Current Issues in Sales Promotion

9 September 2016

There are several reasons explaining this phenomena: Increased brand parity and price sensitivity of consumer – with more brand choices available to the consumer and with the fact that product differences are becoming less and less apparent, consumers are becoming more and more reliant to the price and price incentives. This goes hand in hand with another reason of increasing sales promotions budget – decreased brand loyalty. Consumers are getting used to the fact that almost always at least one brand category is on sale or on a sales promotional offer.

Another reason is coming from the routs of corporate culture and the reward and promotion strategy within corporations – in the conditions of severe competition there is increasing pressure on brand managers to show fast results in terms of increased sales and nothing is as effective in short run as sales promotions to achieve this goal. Another explanation has to do with the consumer responsiveness to money saving options – for example the results of NCH Consumer Survey indicate that on average 80. 5 percent of consumers in US used coupons over the period of 1996-1999. Shimp 1993). One more reason for increasing sales promotion importance is that many product categories on the market are in the mature stage and according to the product life cycle theory, sales promotions are extremely effective in maturity stage of the product helping to boost sales. (Blattberg, Neslin 1990). Finally the reason that is very relevant to highly competitive markets, where companies find themselves constantly fighting for the smallest piece of market share – “prisoner’s dilemma” spiral – which is very similar to a price war situation.

Current Issues in Sales Promotion Essay Example

Manufacturers are locked into defensive reactive escalation of sale promotional expenditures. If one company cuts its sales promotions, it will suffer short-term loss, chances are that competitors will take advantage of that, if the company increases its sales promotional expenditures short term increase of sales might be very small because competitor reacts. (Blattberg, Neslin 1990) Because of highly practical importance of sales promotion the number of publications in trade press on sales promotion has increased dramatically over the past decade. However the same is not true for academic press.

Though there is a certain increase of articles on the topic in the academic journals, there still are a lot of potential areas for research that didn’t receive enough attention. The purpose of this paper is to reveal what is really known and proven about sales promotions, to systematize knowledge already available, discuss different models available in literature and to identify possible directions of future research. Please note that this paper is not intended to discuss the issues relevant to each particular element of sales promotion, rather it is focused on the general issues and characteristics shared by all (or most) of the components.

Uncertain Definitions of Sales Promotions Systematization of knowledge on sales promotion I believe should start from systematizing the definitions of concept. There is lack of conformity in methodology and hence in the definition of what can be considered sales promotion. (Kotler 1983, Levy 1971, Shimp 1993). The word “promotion” comes from a Latin word meaning “to move forward”. So, in this case any tool(s), method(s), technique (s) that stimulates the growth of the sales can be considered a part of sales promotion. However this is not that simple.

There are number of different definitions focusing on various characteristics of sales promotion. This diversification as it will be shown later plays very important role in identifying objectives and models for promotions. 1. “Sales promotion consists of a diverse collection of incentive tools, mostly short-term designed to stimulate quicker and/or greater purchase of a particular product by consumers or the trade. ” (Kotler, 1988) 2. “Sales promotion is the direct inducement or incentive to the sales force, the distributor or the consumer with the primary objective of creating and immediate sale” (Shultz, Robinson 1982) 3. Sales promotion is the methods or techniques for creating public acceptance of or interest in a product, usually in addition to standard merchandising techniques, such as advertising, and personal selling; generally consisting of the offer of free samples, gifts made to purchaser etc. (Random House Unabridged Dictionary 1983) 4. “Sales promotion represents those marketing efforts that are supplementary in nature, are conducted for a limited period of time and seek to induce buying ” (Davis, 1981) b.

Sales promotions are all marketing activities that attempt to stimulate to quick buyer action or attempt to promote immediate sales of product” (Shimp, 1993) All those definitions are stressing different aspects of sales promotions and all of them are correct ones. There are several common characteristics that might be drown out of these definitions. (Blattberg, Neslin 1990) A) Sales promotions are action focused – the emphasis is on consumer to make some action in a limited period of time. B) Sales promotions are marketing events – they all happen within marketing strategy of the company/ organization.

