Ch. 12 Sales Promotions

Contests and Sweepstakes Perceived Value

Consumers are selective w/ contests/sweeps Perceived value important Extrinsic value - attractiveness of prize (more attractive, more likely to enter) Intrinsic value - fun, skill (more important in contests) Small, incremental rewards Scratch-and-win tickets

Types of consumer promotions

Coupons Premiums Contests and sweepstakes Refunds and rebates Sampling Bonus packs Price-offs

Impact of Price-off on Consumer Purchase

Most consumers, 51%, were not aware the item was on sale when they purchased it. Another 40% would have purchased the product anyway. That means only 9% of consumers purchased the item because of the price-off.

Refunds and rebates

People do not like refunds and rebates because typically they are a hassle to redeem and involve waiting 6-8 weeks for the check. For some products, rebates have been used for so long that customers expect them and will hardly make a purchase without one. Automobiles and printers are two products people now expect a rebate and will not make a purchase without some type of rebate. Redemption rates are low, less then 30% overall. But, if the rebate is for more than $50, the redemption rate jumps up to 65%.

Successful Sampling Programs

a central part of an IMC plan. It is an excellent means of encouraging trial purchases. It is most effective for new products, new versions of products, and current products to new markets. It is important to target the right audience at the right venue to ensure success. Mass sampling is not cost effective. Firms need to target their sampling programs.

off-invoice allowance

a discount on the product to encourage channel members to place an order. Major type of trade allowance. Off-invoice allowances account for 35% of all trade dollars, by far the largest category of trade promotions. Because off-invoice allowances are used so much, retailers are reluctant to purchase products off-deal. Pressure from competitors who offer deals keeps the cycle going where manufacturers have to keep offering allowances.

cooperative merchandising agreement*

a formal agreement between a manufacturer and a channel member (normally a retailer) that specifies the marketing functions the channel member will perform in exchange for the financial incentive. They are popular with manufacturers because the retailer must perform some marketing functions, manufacturers have control, and it is a long-term commitment. Retailers like them because they can schedule calendar promotions to ensure one brand is always on sale. The problem is that retailers want the price allowance - just give us the discount, we don't want to perform any marketing functions! Another trade incentive is the premium or bonus pack, which is free additional merchandise with an order. For example, for every 100 cases ordered another 5 are given free.

Price-offs

a temporary price reduction. It can be marked on the item or its package, or displayed on the shelf or near the item.

diversion

buying a product on-deal in one part of the country and shipping it to another part of the country where it is off-deal. This does not occur nearly as often as forward buying because of the cost of shipping.

Store or manufacturer premiums

can vary in how they are delivered. They can be prizes in kid's meals at a fast food restaurant or a golf bag with the purchase of a new set of clubs.

Slotting and Exit Fees

controversial form of trade allowance, which is a fee charged by retailers to stock new products. - Retailer justifications: It costs to add new products to inventory; Requires shelf space; Simplifies decision about new products; Adds to bottom line, profit - Manufacturer objections: Form of extortion; Diverts money from advertising and marketing; Detrimental to small manufacturers who can't afford fees +++ Exit fees: payment of monies to remove an item if it does not sell and has to be removed from inventory.

Trade allowances

financial incentives directed to a channel member to stock a particular brand of product.

Free-in-the-mail premiums

free to consumers who mail in X number of box tops or labels.

Rebates

hard goods.

Brand-preference consumers

have a small set of brands for which they have a strong preference. Promotions for one of these select brands will impact which brand is purchased.

Inter-company tie-ins

involve two or more companies working together. (Partnering with another company)

Sampling

involves delivering a free good or service with the hope the person or business will like the brand and purchase it in the future. - Business-to-business samples to prospects to try the brand and compare - Service sampling: ex. 7-day free membership at a fitness center or free initial consultation with a lawyer or dentist. - Consumer survey: 33% who tried a sample made purchase during shopping trip 58% would buy product again 25% bought sample instead of intended brand

Intra-company tie-in

involves products within one company.

forward buying

involves retailers purchasing additional merchandise when it is on-deal to sell later when it is off-deal. This allows them to earn extra money. The disadvantage is the carrying costs of the extra inventory.

