[IBM 327] Sales Promotion

Slides:
Sales Promotion: Introduction and Current Trends

Introduction

Why Such Enormous Growth?

1. Sales promotions produces results – more immediate “bang for buck” than with any of the other marketing activities; big spike in sales in the short term

2. Sales promotion results occur quickly – advertising and public relations viewed as an investment (we may not know when sales occur with the use of both activities); S/P – sales occur in finite period of time – “You have 24 hours..”

3. Sales promotion results are measurable – easy to observe and measure; “most scientific tool in the marketing mix” ; does this make it easier or more difficult for research purposes?


4.Sales promotion is relatively easy and inexpensive to implement - may be less
expensive than other forms of marketing communication such as advertising; may be
much less expensive than producing and airing tv ads to reach same audience especially with rising ad costs
• Are tv ads an efficient way to reach your sales promotion audience? Yes or no and why?


Problems with Sales Promotions

There is a concern that many managers have become to rely too much on sales promotion activities – Why would this be a concern?

1. Many sales promotions are not effective brand- building tools – have little effect on people’s attitudes about the product; unlikely to result in repeat sales in the future – is this true?

2. The overuse of S/P activities may have the potential of resulting in less positive attitudes toward the product – consumers may assume that company is unable to sell it at full price because quality is poor; may  occur in certain product categories – financial and legal services or vitamins (common denominator?)


3. Even though many sales promotion programs result in a much larger volume of product sold, profitability increases may be relatively low – occurs when many of the people who would have purchased the product anyway take advantage of the promotional offer; some times consumers only respond to high value
offers
• What is the savings threshold for a sales promotion? Are there sales promotions you do not take advantage of because it is not worth it to you? Give examples.


4. Sales promotion programs often require substantial implementation costs – uneven demand may result in companies incurring the costs of extra production runs or storage costs; sweepstakes or premiums may require substantial planning and may involve risks and mistakes – General Foods (coupon)

5. Sales promotions tend to orient marketing managers toward the short-term – brand building activities may be neglected that would lead to more profits in long term (promotion vs. charitable event) – Is this a problem?


• Due the factors mentioned, there has been expressed interest in reducing the reliance on sales promotion
activities. Unfortunately, cutting back is likely to produce a less than desirable outcome (decreases in
short term sales)

• A more optimal approach is to be more strategic in conjunction with other types of marketing tools in order
to achieve specific goals that will help the product succeed over the long run

• How is business conducted in other countries with regards to price reductions? Do negotiations happen
at the transaction level? What are the pros and cons to doing business in either fashion?


Redefining Sales Promotion’s Role

• Traditional definition – sales promotion gives consumers a short-term incentive to purchase a
product
• This definition falls short on stating why promotions work nor how they affect the brand from an overall
strategic point of view
• The consumer buying process must be examined
• With impulse purchases being the exception, most people do not make snap decisions about what
products they buy
• Sometimes a sales promotion is the reason for the impulse buy


• There are a variety of consideration stages before purchasing: awareness, information gathering,
pre-purchase evaluation, decision making, purchase and post-purchase evaluation
• Advertising and public relations affect awareness, the information gathering and perhaps the
evaluation stages for new products as consumers decide whether they should make a purchase or
not – both can provide reminders for established products
• Personal selling may also affect information- gathering and the decision-making stages of the
buying process – How?
• What does “closing the deal” mean?


• Most types of sales promotions hit directly at the decision-making and purchasing stages of the
buying process
• Offering a coupon for a product a consumer may sometimes use may not change their overall
opinion about that product; it may cause them to purchase when they ordinarily would not do so
• S/P changes behavior by altering the price/value relationship that the product offers; it happens
through lowering the price or adding something of value to the product

• Altering the price/value relationship means that consumers get a better deal and therefore they
have more of a reason to purchase a product; since there are time limitations on promotions,
there is reason for an immediate purchase rather than to wait
• Sales promotions are viewed by some as a necessary evil – although marketers often wish
they could get rid of their promotions or reduce their importance, a mixture of competitive
pressures, consumer expectations, and desire for short-term profit often causes those managers to
keep investing money in sales promotions

• More strategic definition: sales promotions are marketing and communications activities that
change the price/value relationship of a product or service perceived by the target, thereby (1)
generating immediate sales and (2) altering long-term brand value

• This definition recognizes that consumers purchase immediately by lowering the price
(coupons) or by adding value (sweepstakes, contests and loyalty programs)

• The definition takes into consideration the concept of a target audience implying
that promotions should be aimed at a specific group of consumers rather than the
population at large
• Why should a target audience be the focus of a sales promotion?


• Worthwhile segments? Students, elderly…...
• What about Ladies Night?
• It recognizes the role of sales promotion in the area of perceived value (not just a simple
matter of attributes and actual price)
• Most significantly, the new definition addresses the effect sales promotion has on the long term brand value or brand franchise


• Brand franchise determines how likely consumers are to buy a particular product rather than one
of its competitors’ products, all else (price and distribution) being equal – the degree of loyalty
• Stronger brand franchise means customers are less likely to be affected by competitive
promotional activities; retailers are more likely and willing to carry a product and possibly to
accept a lower margin on it because of the demand for the product
• Why would retailers be willing to accept a lower margin on products? What types of products?


