Raymon Magassey

University of Economics in Prague
Faculty of Business Administration

Program: International Management
The Effectiveness of Sales Promotion in the

FMCG Sector
Author: Bc. Lucie Mllerov

Supervisor: Ing. Miroslav Karlek, Ph.D.
Declaration of authorship
I hereby declare that I have written this thesis without any help of others. I also declare
that I have mentioned all used sources and have cited them correctly.
Prague, Czech Republic, 20 December 2011

Lucie Mllerov
Acknowledgement
I would like to thank Ing. Miroslav Karlek, Ph.D. for his academic consultancy and
supervision of this thesis.
Additionally, I would like to thank my colleagues at Nestl for making all necessary
information available to execute my research and for providing me with their support.
Abstract
The overall goal of this thesis is to draw relevant conclusions about the nature, impact
and characteristics of sales promotions within the category of ready-to-eat cereals, based
on thorough analysis of their effects. It is studied, whether sales promotions are
beneficial or not for the long-term sales and how the shopper behaviour is influenced by
the sales promotion activities. The effects of sales promotion on the overall
consumption in the category are analyzed and other factors influencing the consumption
are observed.
Key words:
- Sales promotion
- Effectiveness
- Efficiency
- FMCG
- Evaluation Program
Table of contents
Declaration............2
Acknowledgement...........3
Abstract.............4
Introduction..........5
A) THEORETICAL PART...................................................................................................7
1
Sales promotion....................................................................................................... 10
1.1
Sales promotion definition ............................................................................... 10
1.2
Sales promotion types ...................................................................................... 11
1.3
Sales promotion objectives ............................................................................... 15
Factors influencing responsiveness to sales promotion .......................................... 17

2.1
Psychographic factors ....................................................................................... 17
2.2
Demographic factors ........................................................................................ 18
Sales promotion effects ........................................................................................... 20

3.1
Effect of sales promotion on consumer decisions ............................................ 20
3.2
Effects of promotion-induced stockpiling on sales .......................................... 21
3.3
Effects of sales promotion on brand loyal and brand switching consumers .... 24
3.4
Long-term effect of sales promotion on brand image ...................................... 27
3.5
Empirical generalizations about sales promotions ........................................... 28
The evaluation procedure ........................................................................................ 31
Sales promotion evaluation ..................................................................................... 34

5.1
The process of sales promotion planning and evaluation ................................. 38
B) PRACTICAL PART........................................................................................................41
6
Hypotheses statement .............................................................................................. 41
Background ............................................................................................................. 42
7.1
About the company .......................................................................................... 42
7.2
The category characteristics ............................................................................. 42
7.3
The initial situation ........................................................................................... 45
Promo evaluation program ...................................................................................... 47

8.1
Promo evaluation program requirements ......................................................... 47
8.2
Processes within the evaluation program ......................................................... 48

5
8.2.1
Step one: Data preparation ........................................................................ 48
8.2.2
Step two: Data processing ......................................................................... 50
8.2.3
Step three: Promo evaluation .................................................................... 53
Hypotheses verification ........................................................................................... 61

9.1
Verification of Hypothesis 1 ............................................................................ 61
9.2
9.3
Conclusion..70
Bibliography...73
List of figures.....76
List of abbreviations..................................................................................................................77
List of used terms......................................................................................................................77
Introduction
Motivation and context
The consumer habits and behaviour change and evolve throughout the time, and so do
the marketing activities and approaches of manufacturers. Up until recent history, sales
promotions were perceived only as a rather unimportant complement to advertisement.
Nowadays, however, most decisions about purchases occur at the point of purchase,
thus sales promotion activities represent an increasingly important and effective part of
company communication mix. This phenomenon is also reflected in the fact that the
suppliers budget for sales promotions sometimes even exceeds budget for the
advertisement spending.
Sales promotions became even more prevalent discussion topic, as the economic crisis
deepened and buyers appetite for various forms of promotions such as discounts,
premiums or loyalty programs graduated. Since most of the volumes were generated via
such promotions, the fierce nature of FMCG competition would not allow virtually any
company to survive without extensive use of them.
However, the temporary and even unsustainable nature of certain sales promotions
occurs under criticism of numerous academics and practitioners. Their arguments are
most frequently related to the urgent need of planning and focusing promotions
efficiently, as well as measuring of their impact. The author conducted initial research
into this topic and realized the insistent demand for an effective evaluation program
from literarily every FMCG manufacturer on the market.
Due to the authors current position as an analyst within the Cereal Partners Czech, a
division of Nestl esko, a.s., which operates in the category of ready-to-eat cereals
(further RTEC), the author will have a unique opportunity to design conclusions based
on real-life data. Such recommendations can then serve as a helpful source of
information for forming the sales promotion strategy not only in Cereal Partners Czech,
but they could serve as good inspiration for any FMCG company in these difficult
times.
The conclusions of the thesis can serve as a helpful source of information for forming
the sales promotion strategy not only in Cereal Partners Czech, but they could serve as
good inspiration for any FMCG company in these difficult times.
Research objectives
The overall goal of this thesis is to draw relevant conclusions about the nature, impact
and characteristics of sales promotions within the RTEC category, based on thorough
analysis of their effects. The conclusions shall be drawn while answering the following
research agenda:
How is the shoppers behaviour influenced by the sales promotion activities?

