

To push more than competitors

It is not necessary that a channel dealer will deal in only one brand. He can be a multi-brand dealer as well. As a result, your share on his counter might be small. However, if the dealer is carrying more of your stock then the competitor’s, then he will definitely push your brand over that of the competitor.

Thus, one of the objectives of trade promotions is to ensure that the dealer has ample stock and that he is pushing your product above competitors.

Example: If HTC offers 10% discount to the dealer If he does 100 numbers, then the dealer will likely sell more of HTC mobiles rather the selling Samsung. As a result, HTC will have much more sale and counter share than Samsung.

Increase stock holding in market vs company warehouse

Inventory lying in company warehouse is a huge cost to the company. Supposing 1000 refrigerators were lying in a company’s warehouse (they have much more than that). The company is paying interest on the capital invested for these 1000 units. They are paying money for rent of warehouse as well as for the manpower handling the products.

Not only this, the products could have been lying in the warehouse at least 1 month after the manufacturing process. So the interest rate is skyrocketing. At such times, it is one of the objectives of trade promotions to push the product in the market and to end dealers instead of keeping the product in the company warehouse. This ensures greater stock holding in the market and creates more push in the market because of the availability of the product.

Increase display levels

One of the key aspects of products at the consumer level is the level of display you have in the market. Samsung company is notorious for the pressure it puts on its salespeople to ensure that their smartphones are displayed in the market. The competition in the smartphone market is so high, that when a consumer needs a smartphone, he will buy the brand which is immediately available. If the product from one brand is not available, he may buy another brand of the same specs.

Even companies like Apple use trade promotions to ensure that there is ample stock at dealers ends during festivals or during peak buying time. This is because more the display, more will be the sale; which is the crux of retail selling. The same goes for television. There are so many television brands in the market with little or no differentiation, that the customer will rely on the local retail executive and the product which is available rather than holding for some other brand.

Move excess stock forward

Many products are known to be seasonal in nature. However, because it is not the season of the product, there will still be sales pressure on salesmen to move the product in the market. This can be done via Trade promotions. In non-season, most companies offer incentives to their channel dealers or to their sales executive to achieve better sales figures.

The advantage of offering these incentives is that the channel dealer will push the product in the market. If you notice, most air conditioner retailers and dealers give huge discounts during the offseason (rainy season or winter season). This is because the discount is given from the company to the dealers, which is in turn passed on to the customers. Thus, the company achieves more sales by pushing more stock in the market.

It is one of the objectives of trade promotions that the excess inventory lying with the company should be liquidated. Not only seasonal product, any consumer or industrial level product can be pushed in the market when the company has excess inventory. Management of this excess inventory is a cost to the company in terms of warehousing and capital invested. So it is better than the inventory be paid up by dealers and they lie at dealers place rather than lying in company warehouse.

Achieve widespread distribution

One of the first objectives of trade promotions is to increase the distribution level of a company. If Kwality walls want to improve the distribution of its ice cream, it can give 1 ice cream free for every ice cream sold. This means higher margins to the retailer.

Looking at the margins, more and more retailers will tie up with the company. These new tie-ups mean more branding and sales opportunity for the company as well. Thus, by using various trade promotion strategies, a company can achieve widespread distribution.

This is especially important for start-ups which are not recognized but which want to establish themselves in the market. Hence, you will see start-ups using more trade promotions then mature companies.

To attract buyers

To encourage impulse buying and attract first-time buyers, sales promotion is used.

Growth of Super markets

The growth of huge supermarkets necessitated the need for aggressive selling. On-the-shelf promotion is another reason for its growth.

Fun and Excitement

The introduction of a certain amount of fun and excitement into promotions which customers can enjoy as participants.

Creation of Goodwill

Media advertising tends to be impersonal whereas sales promotion is more personal, linking the manufacturer with the customer.