As early as in 1967 researchers were concerned that interaction of the promotions with other elements of marketing mix should not be ignored (Engel 1967). Because promotions include so many difference tools and mechanisms there is an ongoing threat of viewing sales promotional techniques in isolation from other marketing mix elements. C) Sales promotions are designed to have a direct impact on behavior. It is argued in the literature that while advertising goes through the process of cognition and then influences an action, promotion is believed to work directly on behavior.

Also, sales promotion gives extrinsic reason to buy a product, whereas advertising focuses to internal qualities or brand equity of the product. A common assumption is that advertising, word-of-mouthor the salesperson has infromed the consumer about the product, while sales promotion gives them additional reasons to buy. Taking into account the points discussed above the summarized definition of sales promotion can be presented as follows: “Sales promotion is an action-focused marketing event whose purpose is to have a direct impact on the behavior of the firm’s customers”. Blattberg, Neslin 1990). One of the aspects that is not reflected in this operational definition is the short-term effect of promotion, this issue is still under discussion and will be addressed later in the paper. Forms and Objectives of sales promotion There are many sales promotional techniques (and the number is still growing with the development of new ways to reach consumers), but they can apparently be reduced to 12 classical and widely used. The rest of the techniques usually include some kind of combination of these 12 most used techniques of sales promotion. . Sampling – the use of various distribution methods to deliver actual or trail size products to consumers with the purpose to initiate trial. 2. Coupons – A promotional device that provides a price-off to consumer upon redeeming the coupon 3. Trade incentives – incentives that are given to retail managers and sales people for performing tasks such as displaying merchandise or selling certain lines of merchandise. 4. Trade allowances – deals that are offered to retailers for performing activities in support of manufacturer brand 5.

Price-offs – promotion which entails a reduction in the brand’s regular price. 6. In, on, and near-packs (and reusable containers) – specially designed pieces that retailers give to consumers who purchase the promoted product. 7. Free-in the mail premiums – a promotion in which consumers receive premium item from the sponsoring manufacturer in return for submitting a required number of proofs of purchase. 8. Self-liquidating premiums – a method where the consumer mails in a stipulated number of proofs of a purchase along with the fee to cover manufacturer’s costs of shipping and handling of premium item.

From manufacturer’s point of view this form of promotion is cost free, and therefore the name is self-litigating. 9. Contests and sweepstakes – a form of consumer oriented promotion in which winners receive prizes, cash, or merchandise. 10. Refund offers – A cash reimbursement to the consumer by the manufacturer whose product the consumer has purchased. 11. Bonus packs – Extra-quantities of a product that company gives to consumers at a regular price. 12. Stamp plans and continuity premiums – type of promotion where the consumer is getting rewarded for continuos use or repetitive purchase of a product/service, f. x frequent flyer programs. These techniques can be trade or consumer oriented. Because sales promotional tools are so varied in form, no single unified objective can be identified for them. There are three major contributions of sales promotions that have practical influence of the objectives of promotion: (Kotler 1988) 1. Communication – promotions gain attention and usually provide information that may lead the consumer to the product 2. Incentive – they incorporate some concession, inducement or contribution designed to represent value to the receiver 3.

Invitation – promotions include a distinct invitation to engage in the transaction now. Within these three major goals that sales promotion help to accomplish, specific objectives might be reach of new users, reinforcement loyalty of old users, increase product usage, introduction of new product, increase distribution channels, Obtain trade support and improve or built trade relationship. For quick reference please see Table 1. Table 1: Source: Shimp T, ” Promotional Management and Marketing Communications” [pic]

As it is mentioned in the beginning of the paper, the primary objective is to identify common traits of sales promotional techniques and not each of its elements separately. So, I’ll proceed talking about the objectives of sales promotions and what sales promotion can do for the company and what it can’t do. What sales promotion can do? Myth vs. Reality This part of the paper organized as following – each point is presented and then analyzed in respect of the research done in that area.