To which extent are sales promotions beneficial for the long-term sales for
RTEC?
What are the effects of sales promotion on the overall consumption in the RTEC
category and what other factors are influencing the consumption?
Methodology
In order to fulfil the aim of this thesis, suitable evaluation program will be developed,
which will enable relevant analyses of the sales promotion effects. The evaluation
program should enable calculations of the effectiveness and efficiency of various sales
promotions.
A relevant sample of real sales promotions, executed by Cereal Partners Czech, will be
evaluated by the program developed especially for the purpose of this thesis by the
author, and the results from the various sales promotions will be cross-checked and
compared, in order to run final analyses on the group sample. In case of Cereal Partners
Czech, the evaluation tool shall be further integrated to perform pre- and posterior
evaluations of sales promotions within the company on a regular basis.
Structure of the thesis
In the theoretical part, secondary research of available resources dealing with sales
promotions will be performed. Initially, scientific publications concerned with
characteristics and classification of sales promotions will be studied and critically
analyzed. Furthermore, research studies concerned with various effects of sales
promotions, their tools and types will be evaluated. Finally, literature resources
addressing the evaluation procedures of sales promotions will be examined. Various
theoretical frameworks will be studied and analyzed in order to identify effects of sales
promotions, which would be significant for the RTEC category. Design of suitable
methodology of sales promotion evaluation will be also constructed on this theoretical
foundation.
Findings from the theoretical background will be directly applied in the practical part of
this thesis to define key hypotheses relevant to the RTEC category. The development of
the evaluation program and its functionality shall be described in detail. Then, the
hypotheses will be tested on a relevant and extensive sample of sales promotions
executed by Cereal Partners Czech. Finally, the interpretation of most substantial
findings will serve as basis for drawing conclusions in respect to the verification of the
critical hypotheses of this study.
A) THEORETICAL PART
1 Sales promotion
1.1 Sales promotion definition
Sales promotion is part of the marketing communication mix. Whereas advertising
offers the customer reasons for the purchase, sales promotion represents a clear and
concrete motive of the purchase. Sales promotion can be defined as a mix of incentivebased marketing activities which directly stimulates the shoppers behaviour, increases
the effectiveness of trade intermediaries or motivates the sales force, in order to
generate immediate sales.
Such incentives enhance the products value by adding some benefits that go beyond the
products functionality or brand image. Therefore, sales promotion is commonly used in
categories, where products do not differ much, where the competition is fierce and thus
it is insufficient for a company to differentiate its products just by a strong brand image
Fast Moving Consumer Goods (FMCG) sector is a good example of such
environment. 1
Before, sales promotion activities were considered an unimportant complement to other
communication techniques. Nowadays, however, sales promotion represents an
effective integral part of marketing communication mix. Moreover, when the world is
experiencing the economic crisis, consumers are even more sensitive to the sales
promotion, in order to make a good deal and save money.
Following trends which developed over the last decades caused the growth of sales
promotion importance2:
1
2
Shift of power from manufacturer to retailer

Increased price sensitivity of consumers (even deepened due to crisis)
Increased brand parity (perception that some brands are equal)
Reduced brand loyalty (brands are increasingly similar)
Reduced media effectiveness
Pressure to achieve short term results in companies
Pikrylov, J.; Jahodov, H.: Modern Marketingov Komunikace. Grada publishing (2010), p. 88
Shimp, T.: Advertising, Promotion, and other aspects of Integrated Marketing Communications. 7th edition, (2007), p. 495
10
Strong positive of sales promotion, in contrast to advertising, is its ability to influence

immediate behaviours and thus generate an immediate and strong sales response.
Another advantage is that sales promotion is relatively easy to evaluate due to its
measurability.
A disadvantage, however, is the temporary character of sales promotion, the so called
Out of sight, out of mind effect. Moreover, it distracts the consumer from focusing on
the brand itself, and lets him focus only on the sales-promotion incentive. Brand loyalty
is therefore not increased, and when the sales promotion is over, it usually gets back to
its pre-promotional level. What often happens, according to research, is that price sales
promotions make the consumers more price sensitive in the long term. What is more,
the consumers are actually trained by the repeating price sales promotions to seek for
deals. This logically can lead to brand switching.3
Another drawback is its high cost, which sometimes even exceeds the advertising
expenses. Moreover, other negative effect, which sales promotions can have, is the
possible devaluation of the brand, caused by the temporary price reductions the price
is an important element of the brand positioning, and an inappropriate sales promotion
can undermine the overall brand strategy.4
1.2 Sales promotion types