Advertising Has Become More Expensive and Less Effective

All the advertising media have become quite expensive. Audio-visual medium, which is considered as the most effective for short-duration ads, may cost in excess of Rs. 1 lakh for a 10 second exposure during prime time. In many cases, consumers have reached a point of boredom due to excessive advertising on TV. Some consumers even consider advertising as an intrusion into their privacy, leading to zapping (surfing channels). Firms with small budgets cannot compete with big companies, which spend huge sums of money on advertising. For these small budget firms, sales promotion is a more cost-effective promotion method to produce sales results.

Production capacity

To main the high production capacity, a company may go for sales promotion to accelerate sales.

Cost-Effective

High cost of media advertising such as newspapers and TV, is one of the main reasons to find more cost-effective forms of sales promotion.

Accelerates Cashflow

By inducing more sales through sales promotion, inflow, of cash increases; This could be one of the objectives of the firm.

Products have become more standardized

In many product categories, there is a proliferation of brands; many of them are line extensions and me-too brands. Most brands are being perceived by consumers to be more or less similar within a given price range because of the inability of manufacturers to develop truly differentiated products. Under these circumstances, advertising messages are unable to strongly influence the consumers’ perceptions and create brand franchise. As a result of these perceptions of similarity among brands, marketers have no way but to compete on the basis of extra benefit offered through sales promotion. Competing companies struggle to capture market share by using every tool likely to bring sales success.

There are many unbranded jeans sold at shopping malls and places like linking road, bandra which are bought at half the price of actual branded jeans. People who are money conscious buy such jeans. Therefore, Spykar Jeans comes up with such discounts, which helps them in increasing their sales and also in stock clearance,

In Trade oriented deals:

• Sales promotion can obtain feature pricing, displays, and other dealer in-store support
• Sales promotions can help to increase or reduce trade inventories
• Sales promotion can help to expand distribution.

Educating the Customers:

Promotion may be undertaken to educate the customers. For instance, some of the advertising is undertaken to educate the audience regarding the use of the product, handling operations, and so on. Public awareness campaigns also educate the public regarding the negative effects of noise, air and dirt pollution, social evils, and so on.

Expansion of Markets:

Successful ads results in expansion of the markets. A marketer may intend to expand markets from the local level to the regional level, from the regional level to the national level, and from the national level to the international level. For this purpose, the marketer may undertake various techniques of promotion.

Counter Competitors’ Claims:

The marketer may counter the claims made by the major competitors. For instance, competitive advertising is undertaken to counter the claims made by competitors either directly or indirectly. With the help of creative advertising, the marketers can claim the superiority of their brand. The marketer may also undertake aggressive sales promotion to counter the competition in the market.

Brand Image:

An advertiser helps to develop a good image of the brand in the minds of target audience. There are several factors that can be of help to audience. There are several factors, such as the character of the personality that endorses the brand, the content of the advertising message, the nature and type of pack­aging and the type of programmes or events sponsored, that can help to develop brand image in the minds of target audience.

Awareness:

One of the important roles of advertising is to create awareness of the product or services such as brand name and price. The awareness of the product or services can be created through highlighting the unique features of the brand. Nowadays, due to intense competition it is not just enough to create awareness, but top of mind awareness is needed.

Brand Loyalty:

Advertising helps to develop brand loyalty. Brand loyalty results in repeat purchases and favourable recommendations to others by existing customers. Sales promotion, effective personal selling, timely and efficient direct marketing, and other techniques help to develop brand loyalty.

Reminder:

If target customers already have a positive attitude towards a firm’s product or service, then a reminder objective may be necessary. The reminder objective is necessary because the satisfied customers can be targets for competitors’ appeals. Well-established brands need to remind the customers about their presence in the market.

Information:

Advertising helps to inform the target audience about the product. Providing information is closely related to creating awareness of the product. Potential customers must know about a product, such as product features and uses.

Product information is very much required, especially when the product is introduced in the market, or when product modification is undertaken. Proper product information can help the consumers in their purchase decision.

Attitudes:

Promotion is required to build or reinforce attitudes in the minds of target audience. The marketers expect the target audience to develop a favourable attitude towards their brands. Positive attitude towards the brand helps to increase its sales. Through promotional techniques like advertising, the mar­keter can correct negative attitude towards the product, if any. Negative attitude can also be corrected through public relations and advertising.

