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Chapter 13 Total Quality Communication Sales Promotion and Direct Marketing The first coupon appeared in 1895 when the Post Co. offered a cents off coupon for the purchase of breakfast cereal. Coupons have since become institutionalized and, until recently, the use of coupons continued to accelerate. 16 billion were issued in 1968, rising to 298 billion by 1993. We begin our chapter with a note on coupons because they are one of a set of promotional tools organized under the rubric of "sales promotion." We define sales promotion as "a direct inducement that offers an extra value or incentive for the product to sales force, distributors, or the consumer with the ultimate objective of creating an immediate sale." What are the characteristics of sales promotion tools? First, sales promotion provides extra incentive to buy as a key element of some promotion efforts. These incentives could be coupons or price reductions, the opportunity to enter a contest, a money back refund or rebate, or an extra amount of the product. Table 1 Sales Promotion:
While advertising and public relations appeal to the mind via rational calculations of self-interest, or the emotion, sales promotion appeals more to the pocketbook. Second, sales promotion can increase the incentives for intermediaries such as wholesalers and retailers to deal with a firm's products. A trade allowance or discount provides retailers with financial incentives to stock and promote a manufacturer's products. A trade contest directed at wholesale or retail personnel provides an extra incentive to concentrate on sales of the manufacturer's products. Third, sales promotion acts as an accelerator designed to speed up the selling process and maximize sales volume. By providing incentives, sales promotion techniques can motivate consumers to purchase larger quantities of a brand, or to shorten the purchase cycle by buying more frequently. Finally, sales promotion is flexible. It can be targeted to different levels in the marketing or distribution chain to accomplish various objectives. Generally speaking, two types of sales promotion can be used: Consumer oriented sales promotion, or trade oriented (business-to-business) sales promotion Consumer oriented sales promotion tools include:
Trade oriented sales promotion tools include:
Sales Promotion Growth In the U.S. not only has the total amount of money spent on sales promotion increased, but its percentage of the marketing budget has increased. That is to say, during the past 15 years, the percentage of marketing budget that is applied to trade promotion has increased while the percentage of budget applied to advertising has decreased. Figure 1 Relationships in the Marketing
Budget Source: Guiltinan, Joseph P. and Gordon W. Paul (1993). Marketing Management: Strategies and Programs. New York: The McGraw-Hill Companies. Reasons for Growth One reason for this absolute and relative increase in the use of sales promotion has been the shift in relative power from manufacturers to retailers. In the past, manufacturers maintained an information advantage over retailers concerning inventory and product movement. Recent acquisitions of computers, check out scanners, and other technology that improves retailers' inventory control and evaluation capability has placed the retailer in a stronger position to know what products are selling well with good turnover rates, and what sales promotions are working. So the power advantage has begun to shift from the manufacturer to the retailer. Vignette. The retail use of technology has grown exponentially. The collection of huge amounts of data on shopper behavior allows retailers to extract previously unknown, but useful information from large databases. For example, a large U.S. supermarket chain found a strong association for many customers between a brand of baby diapers and a brand of beer. Most customers who bought the diapers also bought the beer. This is not a connection that could ever have been hypothesized, but the retailer was able to take advantage of it by moving the products closer together. Can you puzzle out the relationship? Martin Banks (1996), "Valuable Discoveries Mined From Raw Data," The Financial Times Information Technology Supplement (February 7), p. 17. The result has been increasing demand by retailers that manufacturers provide sales promotion ideas and programs to move products more effectively. Manufacturers who do not meet this challenge find their products languishing on retail shelves. Reasons for Shift A general decline in brand loyalty has also contributed to the sales promotion increase. Other reasons for this shift are listed in Table 2. Table 2 Reasons for the Shift to Sales Promotion
Before utilizing sales promotion, marketers should assess the long-term effect the promotion will have on the brand's image and position in the marketplace. Poorly implemented sales promotion can erode price positioning, value assessments, and other positioned attributes for the product. As we mentioned, sales promotion
can be either consumer-oriented or business-to-business oriented. We'll
discuss the two major types in that order. Objectives for Consumer Oriented Sales Promotion Different sales promotion activities achieve different objectives. Planners should focus on what the sales promotion will accomplish and whom it is targeting. One mistake some marketers make is to allow a need for immediate sales to outweigh consideration of the effect the sales promotion has on the overall plan for an audience. Firms might want to increase immediate sales to, for example, achieve sales targets near the end of a sales period: or reduce inventories before a model year ends. So there are often "year-end closeouts" and the like. At the same time, innovative products must reach a certain critical level of penetration in the marketplace before they become a "standard." Sony's Betamax format for VCRs died in the marketplace because, while it was technically superior to the VHS format, the VHS format reached more consumer homes more quickly and became "the standard," Obviously, Sony should have engaged in more sales-promotion activities to get more products into more hands, sooner.
