Sales Promotion

WHAT IS SALES PROMOTION?

Sales promotion refers to many kinds of incentives and techniques directed towards consumers and traders with the intention to produce immediate or short-term sales effects.

“Sales promotion includes incentive-offering and interest-creating activities which are generally short-term marketing events other than advertising, personal selling, publicity and direct marketing.

The purpose of sales promotion is to stimulate, motivate and influence the purchase and other desired behavioral responses of the firm’s customers.”

Sales promotion offers a direct inducement to act by providing extra worth over and above what is built into the product at its normal price. These temporary inducements are offered usually at a time and place where the buying decision is made. Not only are sales promotions very common in the current competitive market conditions, they are increasing at a fast apace. These promotions are direct inducements. In spite of the directness, sales promotions are fairly complicated and a rich tool of marketing with innumerable creative possibilities limited only by the imagination of promotion planners. Sales promotion is often referred to by the names of ‘extra purchase value’ and ‘below-the-line selling’.

Used to achieve short-term sales

Sales promotion is a separate and distinct element in the promotion mix and is an important and powerful tool of marketing. The aim of sales promotion is goal-oriented to achieve sales/marketing objectives which are short-term and immediate.

Becoming too common

Today we find companies in almost all sectors offering some sort of a promotion scheme. These sectors range from automobiles to beverages, from financial services to foods, from household durables to services, from household products to business products, from personal care to textiles and apparel.

Writing about sales promotion tools, Prof. Philip Kotler observes – “they have 3 distinctive characteristics.”

1. Communication: they gain attention and usually provide information that may lead the customer to the product.

2. Incentive: they incorporate some concession, inducement, or contribution that gives value to the consumer.

3. Invitation: they include a distinct invitation to engage in the transaction now (offer valid till …or till stocks last)

Major users of sales promotions are marketers of soaps, detergents, toiletries, soft drinks, toothpastes, tea, coffee, footware, textiles, readymade garments, consumer durable goods, music systems, autos, televisions, washing machines, microwave ovens, refrigerators, magazines and many other household items. In fact the list of product categories using sales promotion is ever-increasing, no matter what the product category, it could be staples, impulse goods, emergency goods shopping goods, speciality goods, unsought goods, industrial products, or different types of services.

Sales promotion is now established as an important and increasingly respectable element of the marketing communication tools. Sales promotion expenditures are increasing dramatically, and economic recession is most likely to fuel this trend further.

DIFFERENCE BETWEEN ADVERTISING AND SALES PROMOTION

Advertising	Sales Promotions
By using a variety of persuasive appeals, it offers reasons to buy a product or service.	Besides giving reasons in the form of different appeals, they offer incentive to the consumers to buy the product or service now.
Appeals are emotional or functional in nature	Appeals are rational
Time-frame is long term	Time frame is short term
The primary objective is to create an enduring brand image	To get sales quickly or to induce trial.
Indirect and subtle approach towards persuading customers to buy a product or service	Direct in approach to induce consumers to buy a product or service immediately by temporarily changing the existing price-value relationship of the product or service.

But both advertising and sales promotions go hand in hand. Both are very essential to achieve success. Both are complementary to each other.

REASONS FOR RAPID GROWTH OF SALES PROMOTION

There are a number of reasons that are favourable to the growth of sales promotion:

¨ Increasing Competition

The air of change is gaining momentum after the introduction of economic liberalisation.Due to increase in competition, companies are finding it increasingly difficult to compete on quality. They are therefore resorting to more and innovativemethods of sales promotion.

To break away from the clutter, Samsung introduced the ‘phod ke dekho’ and ‘phir se phod ke dekho’ offers, which helped increase sales.

¨ Customers Have Become More Price Sensitive

This increased price sensitivity is a direct result of rampant inflation. Economic recession is likely to fuel this trend further, as consumers and dealers become more sensitive towards prices.

¨ Sales Promotions Generally Create An Immediate Positive Impact On Sales

Advertising, personal selling and other methods of promotion produce slower sales response compared to sales promotion. Sales promotions are mostly for short duration, for a specified period, leading to a sense of urgency in consumers to buy now. This creates an immediate positive impact on sales. With careful planning, it would not be difficult to measure the impact on sales volume and profit, and see the consequences of running the promotion even on weekly or daily basis.

¨ Products have become more standardised

In many product categories, there is a proliferation of brands; many of them are line extensions and me-too brands. Most brands are being perceived by consumers to be more or less similar within a given price range because of the inability of manufacturers to develop truly differentiated products. Under these circumstances, advertising messages are unable to strongly influence the consumers’ perceptions and create brand franchise. As a result of these perceptions of similarity among brands, marketers have no way but to compete on the basis of extra benefit offered through sales promotion. Competing companies struggle to capture market share by using every tool likely to bring sales success.