Persuasion:

When business firms offer similar products, the firm must not only inform the customers about the product’s availability, but also persuade them to buy it. Through persuasive messages, the marketers try to provide reasons regarding the superiority of their products as compared to others available in the market. Persuasion can be undertaken through creative advertising messages, product demonstration at trade fairs, offering free gifts, premium offers and organizing contests.

Sales promotion is the short-term incentives given to consumers to accelerate the sale. Sales promotions are marketing activities that aim to temporarily boost sales of a product or service by adding to the basic value offered, such as “buy one get one free” offers to consumers or “buy twelve cases and get a 10 percent discount” to wholesalers, retailers, or distributors.

It gives them a reason to buy the product by providing attractive offers like discount coupons, contests, premiums, samples, sweepstakes, price packs, low-cost financing deals, and rebates.

Sales promotions are a marketing communication tool for stimulating revenue or providing incentives or extra value to distributers, sales staff, or customers over a short time period. Sales promotion activities include special offers, displays, demonstrations, and other nonrecurring selling efforts that aren’t part of the ordinary routine. As an additional incentive to buy, these tools can be directed at consumers, retailers and other distribution partners, or the manufacturer’s own sales force.

Companies use many different forms of media to communicate about sales promotions, such as printed materials like posters, coupons, direct mail pieces and billboards; radio and television ads; digital media like text messages, email, websites and social media, and so forth.

Companies use sales promotions to increase demand for their products and services, improve product availability among distribution channel partners, and to coordinate selling, advertising, and public relations. A successful sales promotion tries to prompt a target segment to show interest in the product or service, try it, and ideally buy it and become loyal customers.

There are two types of sales promotions: consumer and trade. A consumer sales promotion targets the consumer or end-user buying the product, while a trade promotion focuses on organizational customers that can stimulate immediate sales.

Consumer Sales Promotion Techniques

Most consumers are familiar with common sales promotion techniques including samples, coupons, point-of-purchase displays, premiums, contents, loyalty programs and rebates.

Do you like free samples? Most people do. A sample is a sales promotion in which a small amount of a product that is for sale is given to consumers to try. Samples encourage trial and an increased awareness of the product. You have probably purchased a product that included a small free sample with it for example, a small amount of conditioner packaged with your shampoo. Have you ever gone to a store that provided free samples of different food items? The motivation behind giving away samples is to get people to buy a product. Although sampling is an expensive strategy, it is usually very effective for food products. People try the product, the person providing the sample tells consumers about it, and mentions any special pricing or offers for the product.

Often paired with samples are coupons. Coupons provide an immediate price reduction off an item. The amount of the coupon is later reimbursed to the retailer by the manufacturer. The retailer also gets a handling fee for accepting coupons. When the economy is weak, more consumers collect coupons and look for special bargains such as double coupons and buy-one-get-one-free (BOGO) coupons. While many consumers cut coupons from the inserts in Sunday newspapers, other consumers find coupons for products and stores online. Stores may also provide coupons for customers with a loyalty card.

Consumers can download coupons on many mobile phones. Mobile marketing and the Internet give consumers in international markets access to coupons and other promotions. In India, the majority of coupons used are digital, while paper coupons still have the largest share in the United States. More than 80 percent of diapers are purchased with coupons; imagine how much easier and less wasteful digital coupons scanned from a mobile phone are for both organizations and consumers.

Point-of-purchase displays encourage consumers to buy a product immediately. These displays draw attention to a product by giving it special placement and signage. Coupon machines placed in stores are a type of point-of-purchase display. When a consumer sees a special display or can get a coupon instantly, manufacturers hope the easy availability or the discount will convince them to buy, increasing overall sales in the process.

A variety of different sales promotions are conducted online. Common online consumer sales promotions include incentives such as free items, special pricing for product bundles (buying multiple products together), free shipping, coupons, and sweepstakes. For example, many online merchants such as Bluefly and Zappos offer free shipping and free return shipping to encourage consumers to shop online. Some companies have found that response rates for online sales promotions are better than response rates for traditional sales promotions.