Most of the points are very logical assumptions that anyone in the marketing and advertising believes in, however I couldn’t trace the research done to justify some of those points, that is the reason that several of the issues are just mentioned without overview of the research findings in the area. These are potential white spots of sales promotion and would the research be conducted some of the very interesting findings may come out. Some of this points have been proven practically by the industry, but that kind of research was beyond the scope of academic literature review.

Consumer oriented deals 1. Sales promotion can obtain trial of the product. “Innovate or Die” nowadays may be the slogan for many companies, especially in food and health industry. This view is reflected in the number of new products introduced yearly; New Product News reports that in 1990s, there were 13,244 introductions with 10,301 introductions coming from food categories. In 1999, the comparable figure for the food category was 9,814, with the highest introductions in condiments, candy, bakery foods, dairy products, and beverages.

The evidence is clear: retailers are confronted yearly with large numbers of introductions in a wide variety of categories. (Desiraju 2001) Obviously in these conditions one of the best ways to get your product noticeable to consumer and to make them switch from other brands is sales promotions techniques. 2. Sales promotion can encourage repeat usage of the product or increase product usage by loading consumers. The first part of this argument is supported by Neslin, Quelich, Henderson 1982 – the results of their research show that acceleration of purchase quantity is stronger among heavy users that light users. . Invigorate the use of mature product 4. Sales promotion can affect purchase acceleration – Here two aspects of purchase acceleration should be considered – increased quantity and decreased interpurchase time. (Neslin, Quelich, Henderson 1982). However there is a very important question – how these two aspects will influence (counteract) each other due to the stockpiling effect. As it was shown in the above mentioned research (see also Gupta 1988), purchase acceleration is predominantly exhibited in increased purchase quantities rather than shortened interpurchase times. 5.

Sales promotion can introduce a new or improved product or different packaging 6. Sales promotion can be used to neutralized competitive advertising or sales promotion 7. In general sales promotions can built on brand sales more rapidly than advertising. At was discussed earlier in this paper sales promotion tend to produce sharp and fast increase in sales of the brand. This however was opposed by the issue of short term and long term impact of the promotion, discussed later on in the paper. In addition to that one issue that is worth discussing here is cost /sales ratio for advertising and promotion.

Empirical study has shown that variation in the firm level ratio of advertising and promotion is the function of market share, market growth rate and the interaction between the two. And though replication of the study did not confirm the results of the original research, this is still considered as one of the possible explanations of the variations of the levels of advertising and promotional expenditures for different companies. (Balasubramanian, Kumar 1990, Ailawadi, Farris, Parry 1997; Balasubramanian, Kumar 1997) Trade oriented Deals . Sales promotion can obtain feature pricing, displays, and other dealer in-store support 10. Sales promotions can help to increase or reduce trade inventories 11. Sales promotion can help to expand distribution. What sales promotions can’t do Consumer oriented deals 1. Sales promotion cannot built brand loyalty or enhance brand image. While the first part of the statement is now perceived as axiom, there are disputes over the fact whether sales promotions have negative effect on brand equity and brand evaluation.

The classic research done by Dobson, Tybout and Sternal (1978)argued that use of promotion decrease the brand evaluation. This was supported by self-perception theory – psychological model of response to sales promotion suggested by Sawyer and Dickson (1984). However the further research on this issue (Neslin and Showmaker 1989; Scott Davis, J. Inman, L. McAllister 1992) shows the absence of the negative effect on the brand evaluations. It is actually suggested that with low involvement product category promotions might actually have positive influence on brand evaluation Scott Davis, J.

Inman, L. McAllister 1992). 2. Sales promotion can not reverse a declining sales trend According to research done probability of repurchase after purchasing on deal will vary according to the type of sales promotion and the cues that these promotion sent. (Sawyer and Dickson 1984) 3. Sales promotion can not change basic consumer non-acceptance of the product 4. Sales promotion can not compensate for inadequate levels of consumer advertising 5. Sales promotion cannot overcome product problems in pricing, packaging, quality or performance. Trade 1.

