Ethics, Regulation, and Assessment
The American Marketing Association (AMA) defines sales promotion as “media and non media marketing pressure applied for a predetermined, limited period of time in order to stimulate trial, increase consumer demand, or improve product quality” (AMA, 2013, p.1).
However, according to Manuere, Gwangwa, & Gutu (2012), an addition needs to be made to the definition,
- “One should add that effective sales promotion increases the basic value of a product for a limited time and directly stimulates consumer purchasing, selling effectiveness, or the effort of the sales force” (p. 1157).
A promotion can be an incentive from manufactures or retailers to encourage trade (wholesalers or retailers) or consumers to buy the product or service.
- They can include coupons, rebates, contests, displays, samples, and others.
Sales promotions can accomplish many objectives including introducing a new brand, introducing a repositioned brand, attracting new buyers, and increasing repeat purchases from current customers.
- Sales promotions offer the opportunity of free trials, cents off coupons, and other chances for the consumer to try the product.
- Marketing and advertising work to create brand awareness while promotions are created to have the consumer buy now, buy more frequently, and buy over the competition.
Both manufacturers and providers of services and the consumer benefit from sales promotions.
Obviously, companies gain sales by customers purchasing the product for the first time or as a repeat customer.
- The promotion might reward consumers for multiple purchases and encourage brand loyalty.
- Promotions can also help the firm liquidate excess inventory, increase motivation for purchase of a product that is a luxury item when economic conditions lower discretionary incomes, and boost brand awareness when faced with increased competition.
- The consumers are rewarded by receiving a free sample or item, money off the purchase price, or even a larger prize as part of a sweepstakes.
- Let’s not forget about the sense of satisfaction of using a coupon or redeeming a rebate!
We will look at two of the most common sales promotions: samples and coupons.
Sampling is another sales promotion that delivers the product to the consumer (either a trial size or full version) usually at no cost to the consumer.
- The samples are delivered through a variety of channels including direct mail, attached to newspapers and magazines (often shampoo), at the actual retail location or another location, attached to another package, or even on door hangers.
- Often when walking through the grocery stores (especially warehouse stores), consumers are bombarded with free samples of food.
- Sampling does not fit every marketing budget as it is expensive.
There are three general instances when marketing managers should use sampling.
- First, when it is difficult to communicate the products benefits through advertising. In this case, the samples speak for themselves.
- Second, when the product has superior and/or distinct advantages over the competition–remember sampling is expensive so it needs to be justified.
- Finally, when the promotion needs to generate quick action for purchase, sampling is used. When combined with couponing, sampling has an even greater punch.
Couponing has even hit such extremes where people are rummaging through dumpsters to find coupons that have been discarded, while others simply wait for the Sunday paper to arrive.
- For some, it is a competition to reduce the grocery bill to the point of paying $3 for $300 worth of food!
- While I have not managed to accomplish that task, I do use coupons and feel a sense of satisfaction when I can reduce the final expenditure by $20!
- Coupons are rewards for purchasing the product by giving the customer money off the price.
As mentioned previously, probably the most popular place to find coupons is the Sunday paper.
However, they are also distributed through channels such as direct-mailings, in packages or on boxes, at the store, and online.
- One important consideration to remember is the cost of the coupon.
Depending on the delivery method, it could be close to the “face value” (the value on the coupon) or much higher.
- If you are a small business, the cost might simply be the “cents off” and the cost of printing and distribution.
- If you are a major manufacturer, you have those same costs as well as various handling fees such as to the retailer for the inconvenience of taking the coupon.
While sales promotions seem like a fantastic way to increase sales and brand awareness, there are some potential effects.
- First, they are expensive and can eat up much of the advertising/marketing budget.
- Second, sales will often lag after a promotion when the consumers who bought the product for only the promotion move on.
- Third, at times excessive use of promotions can hurt the brand image by affecting the perception of the product’s value.
