Tools of Sales Promotion

To increase the sale of any product manufactures or producers adopt different measures like
sample, gift, bonus, and many more. These are known as tools or techniques or methods of sales
promotion. Let us know more about some of the commonly used tools of sales promotion.
(i) Free samples: You might have received free samples of shampoo, washing powder, coffee
powder, etc. while purchasing various items from the market. Sometimes these free samples are
also distributed by the shopkeeper even without purchasing any item from his shop. These are
distributed to attract consumers to try out a new product and thereby create new customers. For
example, in the case of medicine free samples are distributed among physicians, in the case of
textbooks, specimen copies are distributed among teachers.
(ii) Premium or Bonus offer: A milk shaker along with Nescafe, mug with Bournvita, toothbrush
with 500 grams of toothpaste, 30% extra in a pack of one kg. are the examples of premium or
bonus given free with the purchase of a product. They are effective in inducing consumers to buy a
particular product. This is also useful for encouraging and rewarding existing customers.
(iii) Exchange schemes: It refers to offering exchange of old product for a new product at a price
less than the original price of the product. This is useful for drawing attention to product
improvement. Bring your old mixer-cum-juicer and exchange it for a new one just by paying
Rs.500 or exchange your black and white television with a colour television are various popular
examples of exchange scheme.
(iv) Price-off offer: Under this offer, products are sold at a price lower than the original price. Rs.
2 off on purchase of a lifebouy soap, Rs. 15 off on a pack of 250 grams of Taj Mahal tea, Rs. 1000
off on cooler etc. are some of the common schemes. This type of scheme is designed to boost up
sales in off-season and sometimes while introducing a new product in the market.
(v) Coupons: Sometimes, coupons are issued by manufacturers either in the packet of a product
or through an advertisement printed in the newspaper or magazine or through mail. These
coupons can be presented to the retailer while buying the product. The holder of the coupon gets
the product at a discount. For example, you might have come across coupons like, show this and
get Rs. 15 off on purchase of 5 kg. of Annapurna Atta. The reduced price under this scheme
attracts the attention of the prospective customers towards new or improved products.
(vi) Fairs and Exhibitions: Fairs and exhibitions may be organised at local, regional, national or
international level to introduce new products, demonstrate the products and to explain special
features and usefulness of the products. Goods are displayed and demonstrated and their sale is
also conducted at a reasonable discount.
(vii) Trading stamps: In case of some specific products trading stamps are distributed among the
customers according to the value of their purchase. The customers are required to collect these
stamps of sufficient value within a particular period in order to avail of some benefits. This tool
induces customers to buy that product more frequently to collect the stamps of required value.
(viii) Scratch and win offer: To induce the customer to buy a particular product scratch and win
scheme is also offered. Under this scheme a customer scratch a specific marked area on the
package of the product and gets the benefit according to the message written there. In this way
customers may get some item free as mentioned on the marked area or may avail of price-off, or
sometimes visit different places on special tour arranged by the manufacturers.
(ix) Money Back offer: Under this scheme customers are given assurance that full value of the
product will be returned to them if they are not satisfied after using the product. This creates
confidence among the customers with regard to the quality of the product. This technique is
particularly useful while introducing new products in the market.

Importance of Sales Promotion

From the point of view of manufacturers
Sales promotion is important for manufacturers because
i. it helps to increase sales in a competitive market and thus, increases profits;
ii. it helps to introduce new products in the market by drawing the attention of potential customers;
iii. when a new product is introduced or there is a change of fashion or taste of consumers, existing
stocks can be quickly disposed off.
From the point of view of consumers
Sales promotion is important for consumers because
i. the consumer gets the product at a cheaper rate;
ii. it gives financial benefit to the customers by way of providing prizes and sending them to visit
different places.
iii. the consumer gets all information about the quality, features and uses of different products.
Pricing strategies in the Product Life Cycle (PLC)
Pricing in the introductory stage of the life cycle
With an innovatory product its developers can expect to have a competitive edge, at least for a
period of time. With innovatory new products, a company can elect to choose between two
extreme pricing strategies
Price skimming: introducing new products at a high price level. The setting of a high initial
price can be interpreted as an assumption by management that eventually competition will
enter the market and erodeprofit margins. The company therefore sets the high price so as
to milk the market and achieve the maximum profits available in the shortest period of
time. This market skimming strategy involves the company estimating the highest price the
customer is willing or able to pay, which will involve assessing the benefits of the product to
the potential customer When a company adopts this kind of strategy the following variables
are usually present:
The demand for the product is high
The high price will not attract early competition
The high price gives the impression to the buyer of purchasing a high quality product from a
superior firm
Price penetration: Introducing new products at a low price level. The setting of a low price
strategy or market penetration strategy is carried out by companies whose prime objective
is to capture a large market share in the quickest time period possible. The conditions which
usually prevail for penetrating pricing to be effective include:
The demand for the product is price sensitive
A low price will tend to discourage competitors from entering the market
Potential economies of scale and/or significant experience curve effects
SETTING THE PRICE
Step 1: Selecting the Pricing Objective
A company can pursue any of five major objectives through pricing:
Survival. This is a short-term objective that is appropriate only for companies that are plagued
with overcapacity, intense competition, or changing consumer wants. As long as prices cover
variable costs and some fixed costs, the company will be able to
remain in business.
Maximum current profit. To maximize current profits, companies estimate the demand and costs
associated with alternative prices and then choose the price that produces maximum current profit,
cash flow, or return on investment. However, by emphasizing current profits, the company may