In- or on-package premiums

located in the package or on the package and are received upon purchase.

Trade Promotion Concerns

- Corporate reward structure - Used for short-term sales goals - Tend to be used outside of IMC Plan - Costs - Over-reliance to push merchandise - Difficult to reduce - competitive pressures - Potential erosion of brand image

Contests and Sweepstakes Goals

- Encourage traffic to website or location - Boost sales - questionable, but creates awareness and exposure - Intrinsic rewards draw consumers back

Benefits of Price-Offs

- Excellent for stimulating sales - Entices trial purchases because lower financial risk - Encourages brand switching - Encourages stockpiling

Trade Allowance Complications

- Failure to pass allowances on to retail customers: Only occurs 52% of the time; Retailers like only one brand on-deal at a time - Retailers can schedule and promote on-deal brands

Methods of distributing samples

- In-store distribution - Direct sampling - Response sampling - Cross-ruff sampling: a dryer sheet in a box of detergent or attached to the detergent box. - Media sampling: distributed through the media, such as the newspapers. Small items, such as perfume, can be attached inside of a magazine page. - Professional sampling: drug company delivering samples to doctors, or a vendor supplying samples of raw materials to a manufacturer - Selective sampling: occurs at special events, such as a rodeo or state fair, where a company may distribute a sample of a drink or candy bar for people to try.

Bonus Pack Objectives

- Increase usage of a product - Match or preempt competition - Stockpile the product - Develop customer loyalty - Attract new users - Encourage brand switching

Types of coupons

- Instant-redemption Lead to trial purchases - Bounce-back Encourages repeat purchases - Scanner-delivered Encourages brand switching - Cross-ruffing

Benefits of sampling

- Introduce new products - Generate interest and leads - Collect information - Internet sampling - Boost sales

Coupon Distribution

- Manufacturers issue about 80% - Print media: Free-standing inserts - 90% - Free-standing and print most popular Consumer makes conscious effort to clip Create brand awareness Encourage purchase next trip to store - Digital coupons growing in popularity Easy to find and print Users more affluent, better educated Coupons are also now being sent to cell phones and used on smartphones

Keys to Successful Premium Programs

- Match the premium to the target market - Carefully select the premium: Avoid fads, try for exclusivity - Premium reinforces the firm's product and image - Integrate the premium with other IMC tools: Especially advertising and POP displays - Don't expect premiums to increase short-term profits

Cooperative Advertising*

- Most well-known trade incentive - Manufacturer pays part of retailer's ad costs in exchange for promoting manufacturer's brand - Retailer must follow specific guidelines: No competing brands in ad - Retailers accrue co-op dollars based on sales - Allows retailers to expand advertising - Manufacturers gain exposure in local markets

Problems with Price-Offs

- Negative impact on profits - Encourages greater price sensitivity. Consumers become reluctant to pay full price for the item. - Potential negative impact on brand image

Contests and Sweepstakes on the Internet and Social Media

- Popular venue - Increase intrinsic value - interactive games - Data-capturing capabilities from those who play - Cheaper

Methods of distributing coupons

- Print media FSI (free-standing inserts) -- 88% - Direct mail - On- or in-package - In-store Scanner-delivered, on shelves, in bins - Digital - Employee delivered

Types of Consumers based on promotion use

- Promotion-prone consumers - Brand-loyal consumers - Brand-preferred consumers - Price-sensitive consumers

Planning consumer promotions

- Support brand image and position strategy - Consider target audience - Varies by product - Tendency towards one type -- Promotion-prone consumers: Respond to deals -- Price-sensitive consumers: Don't care about brand name, price primary factor in purchases; Deals that reduce price -- Brand-loyal consumers: Purchase only preferred brand -- Brand-preference consumers: Best group to pursue. Small set of preferred brands; Deals for one of preferred brands

Trade Contests

- Used to achieve sales targets - Funds known as "spiff money" - Rewards can be prizes (work better) or cash - Can be designed for various channels - Some organizations do not allow trade contests because of a possible conflict of interest.