Sales promotion can be classified according to its target audience. Sales promotional
efforts target following groups (see Figure 1):
3
4
Consumer sales promotions
Trade sales promotions (Retailers)
Sales force promotions
Machkov, Hana; Krl, Petr; Lhotkov, Markta a kol.: International Marketing. Oeconomica (2010), p. 173
11
Figure 1 Sales promotional targets
Source: Shimp, T.: Advertising, Promotion, and other aspects of Integrated Marketing Communications. 7th edition, (2007), p. 492
Consumer sales promotions

This type of sales promotions utilize a variety of methods and tools, which combined
with advertising, should lead to increased sales volume and share of market, activating
sales of a maturing product, attracting consumers to a product trial or can even represent
a reaction to competitors activities (so called pull strategy).
The consumer sales promotion tools can be divided into five main groups:
Price promotions
Samples and free trials
Premiums and gifts
In-store marketing
Competitions and loyalty programs
A discount, coupon or a bonus belong to the most commonly used tools, and are based
on price reduction of the product price promotions. A discount is a direct price
reduction, a coupon is a certificate providing a consumer who redeem it with a price
reduction, and a bonus is an extra quantity of a product at a reduced price (e.g.
multipack, or 20% for free). Price-reduction-based techniques are used in all product
categories, sometimes they can serve to attract consumers to a product trial. They are
also used to activate sales in FMCG despite the fact that profit margin per unit is
lowered; the total profit can be increased thanks to the additional sales.
However both activating sales and attracting new customers very often end up
unsuccessful in the long term, as it is largely utilized by current users who would buy
the product anyway, or by brand switchers. Thus, the short period of sales growth is
accompanied by a decline. This raises a question why companies do price promotions
12
that often. The answer could be probably found in the business environment itself.
Nowadays the competitiveness of producers is very high and price reductions can serve
as a defensive tool to be prevented from customer loss. Moreover, consumers are
accustomed to price promotions and seek for them.
Samples and free trials are used to persuade nonusers to try a product. Sampling is
typically used in FMCG (e.g. tastings), whereas free trials are usually used in case of
durable goods (e.g. test drives). Despite its high cost, this technique is probably the
most effective communication tool to generate trials. Sampling or trials are generally
used for launches of new brands or innovative products. Sampling is usually located in
places with high traffic as events, retail stores, universities or even streets. In retail
stores, there is the highest chance to influence the shopper behaviour immediately.
Research says that about 75% of consumers will try a sample if they receive it. 5 If the
consumer is content with the sample, there is a chance he/she will continue purchasing
the product on a regular basis. However, there is a high probability of wastage as
current users or nonusers with low potential are reached as well.
Premiums and gifts are techniques where consumers gain something in addition to the
purchased product. The item should be linked to the brand identity of the product and
also should be rewarding for the consumer. This kind of sales promotion will be
successful in case the target audience would be willing to pay for the premium anyway.6
In-store marketing represents activities that take place at the point of purchase. It
includes various point-of-purchase media (POP media), merchandizing, and also
packaging of the product. These tools represent a very good way to influence the
shoppers decisions among brands, especially in FMCG.
The POP media, such as secondary placements, displays, banners, posters, wobblers,
shelf talkers, that are located at retail stores have the ability to stimulate impulse
purchases. According to the POPAI (Point-Of-Purchase Advertising Institute) study,
two thirds of all grocery purchase decisions are made in-store and therefore could be
influenced by POP media 7 . On the other hand, the POP media have to attract the
shoppers attention very quickly. According to the observational studies of the shopper
behaviour in the supermarket, sighting a POP display and placing an item into the
shopping cart takes on average only 9.4 seconds and almost 50% of purchases happen
Rossiter, J.R.; Bellman, S.: Marketing Communication: theory and applications. Pearson Education Australia, (2005), p. 351
Machkov, Hana; Krl, Petr; Lhotkov, Markta a kol.: International Marketing. Oeconomica (2010), p. 173-174
7
Shimp, T.A.: Promotion Management & Marketing Communications. 3rd edition. The Dryden Press, (1993), p. 555-558
6
13
within less than 5 seconds.8 For private labels (brands of the retail chains), POP media
represent almost the sole form of communication.
Merchandizing is a technique of such product presentation at retail shelves, which
optimizes the sales potential of products.
Creative product packaging also has the ability to influence the consumer, and moreover
can support the brand image after the purchase.
Loyalty programs and consumer competitions are tools which should stimulate
consumer loyalty. In case of loyalty programs, a regular utilization of a product is
recorded in a loyalty card, which later often allows the customer to gain various
discounts or advantages. In the meantime, the producer gains a lot of personal data of
the customer and of his/her shopping behaviour, which can be later utilized in forming
of the marketing strategy.
Competitions offer monetary and nonmonetary prizes, which also should gain
consumers loyalty. However, in most countries competitions are subject to legal
restrictions.
Trade sales promotions
The sales promotion can be targeted also on trade intermediaries (wholesalers, retailers,
or other channel members), which provide the reasons for displaying, stocking or
advertising the promoted brand (referred to as push efforts)9. Sometimes the aim is to
increase the knowledge about the promoted product characteristics. Following
incentives may be used:
8
9
Trade allowances
Various discounts (dependent on the sold amount or in case of repeated