¨ Consumer Acceptance

As competition intensifies and promotions proliferate, consumers have learnt to earn the rewards of being smart shoppers. Over a period of time, they have also learnt that brands on promotion are not necessarily of lower quality.

Woodland has a scheme of upto 50% off on Woodland shoes and apparel.

This learning based on experience, gets transferred to other product categories as well. Consumers have learnt that promotions are being extended to many product categories where such promotions were unheard of.

¨ Expectations Of Price Decrease

With the entry of many different brands of consumer durable products in the same product category, consumers anticipate that the prices of durable goods will come down. This encourages them to postpone their purchases. To speed up the purchase in this segment of consumers, sales promotions are an effective and attractive method. Consumers evaluate the incentives associated with their purchase decision and are motivated to act now, rather than wait for the anticipated decrease in price. The marketers should ensure that the extra benefit is attractive enough to create a sense of urgency in consumers.

Samsung offers upto Rs. 8,000 off on exchanging an old refrigerator for a new Samsung refrigerator.

¨ Advertising Has Become More Expensive And Less Effective

All the advertising media have become quite expensive. Audio-visual medium, which is considered as the most effective for short-duration ads, may cost in excess of Rs. 1 lakh for a 10 second exposure during prime time. In many cases, consumers have reached a point of boredom due to excessive advertising on TV. Some consumers even consider advertising as an intrusion into their privacy, leading to zapping (surfing channels). Firms with small budgets cannot compete with big companies which spend huge sums of money on advertising. For these small budget firms, sales promotion is a more cost-effective promotion method to produce sales results.

¨ Trade Has Become More Powerful

Retailers and wholesalers have become powerful and find themselves in a position to demand extra facilities from the companies. They Channel members demand more incentives to get the desired results. Manufacturers do not seem to have any alternatives but to concede to their demands, keeping in view the competitive market conditions.

§ Pepsi offers silver coins to their dealers stocking Pepsi cases during Diwali season. And the promotions offer differs across dealers.

¨ Emphasis On Sales Volumes

Towards achieving the long-term profit goals, manufacturers try to attain high sales volume. Brand managers and product managers find themselves under pressure to achieve short-term sales results for the sake of their careers. Compared to any other promotional method, sales promotion is a more effective method to generate short-term sales volume.

¨ Sales Promotions Maximise Profits

A number of economic theories conclude that a company can maximise profits by using sales promotion. Such promotions can permit price discrimination by allowing the brand to compete in 2 or more different market segments. Sales promotion may allow a premium brand to compete with a lower tier brand among price sensitive consumers. For example, a premium band of toilet soap may be on promotion in some price sensitive markets, while in the remaining markets it is sold at its normal price.

¨ Introducing An Element Of Interest

There are a number of promotions which are often called interest promotions. Some of the more popular interest promotion techniques are samples, contests, and sweepstakes, free premiums and mail-in premiums. These promotions create an element of interest and excitement, and consumers enjoy these and response enthusiastically to such contests and sweepstakes, etc.

Fevicol had recently launched a contest in which one had to choose 3 Fevicol ads which they considered the best, and then complete a slogan ‘I like Fevicol ads because…’

¨ Impulse Buying Is Increasing

The number of marginal customers is increasing. Displays at the point of purchases lead to impulse buying by consumers, more so if the items on display are not expensive. There is a popular saying in Hindi, “jo dikhta hai, voh bikta hai.”

This strategy is followed by soft drink majors like Pepsi and Coke on a large scale. They pay huge sums of money to keep their products in front so that they are visible.

These are also known as display promotions

¨ Sales Promotion Specialists Are Available

As a result of economic liberalisation, the number of management institutions has increased. This has lead to the availability of specialists, who are not only well paid but can handle this specialised work more efficiently in the current market conditions, where sales promotion has become more important.

¨ Excess Stocks

Because of increasing number of brands, it is difficult for manufacturers and dealers to anticipate future sales. This, at times, leads to excessive inventories, and the quickest way to clear that, is to go for sales promotion.

Footwear companies like Bata, Woodland, etc regularly offer around 50% discount on their products.

ADVANTAGES OF SALES PROMOTION

Sales promotions have a significant effect on the behaviour of consumers and trades people. Such promotions can bring in more profits for the manufacturers because they permit price discrimination.

¨ Price discrimination

Producers can introduce price discrimination through the use of sales promotions. They can charge different prices to different consumers and trade segments depending on how sensitive each segment is to particular prices. Coupons, special sales events, clearance sales and discounts are examples to explain the phenomenon.

Often such price discrimination are offered in specific cities in the country,

§ Bajaj Auto Ltd. started the scheme on 20^th august 2001, where by if you buy a Bajaj Spirit two-wheeler you get Rs.3000/- off, valid only in Ahmedabad.

Such price discriminating sales promotions that enable consumers and traders to pay less in certain market area or stores usually bring in more contribution than if one price is charged to all. Such price discrimination also held in adjusting to fluctuations in demand and supply situation without affecting any changes in the list price.