The objective for a sales promotion must be evaluated against the audience message statement and the promotion program objectives to ensure they are compatible. If the objective of the sales promotion doesn't conform to the guides, don't do it. A maverick sales promotion, which isnÕt coordinated with long-term firm objectives, runs the danger of doing the firm and its product long term damage in the minds of the audience. This damage could represent the destruction of years of work and negate the spending of thousands of dollars from the promotional budget. Basic Objective The basic objective of consumer oriented sales promotion is to achieve a significant short-term increase in sales. With this objective in mind, marketers can use sales promotion to consumers to accomplish this goal in various ways. For an established brand, the goal might apply to increasing consumption of the brand from current sales levels. For new products, the goal might be to achieve more rapid trial and adoption of the product. Consumer Sales Promotion Techniques--Sampling The types of sampling include:
Three criteria for effective sampling are:
Consumer Sales Promotion Techniques--Couponing As we discussed in the opening of the chapter, coupons are the oldest and most widely used of the techniques in the U.S. market. Coupons are less used in other parts of the world. Coupons are somewhat selective: They allow extending a price reduction to buyers who are price sensitive without reducing the product's price to all consumers. Coupons can be used for both new and established brands. One problem with the use of coupons is that it is difficult to estimate how many coupons will be redeemed. Only about 2% of all coupons issued are redeemed. Also, coupon implementation can be expensive (costs include printing, distribution, and redemption).
Coupons are distributed in a number of ways
A relatively new phenomenon is the provision of coupons on-line. Catalina Marketing Corp. has pioneered a program to allow shoppers to print their own coupons from the Internet. In exchange for information about your preferences and buying patterns, it will send you a personalized selection of coupons every week via email. Results are encouraging - the redemption rate is about 20%, far higher than the 1% to 5% rate for newspaper inserts. [1] Table 3 The Coupon Conversion Model
Consumer Sales Promotion Techniques--Premiums The idea here is to offer an item of merchandise or service either free or at a low price. Premiums are of two types -
Consumer Sales Promotion Techniques--Refunds and Rebates Refunds and rebates return a portion of the product's price. This usually occurs after the consumer supplies some proof of purchase. Consumer Sales Promotion Techniques--Contests and Sweepstakes A contest is a promotion when consumers compete for prizes based on skills, ability. Winners are selected in a judging process. Contests usually require proof of purchase as a condition of entry. The Pillsbury bake off is good example. Sweepstakes are mistakenly called contests. Sweepstakes only require consumers to register. Winners are selected by chance. Proof of purchase cannot be a condition of registering in the U.S. A game is a type of sweepstakes where some kind of playing piece is distributed at the point of purchase. In the U.S. the best examples of a game are conducted by fast food restaurants that offer a scratch off card so customers receive immediate feedback about their winning status. Consumer Sales Promotion Techniques--Bonus Packs Offers extra quantities of the product at regular or reduced prices. Many of us can remember seeing products offering "25% more" of the product at the regular price. Consumer Sales Promotion Techniques--Price Reductions Here we offer a reduced price for purchase. For example, "25 cents off" may be indicated on the package and redeemed at the time of purchase. The reduction is charged against the manufacturer's margin rather than the retailer's. Consumer Sales Promotion Techniques--Event Sponsorships This has become more widespread during the past few years. Producers associate themselves with some event, typically sports or entertainment. The idea is that the name appears in front of potential consumers. One communication theory called the agenda theory suggests that consumer exposure to a name registers the name in the minds of the consumer [citation]. It doesn't matter how that exposure occurs. When the consumer encounters the name at a later time such as in a store, the name will be recalled. The consumer may not realize how the name was registered. This has led to other types of sponsorship including movie production where products appear prominently in movies. Pepsi, AT&T, Apple Computer and automobile companies use this technique. We also discuss sponsorships in Chapter 11. Trade Oriented Sales Promotion These business-to-business promotions create incentives at various levels in the distribution chain to focus on moving a manufacturer's products. Trade Oriented Sales Promotion--Trade Allowances These are among the most common trade sales promotion. Here we provide a reduced cost for the intermediary (a wholesaler or retailer) to increase product purchases. Various types of allowances are shown in Table 4. Table 4 Types of Trade Allowances