purchase)
Products for free or symbolic price
Share of the point-of-sale advertising cost
Sales competitions or motivational programs (rewards for increased sales

volume)
3D advertisement tools (promotional products or gifts)
Category management
Rossiter, J.R.; Bellman, S.: Marketing Communication: theory and applications. Pearson Education Australia, (2005), p. 359
14
Rewards for product displays
Guaranteed buyback of products
It is important to mention that the two above mentioned sales promotional efforts (pull
and push) are not mutually exclusive; contrarily usually occur simultaneously.
Moreover, due to consolidations, retailers are more and more powerful, and therefore
consumer sales promotions would often not be likely to succeed unless trade
promotions were done.
Consequently, companies usually spend more of their budget on trade promotion than
on end-consumer sales promotion.10
Sales force promotions
The purpose of this type of promotion is to encourage the sales force, retail sales staff or
external sales representatives to better performance.
Following tools are used:
Competitions in sales volumes or gaining new customers

Specialized trainings, education, informational meetings
Incentives (e.g. in a form of excursions to exotic destinations)
Sales and promotional tools (sales handbooks, promotional items etc.)11
1.3 Sales promotion objectives

A well-designed sales promotion has the capability to:
10
11
Encourage the sales force enthusiasm for a product in all phases of its life cycle
Facilitate a launch of new products to the market many retailers refuse to

accept new product unless some extra compensation is provided to them
Revive a mature brand and thus prolong the product life cycle
Increase the shelf merchandising space trade sales promotions often enable the
manufacturer to obtain more shelf space or a better placement for a temporary
period
Attract customers to a trial of a new product
15
Strengthen advertising campaign of a brand if well integrated into the

communication mix
Offset competitors advertising and sales promotion activities
Encourage repeat purchases of current customers by various continuity or

loyalty programs
Stockpiling many deal-oriented sales promotions encourage the consumers to

buy more of the product than they would normally do. The question whether
such loading leads to a real increase of consumption in the long term or not will
be discussed further on. Moreover, when the consumer is loaded with one brand,
he is out of the marketplace for a while and therefore will not buy the
competitors brand.
However, to be able to fulfil such objectives, the producer usually has to offer financial
incentives to the channel intermediaries (wholesalers, retailers), such as increased sales
volume and/or profit margin. Moreover, a successful sales promotion has to have an
appropriate timing, should require minimal effort from the side of the retailer, and
should bring quick results which would also improve the retailers performance.12
Nevertheless, in reality the results of sales promotions are influenced by many factors,
and many side effects are brought about by sales promotion. In the following chapters,
several influential factors and some effects of sales promotions are discussed based on a
secondary research of empirical studies.
12
Shimp, T.: Advertising, Promotion, and other aspects of Integrated Marketing Communications. 7th edition, (2007); p. 499-506
16
2 Factors influencing responsiveness to sales promotion

When companies plan their communication mix, not only good knowledge of sales
promotional tools and their objectives is important, but it is also vital to know the target
audience and its behaviour. Consumer behaviour is influenced by many factors, and so
is responsiveness to sales promotion activities. In the following two chapters, selected
psychographic and demographic factors and their impacts are discussed.
2.1 Psychographic factors