Sales promotion cannot compensate for a poorly trained sales force 2. Sales promotion cannot overcome poor product distribution 3. Sales promotion cannot compensate for a lack of consumer advertising http://www. ciadvertising. org/student_account/fall_01/adv392/anuta/promo/effectiveness. htm Effectiveness and success factors of sales promotion Sales promotions are most effective 1. On new brands enjoying and improving competitive trend 2. In conjunction with a sales drive to increase store distribution 3. When used only occasionally 4. In addition to – rather than a replacement of brand advertising.

These four conditions were taken from J. O. Peckham’s list from “Wheel of Marketing” published in 1977. (Shuhltz 1982). The real challenge is now to see whether these conditions have changed resulting in sales promotions being effective in other situations and not effective in those described above over time. No research was found not confirm these conditions. Research (based on empirical study of most successful sales promotional campaigns) indicates that several variables are playing a very important role in determining the effectiveness of sales promotion.

One of the main correlate of successful promotions is greater sales force support and trade support (Hardy 1986). Other factors that are considered somewhat less important relative to sales force and trade support is incentive level that that particular promotion gives (Hardy 1986). How to evaluate effectiveness One of the approaches to evaluate sales promotions recently discussed in the literature recently is based on the fact that sales promotion is merely an alternative element of a company’s communication package, so the extrapolation of the concepts of communication into the sales promotion phere is very appropriate. As with advertising and other forms of media, promotions speak directly to the consumer and the major function then becomes the one of communication. (See objectives of sales promotions). Determining the effectiveness of a particular promotion can be a matter of how well the plan communicates with the intended consumer. In other words, companies can gain a better understanding of their customers and the effectiveness of their promotional plans by understanding the communication elements triggered by their plan. Gardener, Trivedi 1998) Models / Measurements of Sales Promotions As I mentioned in the beginning of my paper the effects of sales promotion are more measurable than for example effects of advertising, especially nowadays with all the scanned data available through retailers. The possibility of measuring to predict sales promotion was first mentioned by Lee Adler in as early as 1963. He presents one of the first methods/models of measuring effectiveness of sales promotion, where he correlates the objectives of each form of sales promotion with the specific method of measurement. Lee Adler, 1963). However, surprisingly enough quantitative analysis of sales promotion activities have not led to the same level of sophistications that found in advertising decision making models. The reason for that might be that for a long time sales promotion was perceived as playing secondary role to advertising and personal selling; some early definitions of sales promotion presented in the beginning of this paper clearly indicate that. In spite of this there are several classical models of sales promotion that were developed decade or two ago but are still used analyzing sales promotions.

The Kuehn-Rohlov model This is the learning brand-switching model that are designed to evaluate promotions in several ways – first they show who is attracted by the promotions, and then separate the ones that have higher pre-purchase probability. The authors also demonstrate how to use the model to study the relationship among deal type, brand, and product-to-product repurchases for both new buyers and for existing customers. Rao-Linnen Model This model was developed on the base of the franchise-retail environment, and hough it is still not clear whether the model can be used outside franchise-retailing environment it has number of crucial characteristics. One of the most important characteristics of this model is that is able to deal with multiple simultaneous promotions and shows how joint effects of multiple simultaneous promotions can be handled. It is the first model that deals with the joint competitive effects and the joint effects of several promotions simultaneously. Little’s Brandaid Promotional Model

This is part of the Brandaid aggregate marketing model developed by Little. He actually looks at two contracts – promotional time and promotional response function. The idea behind the model is that when consumers know that there is a promotion coming they might postpone the buying of the product. One of the aspects that receives increasing attention in the promotional modeling in promotional expenditures. How much to spend on sales promotion relative to advertising was the topic of several researches done for the last 20 years.

Other important considerations in sales promotion One of the areas of sales promotion that are still under discussion and that deserve to be mentioned separately due to its high importance is long-term effects of sales promotion. Many years it was argued that promotional activities have only short-term effect on sales and brand preferences whereas advertising essentially builds on brand equity. However some modern research challenges this view. There is some published work that studies the long run effects of promotions and advertising.