• There may be a long term effect on the brand franchise after the sales promotion is over; it may
be positive or negative
• Long term effects can be viewed as negative (too much promotion detracts from long term value
of brand) – soft drinks for instance (frequent discounting has made the “real” price of the product unclear and has taught consumers and retailers to buy on deal)
• Are there places where you would opt not to buy soft drinks? Why?
• Fast food restaurant, movies, grocery store, vending machine, convenience store, etc.


• However, depending on the particular situation and goals, sales promotion may also have a positive long-term effect on the brand and on the residual market value – depends on individual situation, the particular
promotion used and type of customer targeted
• A sample or loyalty program can enhance the brand in the eyes of consumers


Would you offer sales promotions?
• Long term effect – Identify 2 brands on your own and reveal if the effect is positive or negative (or both)
when using S/P techniques below? You decide on the brand and type of product category.
• Coupons (online, offline and instant)
• Loyalty programs
• Refunds/Rebates
• Sweepstakes and Contests
• Through-the-mail premiums
• Sampling programs
• Cause-Related Promotions
• Price Discounts

Planning Sales Promotion Programs
• Sales promotion needs to be evaluated in the context of how it fits into the overall strategy for a particular brand.
• How can a company integrate the decision to offer an online coupon such as a Groupon into its overall strategy?

Who are the Customers we want to Reach?

•Not all customers are alike so consumers should be segmented into groups -companies are able to develop products, packaging, advertising, public relations, or other kinds of activities based on personal characteristics
-The company should target message to those groups
-It makes sense to segment people based on behavior (whether or not they buy the brand or another product in the category, some or all of the time)
-Who wants to reach college students? What types of behaviors do they display?


What are the Reasons for that Behavior?

Just because 2 people act the same way doesn’t necessarily mean that their reasons
for doing so are the same
-Why did you enroll at Cal Poly?
-Why does Costco offer food samples everyday around lunch time and beyond?
-It is important to analyze why consumers behave the way they do; it is the only way to find out how much they can be influenced by a particular sales promotion program


What is the Goal of the Program?
• Different S/P programs are used for different reasons to achieve vastly different ends
• Some promotions are designed to achieve consumer trial – which ones?
• Some may be used to match or preempt competitive activities to keep their loyal customers – which ones?
• Some may be used to induce short sales spikes

Segmenting based on Buyer Behavior
• Brand loyal (generally using one brand) vs. Switchers (alternating between two or more brands)
• Loyal customers may stockpile for future use some or all of the time
• They may be classified as not deal prone – “I am willing to pay full price for it!!!!!” – Under what conditions?
• Switchers may be classified as not deal prone (different needs for different products – some switchers like
variety) or they may let promotions affect their product choices which can result in stockpiling
• Product categories play a huge role as well as space at home (interest in variety or in meeting different needs with different products)


• This model (brand loyal vs. switchers) can help promotion managers to better understand their customers
• Too simplistic to assume that all consumers are or are not deal prone
• Almost all customers are sometimes influenced by some kind of sales promotion
• Consumers will be categorized by their buying behaviors in the category being examined and by what appears to be causing those behaviors

Categories based on Purchase Behavior
Loyal Users of a Brand
Competitive Loyals
Switchers
Price Buyers
Nonusers


• Loyal Users
– Reinforcing Existing Behavior
– Increased Usage
– Cross-Selling

• Competitive Loyals
– Intense Loyals
– Value Buyers
– Habit-Bound Buyers


• Switchers
– Availability
– Value
– Occasion Usage
– Variety

• Price Buyers
• Nonusers
– Price
– Value
– Lack of Need


Loyal Users
• People who buy a particular brand on a more or less consistent basis (someone who usually, but
not necessarily always, buys a particular brand)
• Has become a relative term since fewer consumers are sticking to just one brand – Why is
this happening?
• When addressing this group, the goal is not to change but reinforce this behavior thereby preventing defection and/or increasing customers’ consumption of a brand


Loyal Users – Reinforcing Existing
Behavior
• In very few cases are customers unconditionally loyal (it can be situational)
• Reasons why they are – believe they are buying the best brand, the brand is a good deal, or out of
habit or inertia
• Loyal consumers can be sometimes won over by the competition with a change in price, successful
communication of product value, or the simple breaking of consumer habit
• Companies need to use sales promotions to hold on to their loyal customers


Loyal Users – Increased Usage
• To increase usage among current customers is a good way to improve overall sales
• Can be done by getting customer to purchase when they would not ordinarily do so or to purchase
more of the product than usual with the hope that more would be consumed – (1) gift card to favorite
restaurant or (2) bag of oranges
• Sometimes changes in purchase timing may occur among brand loyals when taking advantage of a
deal – results in stockpiling

• What does McDonalds do to get their customers to buy more?
• Changing purchase timing may be appropriate for a company depending on inventory and manufacturing constraints, the competitive situation, and the financial goals of the brand and company
• How might changing purchase timing negatively affect a company?
• Groupon situation


Loyal Users – Cross Selling
• Another way to capitalize on brand loyals is to attempt to sell related products
• These kinds of cross-selling activities may be encouraged by certain types of sales promotion
programs
• Bundling
• Car dealerships sell cars and………..
• Airline websites sell flights and………
• Laptops are sold along with…………
• Cell phones are sold along with…..