Psychographic factors relate to consumers personality, lifestyle, values, interests and
attitudes.13
Due to a wide range of diverse products, it is hard for the manufacturers to estimate
reactions of the consumers. To determine at least some connections, three dimensions of
consumer behaviour Value consciousness, Deal proneness and Price consciousness
became a subject of studies. These three dimensions influence the way in which
consumers react to promotional offers.14
Value consciousness has been defined as the concern of ratio of quality received to
price paid in a purchase transaction. It is a concern for price paid relative to quality
received. 15 Value represents the lowest price a consumer would pay for a quality
brand. It is what the consumer gets for his money spent. Value conscious consumers are
seeking low prices, and are driven by the perception of making a good deal.
Price consciousness has been defined as the degree to which the consumer focuses
exclusively on paying low prices. A price conscious consumer will not be willing to
pay for distinguishing features of a product, if the price difference for these features is
too large.16
Deal proneness was measured as a frequency of purchases made on deal. It is a
tendency to respond to sales promotions because they are on deal. Deal proneness is a
psychological tendency to buy, not the actual purchase of the goods that are on
13
Goldberg, Joel: What are Psychographics? Source: http://www.marketsegmentation.com/what_are_psychographics.html.

Obtained 5.10.2011
14
Venu Gopal Rao: Effect of Sales Promotions on Consumer Preferences - The Moderating Role of Price Perceptions and Deal
Proneness (A Study of FMCG Products). Vilakshan, XIMB Journal of Management; (March 2009)
15
Lichtenstein, D. R., Netemeyer, R.G., & Burton, S.: Distinguishing coupon proneness from Value consciousness: An acquisitiontransaction utility theory perspective. Journal of Marketing, 54, (1990), p. 5467
16
Venu Gopal Rao: Effect of Sales Promotions on Consumer Preferences - The Moderating Role of Price Perceptions and Deal
Proneness (A Study of FMCG Products); Vilakshan, XIMB Journal of Management; (March 2009)
17
promotions. Deal prone customers carefully compare the benefits and the costs of the
purchase on promotion.
Manufacturers should take into account the three above mentioned dimensions while
designing a campaign. However, in reality it is quite hard to distinguish them in
consumer behaviour and use it in praxis.
2.2 Demographic factors

Some researchers and authors focused on the influence that demographic factors have
on consumer behaviour and on consumer reactions towards sales promotion activities.
Following factors were studied: gender, age, education, income, and household size.
Regarding gender, women are usually those, who are responsible for the household
shopping. They are therefore more knowledgeable about the offered products and their
characteristics, and also the sales promotion schemes. They also generally do more
planning on their purchases, and therefore are often more prepared when it comes to
e.g. the usage of coupons, which are generally not used by men very often.17 For the
above mentioned reasons, women are considered more deal prone consumers than
men18 . On the other hand, some research studies indicate that deal proneness is not
related to gender.19
Regarding age, the opinions among researchers vary. The age is logically linked with
the disposable income of a consumer. This differs from country to country, but
generally older consumers, especially those who are already retired, are assumed to
have fewer funds than economically active consumers. Some authors therefore found a
positive relationship between age and deal proneness 20 . Nevertheless, some authors
found out that there is a negative relationship, meaning that younger consumers are
more likely to search for deals.21
Education in relation to sales promotions has influence on so called thinking costs and
searching costs. It is generally assumed, that more educated people have a higher ability
to evaluate prices of products and sales promotion schemes, they have also a better
17
Davies Gary and Bell Jonathan, "The Grocery Shopper-Is He Different?", International Journal of Retail and Distribution
Management, 19 (1), (1991) p. 25-28
18
Blattberg R., Buesing T., Peacock P. and Sen S., "Identifying the Deal Prone Segment", Journal of Marketing Research, 15 (3),
(1978), p. 369-377
19
Lichtenstein D.R., Burton S. and Netemeyer R.G., "An Examination of Deal Proneness across Sales Promotion Types: A
Consumer Segmentation Perspective", Journal of Retailing, 73 (2), (1997), p. 283-297
20
Dodson J.A., Tybout A.M. and Stemthal B., "Impact of Deals and Deal Retraction on Brand Switching", Journal of Marketing
Research, (1978), p.72-81
21
18
access to sources of information about products and sales promotions. Therefore, a

