Last Updated Jun 19, 2007 5:28 PM EDT
A sales promotion is a program that is designed to increase the sales of a product or service in the short term. The focus of such a program is to stimulate customers to take a specific action—namely, to buy the product. Many sales promotions are aimed directly at consumers, however, sales promotion is not limited to consumer products marketing. A variety of sales promotion tactics can be aimed at retail and other channel partners (referred to as "trade promotions"), and a more limited number are also used in business-to-business markets. The strength of the retail trade puts increasing emphasis on trade and consumer promotions.
Sales promotions take many forms, but the typical example seeks to increase the value proposition to the customer, either through reduced product cost or increased product benefit. Popular forms of this sales technique in the consumer sector include coupons, rebates, price reductions, loyalty programs, trialing, and sampling. A sales promotion differs from an advertising program, the focus of which is to be informative. Advertising and sales promotions are complementary tactics, however, as it is important to make customers aware of the availability and details of a sales promotion. Promotions must be managed carefully to provide long-term benefits as well as short-term results and, as with any marketing program, clear objectives must be set.
Ideally, promotions and advertising should be integrated. Many sales promotions can deliver short-term gains in market share, but competitor promotions are always a threat and may cancel out those gains. Loyalty programs can encourage customer activity for the period of the promotion, but they, too, can be vulnerable to competitive activity. Advertising, on the other hand, can be very effective in building longer-term brand awareness and attracting new customers.
There is no right or wrong strategy in this situation. Trade promotions, where promotional activities are directed at partners within the distribution channel, can help you sell into the retail outlets. Offering incentives to retailers to begin carrying your products, to increase volume, or to improve their standards of service, can obviously result in an increase in sales to consumers. Bear in mind that retailers often prefer promotions that allow them more control over the consumer. Also, while consumer promotions may boost overall sales, they may or may not increase sales to your retail outlets. Evaluate your particular circumstances against these considerations to determine a suitable promotional strategy.
Either of these options can be a good choice. The most important consideration is that sales promotion and other marketing activities should be integrated. Not all advertising agencies have the skills or resources to plan and implement promotions. Still, it is essential that your advertising agency be aware of any promotions. If you use a specialist company to plan promotions, the creative theme of the promotion must reflect the themes of the advertising and other marketing programs.
The strength of the retail trade puts increasing emphasis on trade and consumer promotions. In the United States, retail-dependent brands spend huge sums on promotions, with great success. In the consumer sector, promotional items account for approximately twenty per cent of the value of the average shopping basket. Promotional programs are popular because they meet the demands of powerful retailers and they help brand managers meet volume targets. They are also easy to justify financially because of immediate measurable results.
There are many reasons for manufacturers to run promotions, and the potential benefits are many. Promotions can be very effective in attracting the attention of retail buyers and sales forces, particularly for smaller brands. They generate excitement at the point of sale and can increase the effectiveness of trialing. Additionally, promotions may simplify negotiations over margins; in many cases promotions effect better volume increases than margin reductions.
Research supports these assertions. One survey indicated that 30% of consumers participating in a sales promotion had not tried the brand in the previous six months. Another survey reported that 44% of consumers said they would buy a brand they do not normally buy if it is part of a special offer.
An industry report indicates that consumers show a preference to instant-win promotions over money-back programs. Instant-win has a specific tactical role, and is most appropriate for products with a high purchase frequency. Instant-win promotions may not be suitable for more strategic tasks such as brand switching; in these findings, only 5% of consumers felt they would switch brands to participate in an instant-win promotion, compared with 41% who would switch brands for a price-reduction promotion. The primary reasons given for instant-win preference were:
- no waiting
- immediate knowledge of success.
The primary dislikes cited were:
- the low chances of winning
- the likelihood that it will prove to be a waste of time.
The pressure to run promotions can have an impact on overall marketing performance. A review by a major consumer goods company indicated that a great deal of time was required to design, implement, and oversee promotions. In this case, these activities accounted for 25% of sales force time and 33% of brand managers' time. In addition to the considerable time requirements, other problems of running sales promotions can include:
- potential to exacerbate or create supply inefficiencies;
- cost of running the promotion, including the significant costs of promotional materials and/or modifying product packaging;
- reduced time focused on long-term brand building.