Competitive Loyals
• People who use the product category and who usually buy a competitor’s brand
• There are three kinds: Intense loyals, Value buyers and Habit-bound buyers


Competitive Loyals – Intense loyals
• Consumers may believe that a brand is the best on the market even if it is more
expensive than the others – Whole Foods
• Consumers continue to purchase even though a competitive brand may be less expensive –
Food 4 Less
• What are other reasons why consumers may be loyal to a grocery store other than price?


Competitive Loyals – Value Buyers
• Loyalty is derived from providing the most utility for the cost, even if it is not the best one on the
market
• Private brands (may be just as good as manufacturer’s brand in eyes of consumer, studies show)
• Loyalty can be based on relatively good quality and affordability – Mercedes may be preferred
option if the money was available; Toyota may be acceptable alternative


Habit-bound Buyers
• Consumers may purchase based on habit
• Usually applies to low involvement products or for those consumers who are time-pressed (streamlines
the buying process)
• A simplified decision making model created that eliminates the need for thinking
• What can motivate people to break habits and change brands? Gas station or type of cellphone for instance?
• One question here is how consumers originally went about choosing the brand that they now use out of
what appears to be habit
• It can happen by chance or it can be deliberate (for instance - WOM)


Switchers
• People who purchase a variety of brands within a product category
• May include brand in switching (evoked set) or not
• Those who switch among competitive brands are like competitive loyals in the way they must be
addressed (Pizza Hut wondering why consumers always choose between Papa John’s or Dominoes
for instance)
• Switchers have become a larger part of the population
• Addressing switchers has become an increasingly important aspect of sales promotions -Why?

Switchers - Availability
• Can occur because the favorite brand is not available at retail level and consumers are not willing to look elsewhere – “I will try the private brand then.”
• Even consumers who are intensely brand loyal may become switchers on certain occasions
• How likely are you to stop at your favorite place to eat on a road trip?
• Obviously availability is a distribution problem


Switchers - Value
• Price/value relationship may be used among “acceptable” brands on a shopping trip which leads to the purchase of the best buy
• Prices may vary from day to day or from store to store
• Under what conditions would consumers patronize both Walmart and Target on the same shopping trip? Any cons to doing this?
• Consumers may buy different brands to fulfill the same need
• Even with a brand preference, a competitive option may be chosen if the price is right – Cottonelle over Kleenex for 50 cents less for example


Switchers – Occasion Usage
• Consumers buy different brands within a certain category to fulfill different needs or to be
consumed on different usage occasions
• Do you always go to the matinee or do you go to the movies at night? Do you go to dinner also?
• If consumers consistently use the same brand in spite of the occasion then they are basically brand
loyal (the dynamics appear to be similar)
• “I always eat breakfast at Dennys but it is up in the air as far as dinner is concerned.”


Switchers - Variety
• In some categories and with some consumers, variety is preferred for its own sake –
breakfast cereal, perfume or cologne for instance
• Boredom can be a problem


Price Buyers
• Buying solely on the basis of price
• Purchase of the same brand if it is always the least expensive or if there is a change of price, change of brand occurs – generics or private brands
• Price buyers have little disposable income, can’t afford the expensive brands or see little difference between brands
• Are all table salt the same? Gas?


Price Buyers
• Most advertising and other image-building techniques are designed to alter consumer perceptions thereby removing the commodity image and increasing price that consumers are willing to pay for certain brands
• For most categories, price buyers tend to be a minor but growing percentage of the population in the US
• Price buyers in a category are often heavy users of that category but since they buy so much, it may account for their sensitivity to price

Nonusers
• Consumers who don’t currently use any product in a particular category
• Due to price, value or lack of need
Price – consumers may not be able to afford the product
Value – consumers may believe a certain type of product is overpriced
Lack of need – product will not improve their lives or there is absolutely no need for the product


Summary
• Consumers may behave in different ways for widely divergent reasons
• Identifying these segments can be helpful in a company choosing the right sales promotion
program
• None of these classifications should be considered absolute
• Consumers move in and out of classifications
• General tendencies of the population as a whole should be emphasized and not the individual


• If companies know the dynamics of consumer buying behavior in a particular category at a specific point in time, they can choose the best promotional program to help them achieve their goals


Changes in Behavior
• In terms of consumer characteristics, consumers who are more affluent, educated, and older are more likely to participate in consumer promotions
• Promotions could persuade the majority of consumers to switch in which categories

Pet food
Alcoholic beverages
Shampoo
Automobiles
Motor oil
Personal appliances
Coffee
Batteries
Toothpaste
Floor coverings


Changes in Behavior
Survey Results:
Pet food – No
Alcoholic beverages – No
Shampoo – Yes
Automobiles – No
Motor oil – No
Personal appliances - Yes
Coffee – Yes
Batteries – Yes
Toothpaste – Yes
Floor coverings - No