positive relationship between education and deal proneness is expected. However, also
in this case the opinions of authors are inconsistent. According to Lichtenstein, less
educated consumers are more likely to be deal prone. 22
Income is considered the most important demographic factor affecting consumer
behaviour in relation to sales promotion. Consumers with lower income are generally
assumed to have higher financial restraints. Such consumers are also more likely to
have a greater interest in money saving. 23 According to this assumption, consumers
with lower income are more likely to be deal prone. Nevertheless, consumers with
higher income are less limited with their budgets and thus can be more likely to act
impulsively and respond to in-store sales promotions.24 Again, the relationship is not
consistent and the research findings are very conflicting. Some authors claim there is a
positive relation between income and responsiveness to sales promotions, others found
negative relation, and some authors even opine there is no relation between these two
variables.
Household size is the only factor, which has consistent results of studies. The general
assumption is the bigger the household, the more needs the family has. According to
some researchers, the grocery expenditures increase with the size of family25, and larger
families are also more price-sensitive. 26 Therefore there should be a positive
relationship between size of household and deal proneness. Some authors however point
out that households with presence of small children have less time available to
searching activities, and therefore are considered to be less deal prone. 27
22
23
(1978), p. 369-377
24
Inman J.J., McAlister L. and Hoyer W.D., "Promotion Signal: Proxy for a Price Cut?," Journal of Consumer Research, 17 (1),
(1990), p. 74-81
25
Bawa K. and Gosh A., "A Model of Household Grocery Shopping Behavior," Marketing Letters, 10 (2), (1999), p. 149-160
26
Manchanda P., Ansri A. and Gupta S., "The 'Shopping Basket': A Model for Multicategory Purchase Incidence Decisions,
Marketing Science, 18 (2), (1999), p. 95-114
27
(1978), p. 369-377
19
3 Sales promotion effects

3.1 Effect of sales promotion on consumer decisions
The Utility theory explains how consumers facing a sales promotion message evaluate
the value of a purchase of a product. Consumers compare the gain and the loss from the
transaction. The final decision will depend on a sum of acquisition and transaction
utilities. 28
Acquisition utility is a comparison of the price paid to the product value. Sales
promotion can be perceived either as a gain or as a reduced loss.29 Whether it is a
gain or a loss depends on how the promotion is presented monetary promotions are
more likely to be perceived as a reduced loss, whereas non-monetary promotions are
more likely to be seen as a gain. 30 According to a study, in case of more expensive
products, the consumers will be more responsive to monetary promotions than in case
of products with a regular price. Conversely, regular priced product will be sold better if
a non-monetary promotion is used than if it was used with a high priced product.31
Transaction utility is the comparison of the price to a reference price of a consumer. 32
Each consumer is assumed to have an internal price level (a reference price) and
compare each price of a product with this standard. If a price falls into the internal price
level, it is accepted and added to the internal price range. If a price is outside of the
internal level, it has no influence on the internal price range. The external prices
therefore influence the value perceptions and deal evaluations of consumers.33
Based on a study of Indian market, the highest contributor to sales promotion schemes
is the Fast Moving Consumer Goods (FMCG) sector, followed by durable goods. 34 The
main goal of sales promotion, as already mentioned, is to create an immediate need to
buy a product by adding an extra value. Promoted products are supposed to influence
the buying behaviour of consumers as they are perceived more valuable than standard
products without a promotion.
Thaler, R.: Mental Accounting and Consumer Choice, Marketing Science, vol. 4, no. 3, (1985), p. 199-214
Thaler, R.: Mental Accounting and Consumer Choice, Marketing Science, vol. 4, no. 3, (1985), p. 199-214
30
Sinha, Inderjit; Smith, Michael F.: Consumers Perceptions of Promotional Framing of Price, Psychology & Marketing, Vol 17,
(2000), p. 257 275
31
Makienko, Igor: Too Good to be True vs. Too High to be Good : The Role of Products Price and Form of Incentive in Sales
Promotion Evaluations, Advances in Consumer Research, Vol 33, (2003), p. 330
32
Thaler, R.: Mental Accounting and Consumer Choice, Marketing Science, vol. 4, no. 3, (1985), p. 199-214.
33
Alford, Bruce A, Biswas, Abhijit: The Effects of discount level, price consciousness and sale proneness on consumers price
perception and behavioural intention, Journal of Business Research, Vol 55, (2002), p. 775 783
34
Priya Jha Dang, Abraham Koshy: An Empirical Investigation of Sales Promotion Schemes in India, Working Paper, IIM
Ahmedabad, (2003)
28
29
20
Such incentives can be divided to monetary (discounts, coupons etc.) and nonmonetary (premiums, contests, samples etc.). Generally, monetary sales promotions are
favoured by manufacturers, as price is a good indicator in sales promotion planning.
Price represents what consumer will have to sacrifice in order to obtain a promoted
product. Price has a major influence on the consumers perception of brand (product).
Price is usually perceived to be in a positive relationship with quality. On the other hand
it can be in a negative relationship with purchase probability.
Sales promotions are framed by manufacturers in order to bring positive responses.
Manufacturers choose between alternative sales promotions with the aim of attracting
consumers. Such framing should enable the consumer to estimate the price savings from
the possible purchase. Framing also has the ability to form consumer preferences, which
are also influenced by demographic and psychographic factors.
Many authors have studied effects of sales promotions on consumer preferences. For
example a study by Priya Raghubir (2004) concluded that Extra product promotion
enhances the transaction value. According to the study results, an expensive gift will be
viewed more positively when tagged with an expensive product.35
3.2 Effects of promotion-induced stockpiling on sales