Promotions must be managed carefully in order to yield long-term benefits. The wrong choice of offer, confusing rules, or poor organization can cancel out all the effort and potential gains. Before undertaking any sales promotion program, define the objectives. Questions that should be asked include:
- Why are we running the program?
- Do we want to increase overall volume, or sales, of specific products?
- Do we want to improve performance in other sales-related areas—for example, customer service or participation in training programs?
- How do we justify the expense of the promotion?
- What are the related sales objectives, and how will they be quantified?
- Can we isolate the effect of non-promotional activities?
- What return on investment do we seek?
- Is it possible to profile previous promotional participants as a basis for planning?
Promotional offers can be awarded to the biggest spenders or to all consumers. Bear in mind that programs which only reward big spenders or large trade customers can sometimes function as a disincentive to other customers. Programs that reward performance against a specific target offer greater opportunity to win, and thus can motivate a higher proportion of the sales force or the trade. Consider a multilevel program that offers many lower-value prizes, and a small number of high value prizes to top performers; this format can act as a strong motivator for all participants.
Regardless of the chosen format, the scope of the promotion and the offer must be clearly defined. Explain what is required to win and how prizes are collected or rewarded. Clearly delineate the promotional timeframe, naming both the starting and the closing dates. Specify the availability of the offer—for example, some promotions are available only in selected retail outlets. Set the specific requirements for each participant.
When two or more complementary products are involved in the same promotion, this is referred to as cross-promotion. This strategy allows complementary products to be promoted cost-effectively. To be successful, a cross-promotion should feature products that are complementary and noncompetitive. Database services are available that can assist in identifying opportunities for cross-promotion; once the profile of the first product is identified, seek products with a similar profile.
If you are operating a long-term promotion or a promotion that involves a number of stages, it is critical to establish and maintain momentum. Effective techniques may include:
- sending out teaser incentives or gifts during the promotion to maintain interest;
- keeping participants informed of their progress;
- encouraging struggling participants with secondary offers;
- publishing results and distributing them to all participants.
When promotional products must be delivered to homes or businesses, an efficient logistics operation must be established to accomplish the fulfillment. Some companies operate their own fleets—a strategy which implies a significant capital and personnel requirement. An alternative option is to subcontract the operation to a specialist logistics company or fulfillment agency.
The latter approach should be considered whenever a promotion is likely to generate a large volume of requests. It is important to determine whether your company has the resources to handle promotional fulfillment internally; if the resource capacity is in doubt, evaluate fulfillment agencies which specialize in high volume response programs. The following criteria are important in selecting a fulfillment agency:
- quality and reliability of service;
- capacity to handle the volume of responses;
- aftercare service for customers;
- management reporting systems.
When a promotional campaign comes to a close, perform a post-mortem to evaluate the effectiveness of the program. Determine the aspects which went smoothly and accomplished the original objectives; identify opportunities for improvement for future campaigns. Some of the questions to consider when assessing the effectiveness of a promotional program include:
- Were the original objectives accomplished?
- Did the return of the promotion justify the investment?
- Was the promotional impact evenly spread across the business?
- Were there significant account, sector, or regional differences in impact?
- Did the differences relate to techniques, premiums, value, customer appeal, or communications?
- What could be done differently to increase the effectiveness of a similar promotion?
Sales promotions are typically judged by their effect on market share. However, market share gains can be short-term—they may be lost when the promotion ends or when competitive activity increases. Promotional campaigns also contribute to an environment in which consumers and the retail trade expect these programs to be a continuous activity. Promotion should be used to achieve tactical aims but it must be balanced by long-term brand building.
Sales promotion works most effectively when it is integrated with other activities. A consumer promotion, backed by a trade or sales force incentive, insures that all parties are aware of the promotion. A direct mail campaign in conjunction with a promotional offer can increase the direct mail response rate. A promotion should not be run as an isolated activity.
Ensure that promotional campaigns reflect your brand values. A money-off offer, for example, does little to enhance a premium product. A promotional offer which adds value is more likely to be a successful campaign. Consider the best type of campaign for your product, market, and business objectives. An instant-win campaign can have an immediate impact on market share, while a loyalty program can foster longer-term gains.
Cummins, Julian, and Roddy Mullin.
Schultz, Don E.
American Marketing Association: www.marketingpower.com