Disadvantages of coupons

- reduced revenues - companies earning less money - 80% of coupons are used by brand preference consumers, which means they likely would have purchased that brand anyway - necessary evil to stay in business - customers expect coupons

Overlay

At times, companies combine two or more consumer promotions into a single campaign. It may involve a promotion for a sweepstake or contest with a coupon attached to encourage purchasing the product. A common overlay involves passing out coupons at the same time consumers are given a sample of the product.

trade incentives

the channel member must perform some type of marketing function to receive the funds. Most trade incentives are with retailers. The three types are cooperative merchandising agreements, premium or bonus packs, and cooperative advertising programs.

Power buyers

upper management or key purchasing agents with the authority to buy. By differentiating the type of buyer, companies can concentrate on those most likely to buy at the trade show, or immediately following the trade show.

Trade Shows*

used extensively in business-to-business marketing programs. It allows sellers to display merchandise and to seek prospects; It allows buyers to compare merchandise of various manufacturers and to see vendors for their stores. - Few deals finalized at trade shows - International attendees want to make deals - Increase in international trade shows - Regional and niche shows: Provide better prospects; Lower costs

Reinforcement seekers

want reassurance they made the right decision in past purchases.

Education seekers

want to browse, look, and learn but are not interested in buying.

Bonus packs

when an additional or extra number of items are placed in a special package. Typical bonuses range from 20% to 100%, with 30% being the most common.

Trade promotions

are incentives given to channel members to push products through the channel. Consumers never see trade promotions and most have never heard of them, but they have a huge impact on what brands are placed on retail shelves. - Account for 70% of marketing budget - Often 2nd largest expense - Account for 17.4% of gross sales

Bounce-back coupons

are inside a package and encourage repeat purchases because they cannot be used until the package is opened.

Cross-ruffing coupons

are placed on one item for another item, such as a coupon for dip placed on a bag of potato chips.

Scanner-delivered coupons

are triggered by an item purchased. The coupon is either for a competing brand or for another variety or flavor than was purchased. The most common motive for scanner-delivered coupons is to encourage brand switching on the next trip to the store.

Instant-redemption coupons

are typically placed on the outside of a package or attached to a store shelf and can be redeemed immediately. encourage trial purchases since the discount is immediate.

Tie-ins

are when two or more companies or products are promoted within a single campaign.

Coupons

offer a price reduction to the consumer. It may be a percentage off of the retail price, or absolute amount. 300 billion printed per year 2.5 billion redeemed per year (0.85%) Average value was $1.55 Savings of $3.87 billion Coupon usage 80% of households use 2/3 willing to switch brands

Premiums

prizes, gifts, or other special offers that consumers receive when purchasing a product. The key to premiums is that consumers pay full price for the product.

Brand-loyal consumers

purchase only one particular brand of a product and will not substitute a competing brand regardless of the type of promotion being offered.

Price-sensitive consumers

purchase whichever brand has the lowest price and use promotions that reduce the price.

Promotion-prone consumers

regularly respond to various consumer promotions and like to purchase products when they are on-deal.

Sweepstakes

rely on random chance. Laws require the odds of winning each prize to be printed in advance and made available at every location where the sweepstakes can be entered. Companies cannot require a purchase to enter, although they can limit people to one entry per visit.

Self-liquidating premiums

require a small amount of money with the proof-of-purchase. The amount paid usually covers the cost of the item and may even pay for shipping.

Solution seekers

seek solutions to specific problems and are in the buying mode if they find the right solution.

Buying teams

seek vendors for their businesses and are usually ready to talk sales.

Refunds

soft goods.