Trade Promotion and Marketing Communications
As mentioned in the previous lecture, the American Marketing Association (AMA) definessales promotion as
- “media and non media marketing pressure applied for a predetermined, limited period of time in order to stimulate trial, increase consumer demand, or improve product quality” (AMA, 2013, p.1).
There are two types of promotions: sales promotions to consumers (discussed previously) and tradepromotions. This lecture will focus on trade promotions.
Trade promotions are marketing activities such as rebates, allowances, free gifts and other incentives directed at the retailers rather than the consumers.
- Trade promotions represent a large portion of the advertising dollars spent (could be more than 50%) and companies use these to ensure that their product is seen on the shelves of the retailers.
- The producers of the product use trade promotions for a couple of reasons: to convince the retailer to carry the brand, carry more stock of the brand, promote the brand (displays, sales, shelf-space), and push or recommend the product.
The major types of trade promotions include off-invoice allowances, bill-back allowances, and free goods.
- Off-invoice allowances are simply discounts or price reductions to the retailer on the brand during certain time frames. The hope is that the retailer will order (and sell!) more of the product or try a new brand during this special period.
- For example, a manufacturer might offer the retailer 10% off for every case of product purchased during the month of June.
- The retailer can then use the discount to offer a sale price to the consumer, increase profit, or help pay for advertising.
- Bill-back allowances provide the retailer with the opportunity to invoice the manufacturer (bill back) for performing special services such as creating a special display or including the product in advertising.
- Manufacturers might offer free goods to retailers that buy a certain quantity of a product or highlight the product in the store. Another option is to give the retailer items for use in the store or as giveaways such as t-shirts, pens, mouse pads, or calendars.
Keep in mind that it costs retailers money to stock a new brand. They must include the product in its distribution center, ship the product to the stores, enter the barcode into the system for its SKU (stock-keeping unit). Because of this, retailers do not offer their shelf-space for free.
Slotting allowances are the fees that manufactures pay to retailers for the slot, or location, on the shelf.
- According to the Federal Trade Commission, “Slotting allowances are one-time payments a supplier makes to a retailer as a condition for the initial placement of the supplierâ€™s product on the retailerâ€™s store shelves or for initial access to the retailerâ€™s warehouse space” (2003, p.5).
- This is the one area that the manufacturer is not necessarily providing an incentive, but rather paying a required fee.
- Slotting allowances or fees are not an industry standard. Rather, they are used if the product is a risk for the retailer to carry.
- This could be because it is a high-priced item or a new product from a smaller, not well-known manufacturer.
- Slotting fees could also be charged if the manufacturer requests preferred positioning in the store such as a special display or the much sought-after shelves on the ends of the aisles or near the register.
Finally, we will look at the challenges of trade promotions.
- First, often the manufacturers have to trust the retailers that they are providing the service promised such as the “sale price” of the item, specific positioning in the store, or including the product in displays and advertising.
- Second, when the manufacturer offers off-invoice pricing, the retailers could stock up on the product and not use it all during the promotional period.
- This is called forward buying or bridge buying because if the retailer purchases enough product, it can bridge the gap between sales promotions and not pay full price for the items.
- The final challenge is when retailers engage in diverting.
- This happens when the manufacturer restricts a promotion to a certain group or stores or geographic region. The retailer will order additional goods at the promotion price in the area where the deal is being offered and then ship those goods to other stores that are not being targeted.
Review the readings and lectures for this week.
Create the Public Relations and Promotions portion of the Marketing Communications Plan using the business and information presented in the Case Study. Meet the following requirements:
- In 200-300 words, explain the Public Relations plan for the organization.
- Create two sales promotions for the restaurant. Identify the challenge and solution for each promotion. Include budgetary considerations.
- Using feedback, update and make changes to the previous section of the plan.
- Please adhere to the Publication Manual of the American Psychological Association, (6th ed., 2nd printing) when writing and submitting assignments and papers.