¨ Effect on consumer behaviour

As sales promotions are mostly announced for a short period, customers may feel a sense of urgency and stop comparing the alternatives. They are persuaded to act now rather than later.

With every 500g pack of Tang, you get a free Tang glass. Offer valid only till stocks last.

In our over communicated society and because of selective attention, it is not uncommon to ignore many advertisements. Sales promotion deals such as discounts, debates, coupons, premiums, etc also increased the attention getting power of advertisements and convey the advantages and benefits of the brand, including price information. By using promotions, marketers can reach the deal prone customers and encourage brand switching.

¨ Effect on trade behaviour

Short-term promotions present an opportunity and encourage dealers to forward by. This forward buying ensures that retailers won’t to go out of stocks. As dealers have more than the normal stocks, they think it advisable to advertise in local media, arranged displays and offer attractive promotion deals to consumers. These actions help in increasing the store traffic.

§ Retailer promotion: Buy Cadbury’s products worth Rs.3000/- and get any 30 chocolates worth Rs.5 each free.

§ Buy a box of Munch and get 1 Munch free.

Regional Differences

The South is generally characterised by greater degree of going out and people tend to drink outside the house. The Tamilian, consumer in particular, is value oriented, rational and looks up to film stars, while the Keralite is more international in his outlook. The Bangalorean is as Cosmopolitan as his Mumbai or Delhi counterpart."

That sort of diversity, believes Coca-Cola, calls for a corresponding variety in promotions. The place to attract is the retail zone. Coca-Cola recently launched a promotion called ' world of Coca-Cola' covering Chennai in Tamil Nadu and Bangalore and Mysore in Karnataka. It was a value deal, aimed at the consumer disposed towards global- style outings. The consumer pays Rs 20 along with a label of a 500 ml of PET bottle to get a card which entitles him to gifts and discounts at 29 outlets, including those of global chains such as TGI Friday and Baskin and Robbins this, in these cities. About four years ago, Pepsi had a similar promotion with its Pepcards. This, however was on a national level, while the Coca-Cola promotion is South based build retail level activity matters more than it does in the North. The primary aim is to help the retail raise volumes.

DISADVANTAGES OF SALES PROMOTIONS

While sales promotion is a powerful and effective method to produce immediate short term positive results, it is not a cure for a bad product or bad advertising. In fact, a promotion is speed up the killing of a bad product.

¨ Increased price sensitivity

Frequently promoted brands in the product category, especially on the basis of price, make consumers and traders more price sensitive not only for the promoted brands but for other brands as well in the same product category.

Consumers wait for the promotion deals to be announced and then purchase the product. This is true even for brands where brand loyalty exists. Customers wait and time their purchases to coincide with promotional offers on their preferred brands.

¨ Quality image may become tarnished

If the promotions in a product category have been rare, or the product happens to be of high involvement category, the promotions could have a negative effect about its quality image. Consumers may start suspecting that perhaps the product has not been selling well, the quality of the product is true compared to the price or the product is likely to be discontinued because it has become outdated.

¨ Dealers forward buy and divert stocks

In case of deals for the trade, many dealers forward buy, in excess of their inventory requirements. This is particularly happens if a product is low bulk, much in demand and the inventory holding costs are favourably low. This is true both for wholesalers as well as retailers. Forward buying of excessive stocks on deals or quantity discounts can lead to diversion of some of the stocks in non-deal areas. Forward buying of excessive stocks on deals or quantity discounts can lead to diversion of some of the stocks in non- deal areas. Wholesalers and retailers do not hesitate in selling these excess stocks in non- deal areas on prices that are less than the list price, but keeping some reasonable margin for themselves. This is likely to have a negative effect on price discrimination efforts of the company as dealers and those areas would not be buying even the normal requirements from the company.

¨ Merchandising support from dealers is doubtful

One of the trade promotions tool is to offer promotional allowances to trade people to motivate them to provide merchandising support and to pass on some benefit to consumers. This generally is the condition attached with such promotional allowances. In many cases, the dealers do not cooperate in providing the merchandising support nor do they pass on any benefit to consumers. The retailer might not be willing to give support because he does not have the place, or the product does not sell much in his shop, or may be he thinks the effort required is more than the commission/benefit derived.

¨ Short-term orientation

Sales promotions are generally for a short duration. This gives a boost to sales for a short period. This short-term orientation may sometimes have negative effects on long-term future of the organization. Promotions mostly build short-term sales volume that is not maintained. Heavy use of sales promotion, in certain product categories, may be responsible for causing brand quality image dilution.

The argument given in favour is that companies should develop superior products or services which are better than competitors and consumer should be convinced through appropriate and focused advertising about the superiority of the product and its image.

This will result in lasting brand identities reflecting consumer values. Then there will be no need to offer any extra benefits; only the lasting brand image will keep customers loyal to the brand.