Trade Oriented Sales Promotion--Point of Purchase Displays Displays for retailers to use in stores. Providing the displays themselves helps manufacturers to ensure a high level of in-store merchandising Trade Oriented Sales Promotion--Contests and Incentives These are usually targeted to sales personnel at the wholesale or retail level. The producer provides incentives such as prizes for travel or expensive goods like televisions, computers and cars. Trade Oriented Sales Promotion--Sales Training Manufacturers provide sales training for a retailer's sales personnel. This can mean providing classes (including an instructor), or providing training materials. Trade Oriented Sales Promotion--Trade Shows Targeted to resellers, trade shows provide an opportunity for face-to-face contact with resellers. Trade shows are also a good venue for the introduction of new or revamped products. Importantly, they allow for demonstration of the product without having to visit wholesalers or retailers on a one-by-one basis. Trade Oriented Sales Promotion--Cooperative Advertising Here the cost of advertising is shared by the manufacturer and the retailer. Cooperative advertising is similar to promotion allowance except that it tends to have greater manufacturer participation such as production of advertising or promotion materials. Direct Marketing Among the trends that have made direct marketing more attractive to buyers are time constraints and congestion. The two-income household exhibits severe time pressure, and one way to have more time is to spend less time shopping. Sellers, meanwhile, like direct marketing because of low access costs and databases, which allow precise targeting. Like personal selling, direct marketing allows one-on-one communication with buyers. Unlike personal selling, however, direct marketing allows a "sales call" which is relatively inexpensive on a per-call basis. Direct marketing is much more than direct mail or mail order catalogs, the traditional components of this tool. It now includes a variety of activities such as direct selling, telemarketing, and direct response advertising. A full list is shown in Table 5. As shown, some authors describe electronic commerce as direct marketing. Although this classification is accurate in a strict sense, we consider e-commerce worth special and individual coverage (see Chapter 14) These techniques are exemplified in the U.S. by companies such as Tupperware, Mary Kay Cosmetics, Dell and Gateway Computers, who do not use traditional retail distribution networks. Rather, they depend on direct consumer access to sell to and service their end users. Table 5 Direct Marketing Methods
Dell Computer maintains a production facility in Limerick, Ireland from which every Dell computer ordered for Europe, the Middle East and Africa is custom built to customer order and shipped direct to the customer. The direct marketing model applied to all of Dell's customers - there is a sales force dealing with Dell's corporate customers, but machines are still made to individual order. [3] Things have been going less well for Avon and others using the direct marketing approach in China. In China, Avon and others estimate that direct marketers provide incomes for 2 million Chinese, many of whom would otherwise be unemployed because they lack experience or working capital. But China decided the door-to-door approach was unacceptable - interestingly, meetings of Avon ladies and Mary Kay cosmetics salespeople were discovered by officials to be fairly large meetings - like Party meetings, but without the Party! In April 1998 the government forced all door-to-door companies to cease operations, claiming among other things that Mary Kay Cosmetics and others were becoming like cults, founded on "superstition." [4]
[1] Paulette Thomas (1998), "'Clicking' Coupons On-Line has a Cost: Privacy," The Wall Street Journal (June 18), B1. [2] Frankforter, Steven A., Shawn L. Berman, and Thomas M. (2000), ŅBoards of Directors and Shark Repellents: Assessing the Value of an Agency Theory Perspective.Ó Journal of Management Studies. 37 (3). 321-348. [3] Nuala Moran (1998), "A Leader Among PC Makers," The Financial Times Information Technology Supplement (June 3), 17. [4] Anonymous (1998), "Avon Ladies Under Siege," The
Wall Street Journal (May 1, p. A14: James Kynge (1998), "China
Opens Door to Avon," The Financial Times (June 9), 18. Practice Exam When you have completed reading this chapter, you may elect to take a practice exam on-line. You may take the practice exam as many times as you wish. Each time, the test will be compared to the answer key. You then have the option to review the results or not. You may wish to try the exam again before seeing the results of the comparison. ©1997 2000 David L. Sturges and Michael Minor These pages were created on November 1, 1999, and last modified on August 29, 2001, on a PowerBook G3-266 using Dreamweaver 3.0. Questions or comments should be directed to the WebJˇfe. |
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