sacrifice long-run performance by ignoring the effects of other marketing-mix variables,

competitors reactions, and legal restraints on price.
Maximum market share. Firms such as Texas Instruments choose this objective because they
believe that higher sales volume will lead to lower unit costs and higher long-run profit. With this
market-penetration pricing, the firms set the lowest price, assuming the market is price sensitive.
This is appropriate when
(1) the market is highly price sensitive, so a low price stimulates market growth;
(2) production and distribution costs fall with accumulated production experience;
(3) a low price discourages competition.
Maximum market skimming. Many companies favor setting high prices to skim the market.
This objective makes sense under the following conditions:
(1) A sufficient number of buyers have a high current demand;
(2) the unit costs of producing a small volume are not so high that they cancel the advantage of
charging what the traffic will bear.
(3) the high initial price does not attract more competitors to the Market.
(4) the high price communicates the image of a superior product.
Product-quality leadership. Companies such as Maytag that aim to be product-quality leaders
will offer premium products at premium prices. Because they offer top quality plus innovative
features that deliver wanted benefits, these firms can charge more.
Step 2: Determining Demand
Each price will lead to a different level of demand and, therefore, will have a different impact on a
companys marketing objectives. The relationship between alternative prices and the resulting
current demand is captured in a demand curve. Normally, demand and price are inversely related:
The higher the price, the lower the demand. In the case of prestige goods, however, the demand
curve sometimes slopes upward because some consumers take the higher price to signify a better
product. Still, if the price is too high, the level of demand may fall.
Step 3: Estimating Costs
While demand sets a ceiling on the price the company can charge for its product, costs set the
floor. Every company should charge a price that covers its cost of producing, distributing, and
selling the product and provides a fair return for its effort and risk.
Step 4: Analyzing Competitors Costs, Prices, and Offers
Within the range of possible prices determined by market demand and company costs, the firm
must take into account its competitors costs, prices, and possible price reactions. If the firms offer
is similar to a major competitors offer, then the firm will have to price close to the competitor or
lose sales. If the firms offer is inferior, it will not be able to charge more than the competitor
charges. If the firms offer is superior, it can charge more than does the competitorremembering,
however, that competitors might change their prices in response at any time.
Step 5: Selecting a Pricing Method
The three Csthe customers demand schedule, the cost function, and competitors pricesare
major considerations in setting price. First, costs set a floor to the price. Second, competitors
prices and the price of substitutes provide an
orienting point. Third, customers assessment of unique product features establishes the ceiling
price. Companies must therefore select a pricing method that includes one or more of these
considerations. We will examine six price-setting methods: markup pricing, target-return pricing,
perceived-value pricing, value pricing, going-rate pricing,
and sealed-bid pricing.
Step 6: Selecting the Final Price
The previous pricing methods narrow the range from which the company selects its final price. In
selecting that price, the company must consider additional factors: psychological pricing, the
influence of other marketing-mix elements on price, company pricing policies, and the impact of
price on other parties.
ADAPTING THE PRICE
Companies usually do not set a single price, but rather a pricing structure that reflects variations in
geographical demand and costs, market-segment requirements, purchase timing, order levels,
delivery frequency, guarantees, service contracts, and other factors. As a result of discounts,

allowances, and promotional support, a company rarely realizes the same profit from each unit of a
product that it sells.
Geographical Pricing
In geographical pricing, the company decides how to price its products to different customers in
different locations and countries. For example, should the company charge distant customers
more to cover higher shipping costs, or set a lower price to win additional business? Another issue
is how to get paid.
Barter: The direct exchange of goods, with no money and no third party involved.
Compensation deal: The seller is paid partly in cash and partly in products.
Buyback arrangement: The seller sells a plant, equipment, or technology to another country and
agrees to accept as partial payment products manufactured with the supplied equipment.
Offset: The seller receives full payment in cash but agrees to spend a substantial amount of that
money in that country within a stated time period.
Price Discounts and Allowances
Cash Discounts: A cash discount is a price reduction to buyers who pay their bills promptly.
Quantity Discounts: A quantity discount is a price reduction to those buyers who buy large
volumes.
Functional Discounts: Functional discounts (also called trade discounts) are offered by a
manufacturer to trade-channel members if they will perform certain functions, such as selling,
storing, and record keeping. Manufacturers may offer different functional discounts to different
trade channels but must offer the same functional discounts within each channel.
Seasonal Discounts: A seasonal discount is a price reduction to buyers who buy merchandise or
services out of season.
Allowances: Allowances are extra payments designed to gain reseller participation in special
programs. Trade-in allowances are price reductions granted for turning in an old item when buying
a new one.
Promotional Pricing
Companies can use any of seven promotional pricing techniques to stimulate early Purchase.
However, smart marketers recognize that promotional-pricing strategies are often a zero-sum
game. If they work, competitors copy them and they lose their effectiveness. If they do not work,
they waste company money that could have been put into longer impact marketing tools, such as
building up product quality and service or strengthening product image through advertising.
Discriminatory Pricing
Discriminatory pricing occurs when a company sells a product or service at two or more prices that
do not reflect a proportional difference in costs. Discriminatory pricing takes several forms:
Customer-segment pricing: Different customer groups pay different prices for the same
good or service.
Product-form pricing: Different versions of the product are priced differently but not
proportionately to their respective costs.
Image pricing: Some companies price the same product at two different levels based on
image differences.
Location pricing: The same product is priced differently at different locations even though
the costs are the same.