Another important aspect of sales promotion is customer’s attitude towards sales promotional activities. Again, one of the spread conceptions is that consumers really they don’t remember promotional offers, don’t understand the effect and benefits of all the promotional activities. Number of findings in research prove this case, for example Scott et all (1992), Dickson and Sawyer (1990) found that consumers in our study appear to remember information about promotions very poorly, they were not able to identify the depth of the price cuts.

Dickson and Sawyer (1982) suggested number of psychological models of consumer response to promotional activities. The implications of this models give an insight into short-term versus long-term communication effect of sales promotions. In respect to the issue of consumer response a research done by Fox, Reddy and Rao 1997 should be mentioned. They studied repetitive promotional stimulus and consumer response to that. Market trends influence on sales promotion In 1987 Douglas Haley identified 10 trends of the market that have showed influence of promotional strategy of companies.

Some of those trends are valid till now. 1. Promotion Proliferation – there are many forms and combinations of sales promotions techniques that are being used nowadays. Their relative importance might change over time but the fact is that they are growing both in terms of the money spent on them and in variety, that includes uses of new media and new forms of communications. 2. Scanned data – nowadays we possess incredible amount of very valuable information obtained via scanners in the retailing stores.

The industry have the technology to track the purchases, however it hasn’t really discovered the ways to use this data very efficient. This definitely presents a real challenge for future research. 3. Decreasing response time – this works both for the consumers and for the companies. With the improving communication channels and the increase of the speed of communication process (here one might argue – with the increase of pace of life in general) consumers are responding faster to the promotional offers, if they are interested.

The same principle holds for the competitors’ response. – companies tend to react faster to the promotional offers of their rival, decreasing therefore the amount of return on the initial promotional offer of competitor (see the prisoner’s dilemma’s spiral). 4. On-line promotions – New challenge While writing about the sales promotion nowadays, one can’t ignore the issue of increasing sales promotional activities online. This is very important and valuable component of dot. com operations.

As indicated in Table 2 [pic] Coupons and other type of promotions have very important role in driving traffic to the website and in overall company’s operations. There are reasonable amount of research published in the area of online sales promotion, however most of them carry over the same problem as research on sales promotion in general – research done in the area of sales promotion focus on particular element of promotional mix – for example online coupons or frequent mile programs.

Yet, there is a clear need for developing general theoretical base and models for online promotions. Potential areas of research 1. Combining attitude data with scanner data: Unfortunately now scanner data lack consumer attitudes data which is considered to be more stable and long run predictors of choice than are short run marketing activities. In this respect two important directions are being developed now. First, some companies already are beginning to collect attitudinal data from scanner panel members.

Second, models for combining stated preferences with revealed preferences are being developed, this combination of psychometric and scanner data will provide invaluable insights into consumer choice behavior. (Gupta 1993) 2. Cross-category analyses: Most of the research studies to date, with a few notable exceptions, have estimated and validated their models using a single data set. According to Gupta extending such analyses to multiple categories will provide at least three benefits. First, it will establish better generalizability of results across different product categories.

Second, it will allow to study consumers’ choice of a shopping basket. Thrid, such analyses will be useful to understand the store choice and traffic issues. 4. Optimal decisions: The empirically based models are primarily descriptive in nature and though “what-if” simulations can provide a sense of “good” or “bad” decision strategies, this is not always true and as efficient as we want that to be. So one of the possible directions of research to develop normative models that use the results of the descriptive models as the basis to generate optimal marketing mix decisions. Gupta 1993) Limitations of this review As it was mentioned in the beginning of this paper it was intended to be general overview of the academic literature on sales promotion; it was not focused on any of the particular techniques of sales promotion. That is the reason that many of the articles that are focused on some particular technique were not mentioned here. So as the follow up of this literature review there should be more done to uncover what we really know about the effectiveness, application and models for each of the vehicles of sales promotion.