Another very popular sales promotion for consumers is a premium. A premium is a product or offer a consumer receives when they buy another product. Premiums may be offered free or for a small shipping and handling charge with proof of purchase (sales receipt or part of package). Remember wanting your favorite cereal because there was a toy in the box? The toy is an example of a premium. Some premiums are designed to motivate consumers to a buy product multiple time. What many people don’t realize is that when they pay the shipping and handling charges, they may also be paying for the premium.

Contests and sweepstakes are also popular consumer sales promotions. Contests are games of skill offered by a company, that offer consumers the chance to win a prize. Cheerios’ Spoonfuls of Stories contest, for example, invited people to submit an original children’s story and the chance to win money and the opportunity to have their story published.  Sweepstakes are games of chance people enter for the opportunity to win money or prizes. Sweepstakes are often structured as some variation on a random drawing.  The companies and organizations that conduct these activities hope consumers will not only enter their games, but also buy more of their products and ideally share their information for future marketing purposes. As the following video shows, marketers have become increasingly sophisticated in the way they approach this “gaming” aspect of sales promotions.

Loyalty programs are sales promotions designed to get repeat business. Loyalty programs include things such as frequent flier programs, hotel programs, and shopping cards for grocery stores, drugstores, and restaurants. Sometimes point systems are used in conjunction with loyalty programs. After you accumulate so many miles or points, an organization might provide you with a special incentive such as a free flight, free hotel room, or free sandwich. Many loyalty programs, especially hotel and airline programs, have partners to give consumers more ways to accumulate and use miles and points.

Rebates are popular with both consumers and the manufacturers that provide them. When you get a rebate, you are refunded part (or all) of the purchase price of a product after completing a form and sending it to the manufacturer with your proof of purchase. The trick is completing the paperwork on time. Many consumers forget or wait too long to do so and, as a result, don’t get any money back. This is why rebates are also popular with manufacturers. Rebates sound great to consumers until they forget to mail them in.

Advantages and Disadvantages of Sales Promotions

In addition to their primary purpose of boosting sales in the near term, companies can use consumer sales promotions to help them understand price sensitivity. Coupons and rebates provide useful information about how pricing influences consumers’ buying behavior. Sales promotions can also be a valuable–and sometimes sneaky–way to acquire contact information for current and prospective customers. Many of these offers require consumers to provide their names and other information in order to participate. Electronically-scanned coupons can be linked to other purchasing data, to inform organizations about buying habits. All this information can be used for future marketing research, campaigns and outreach.

Consumer sales promotions can generate loyalty and enthusiasm for a brand, product, or service. Frequent flyer programs, for example, motivate travelers to fly on a preferred airline even if the ticket prices are somewhat higher. If sales have slowed, a promotion such as a sweepstakes or contest can spur customer excitement and (re)new interest in the company’s offering. Sales promotions are a good way of energizing and inspiring customer action.

Trade promotions offer distribution channel partners financial incentives that encourage them to support and promote a company’s products. Offering incentives like prime shelf space at a retailer’s store in exchange for discounts on products has the potential to build and enhance business relationships with important distributors or businesses. Improving these relationships can lead to higher sales, stocking of other product lines, preferred business terms and other benefits.

Sales promotions can be a two-edged sword: if a company is continually handing out product samples and coupons, it can risk tarnishing the company’s brand. Offering too many freebies can signal to customers that they are not purchasing a prestigious or “limited” product. Another risk with too-frequent promotions is that savvy customers will hold off purchasing until the next promotion, thus depressing sales.

Often businesses rush to grow quickly by offering sales promotions, only to see these promotions fail to reach their sales goals and target customers. The temporary boost in short term sales may be attributed to highly price-sensitive consumers looking for a deal, rather than the long-term loyal customers a company wants to cultivate. Sales promotions need to be thought through, designed and promoted carefully. They also need to align well with the company’s larger business strategy. Failure to do so can be costly in terms of dollars, profitability and reputation.

If businesses become overly reliant on sales growth through promotions, they can get trapped in short-term marketing thinking and forget to focus on long-term goals. If, after each sales dip, a business offers another sales promotion, it can be damaging to the long-term value of its brand.