Sales promotions often lead to stockpiling (loading) of consumers. The promotion
induces consumers to buy sooner or bigger amounts than they would normally do.
According to a study, stockpiling evoked by sales promotion enables the retailers
transfer cost of inventory holding towards the consumer.36
Such stockpiling can have ambiguous effects on manufacturers. First, it can be
negative, if the consumer buys more on promotion but reduces his future purchases by
the same amount. Second, stockpiling can bring two benefits: increase of the whole
category consumption and pre-empting the competition by inducing a brand switching
behaviour of the consumers (the consumer created inventory of a given brand and
reduces future purchases of competitors brand).
Whether consumer stockpiling will be beneficial or harmful for the manufacturer
depends on the acting of the consumer after the sales promotion is over:
Raghubir, Priya: Free Gift with Purchase: Promoting or Discounting the Brand, Journal of Consumer Psychology, Vol 14
(1&2), (2004), p. 181 186
36
Blattberg, Robert C., Gary D. Eppen, and Joshua Lieberman: A Theoretical and Empirical Evaluation of Price Deals for
Consumer Nondurables, Journal of Marketing, 45 (Winter), (1981), p. 11629
35
21
1. If the extra inventory leads to increased consumption, it is beneficial for the

manufacturer, and it is called the consumption effect.
2. If the extra inventory causes decreased purchases of competing brands, it is a
positive for the manufacturer called the pre-emptive switching.
3. However, if the extra inventory pre-empts future purchases of the promoted
brand, it is called loyal acceleration and represents a cost to the manufacturer
(as his profit margin is usually lower during the promotional period). According
to a research, loyal customers are more likely to loyal acceleration than
switchers.37
4. If the extra inventory influences the future purchases of the promoted brand, it
can be either harmful or beneficial for the manufacturer, depending on the fact
whether the probability of future purchase increases or declines. This effect is
called repeat purchase effect.38
Figure 2 summarizes the effects of sales promotion-induced stockpiling. The sales
promotion bump (effect) consists of two parts stockpiling and current-brand
switching. The stockpiling component consists of consumption effect, loyal acceleration
and pre-emptive switches. The fourth effect repeat purchase effect shows how future
brand choice is influenced by stockpiling, but it is not a direct component of the sales
promotion bump.
Figure 2 Summarization of all stockpiling effects
Source: Ailawadi, K.L., Gedenk, K., Lutzky, Ch., and Neslin, S.: Decomposition of the Sales Impact of Promotion-Induced
Stockpiling; Journal of Marketing Research 450 Vol. XLIV (August 2007), p. 451
Krishna, Aradhna: The Effect of Deal Knowledge on Consumer Purchase Behavior, Journal of Marketing Research, 31
(February), (1994), p. 7691
38
Ailawadi, K.L., Gedenk, K., Lutzky, Ch., and Neslin, S.: Decomposition of the Sales Impact of Promotion-Induced Stockpiling;
Journal of Marketing Research, 450 Vol. XLIV (August 2007), p. 450467
37
22
Although a research previous to a study of Ailawadi, Gedenk, Lutzky and Neslin (2007)
has found out that some of these components (effects) exist, they did not account for the
repeat purchase effect, and it was never quantified and calculated the individual
contribution of each effect. In the study of Decomposition of stockpiling effect, the
authors analyzed the impact of promotion-induced stockpiling on manufacturers sales.
They developed a mathematical model and simulation method for measuring all the four
mentioned effects and quantified their importance in two product categories yoghurt
and ketchup. They used scanned data from AC Nielsen for the two mentioned
categories.
Results of the decomposition of the sales-promotion bump of the yoghurt brands reveal
that there were significant bumps in all measured brands, where the most significant
part of the bump was represented by consumption effect, followed by current-brand
switching (these two formed approx. 90% of the bump), pre-emptive switching
accounted for 5%, and loyal acceleration represented 4%. An explanation for such a big
consumption effect in this category can be the short life of yoghurt on shelf. The repeat
purchase effect is not part of the bump.39
Results for the ketchup brands are different. The ketchup category is much more
concentrated with a strong market leader. All brands showed a large sales-promotion
bump, but with a different decomposition. The current-brand switching is the biggest
component (except for the market leader); the consumption effect is much smaller than
in case of yoghurts. Loyal acceleration and pre-emptive switching (around 9.5% and 8%
respectively in average) are much larger here than for yogurt. Heinz, the market leader
had the lowest current-brand switching percentage and highest loyal acceleration.40
In both categories the repeat purchase effect was positive, which represented an
additional benefit for the manufacturers, even though this effect does not directly belong
to the promotional bump.
To conclude, the promotional bump was in both categories formed mainly by increased
consumption effect, followed by pre-emptive switching and loyal acceleration, and
repeat purchases. From the financial point of view, consumption effect, pre-emptive
switching and repeat purchases are important benefits of stockpiling. Loyal acceleration
is an important cost; however, it can be compensated easily by any of the mentioned
benefits.
39
Journal of Marketing Research, 450 Vol. XLIV (August 2007), p. 459
40
Journal of Marketing Research, 450 Vol. XLIV (August 2007), p. 460-461
23
Moreover, there can be also a competitive brand sales-promotion bump. A promotion