Another limitation of this paper is that though in some parts of the paper trade promotions are mentioned, I was not particularly focused on the distinguishing between promotions targeted on consumers and on the trade. This is another possible direction of the literature review. Finally third limitation of the paper, as I see that comes from the overall problem spot on sales promotional research – generalization issues. Many of the researches cited here done on particular products or product category. However in most of the cases the authors expressed the confidence of possible generalization of the results.

Otherwise, if the results were very specific for the product category or research conditions, I didn’t include that in this review. Ailawadi Kusum, Paul Farris and Mark Parry “Explaining Variations in Advertising and Promotional Costs/Sales Ratio: A reanalysis” Journal of Marketing, 61 (January) pp. 93-96 Balasumbamanian S. and Kumar V. (1990) “Analyzing Variations in Advertising and Promotional Expenditures: Key Correlates in Consumer, Industrial and Service Marketing” Journal of Marketing, 54 (April) pp. 57-68 Balasumbamanian S. and Kumar V. 1997) “Explaining Variations in Advertising and Promotional Costs/Sales Ratio: A reanalysis” Journal of Marketing, 61 (January) pp. 85-92 Desiraju Ramarao (2001) “New Product Introductions, Slotting Allowances, and Retailer Discretion” Journal of Retailing 71, Issue 3, (Fall) p. 335 Dickson, Peter and Alan Sawyer (1990), “Point of Purchase Behavior and Price Perceptions of Supermarket Shoppers” Journal of Marketing, 54 (July), 42-53 Dobson, Joe, Alice Tybout, Brian Sternal (1978) “Impact of Deals and Deals Retraction on Brand Switching:” Journal of Marketing Research, 15 (February) 72-81 Engel J.

F. , H. G. Wales, and Warshaw “Promotional strategy” Irwin 1967 Gardener, Elizabeth; Trivedi, Minakshi A communication framework to evaluate sales promotion strategies. Journal of Advertising Research, May/Jun98, Vol. 38 Issue 3, p67-72. Gupta, Sunil (1988) “Impact of Sales Promotions on When, What, and How Much to Buy’. Journal of Marketing Research, 30 (November), Issue 4, p. 342-355 Gupta, Sunil (1993) Reflections on `Impact of Sales Promotions on When, What, and How Much to Buy’. Journal of Marketing Research, 30 (November), Issue 4, p522-24 Hardy G.

Kenneth “Key factors for Manufacturers’ Sales Promotions in Packaged Goods” Journal of Marketing, 50 (July 1986), 13-23 Haley Douglas (1987), “Trends that influence Sales Promotion Industry”, 1987 Nielsen Researcher. Northbrook, Ill. , 1986/87 Kotler, Philip, “Marketing Management: Analysis, Planning, Implementation and Control,” 6th ed. Englewood Cliffs NJ: Prentice Hall 1988 Lee Adler “Sales Promotion Effectiveness Can be measured” Journal of Marketing, 29 (January 1963), 69-70 Neslin Scott, John Quelch, Caroline Henderson “Consumer Promotions and the acceleration of product purchase. in Research on Sales Promotion: Collected Papers, ed. K. Jocz, Marketing Science Institute 1000 Cambridge MA 1984 pp. 22-46 Neslin Scott and Robert Shoemaker (1989) “An alternative explanation for Lower Repeat Rates After Promotional Purchases” Journal of Marketing Research, 26 (May) 205-213 Random House Unabridged Dictionary (1983), Random House NY, 1983 second edition Sawyer Alan, Peter Dickson “Psychological perspectives on consumer response to sales promotion” in Research on Sales Promotion: Collected Papers, Ed.

K. Jocz, Marketing Science Institute 1000 Cambridge MA 1984 pp. 1-21 Scott Davis , J. Inman and Leigh McAllister (1992) “Promotion Has a negative effect on Brand Evaluations – Or does it? Additional Disconfirming Evidence” Journal of Marketing Research, 29 (February) 143- 148 Shultz Don E. , William A. Robinson “Sales Promotion Management” Crain Books, Chicago IL, 1982

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