for one brand can attract some customers to the category who would normally not buy
anything there, and therefore can induce a bump also for competing brands. According
to the analysis, the bump for competing brands (all together) is much smaller than for
the promoted one, and almost entirely consists of consumption effect, followed by loyal
acceleration. Such bumps are small, but still can be harmful to the promoted brand.41
Generally, the findings of the study show sales promotion-induced stockpiling
positively, because it brings consumption effect, pre-empts competitors sales and
has positive repeat purchase. However, in the long term, it has to be considered
that competitors could respond to an increased sales promotion activity with their
own sales promotions. Also, consumers get used to sales promotions very quickly,
which makes the future promotions less effective.42
3.3 Effects of sales promotion on brand loyal and brand switching

consumers
According to a theory, there are two concepts of consumer loyalty: behavioural loyalty
and loyalty as an attitude. Customers, who show only behaviour loyalty (so called
habitual buyers), buy a brand just because of their routine pattern of purchase. These
are quite likely to switch to another brand if their purchase routine is disrupted. The
second group is the truly loyal customers who are really committed to a particular
brand, have a favourable attitude towards it, and do not just buy it out of routine. Both
components (behaviour and attitude) have to be taken into account when concerning
consumer loyalty.43
When planning their marketing activities, manufacturers try to attract the consumer
sufficiently enough to make him start buying their brands on a regular basis. Therefore,
for decades, understanding brand loyalty and ways to influence it was of their high
interest. Sales promotion is one of means that can influence consumer shopping
behaviour and brand choice.
As already mentioned, sales promotions influence the consumer decision-making
process, as nearly 70% of all shopping decisions take place in-store. 44 Logically,
marketers therefore try to understand the whole process of decision making and how to
41
Journal of Marketing Research, 450 Vol. XLIV (August 2007), p. 463-466
42
Kopalle, Praveen K., Carl F. Mela, and Marsh, L.: The Dynamic Effect of Discounting on Sales: Empirical Analysis and
Normative Pricing Implications, Marketing Science, 18 (Summer), (1999), p. 31732
43
Aaker, D. A., Building Strong Brands. Free Press, New York, (1996)
44
De Pelsmacker, P., Geuens, M., and Van den Bergh, J.: Marketing Communications, Prentice Hall, London, (2001)
24
influence it. However, a significant portion of the substance of sales promotion effects
still remains to be understood.
According to a research, loyal customers help increase companys market shares and
other indicators, as they are less price-sensitive, and therefore would be willing to pay
even higher prices to get their favourite brand.45 Brand loyal customers are thus vital to
be kept by the company. Some manufactures target their activities also at brand
switchers to increase their customer base and gain even bigger market share.
According to a definition, brand loyalty refers to the biased behavioural response
expressed over the time by some decision making unit with respect to one or more
alternative brands out of a set of such brands and is a function of a psychological
decision making process. Brand loyalty is therefore a composite of both the behavioural
and psychological aspects of consumer behaviour.46
For creating successful marketing strategies, it is important to understand how
consumers with different degrees of loyalty respond to sales promotions. Following
aspects can decide whether a consumer will repeat the purchase or switch to another
brand: brand name, price, product quality, store environment, style, service and sales
promotion. The last factor, sales promotion, is the most significant one for many
categories. The opinions about sales promotion among researchers differ. Some believe
sales promotions are harmful for the brand equity, as they increase brand switching.
Others say sales promotions are beneficial as they increase the knowledge of producers
brand. Sales promotion also increases the probability of trial of manufacturers brand.
Thanks to the incentive in the form of value added, the consumer feels like a smart
shopper who feels pride to have realized a good deal.47
A study of the influence of sales promotions on the consumer loyalty in sportswear
category in Hong Kong concluded that sales promotion is the main factor that
distinguishes brand loyal consumers from brand switchers. It says brand loyalty of loyal
consumers is influenced by brand name and style. Brand switchers, on the other hand,
are those, who are most attracted by sales promotions.48
The two segments (loyal and non-loyal) also react differently to sales promotions
regarding previously mentioned stockpiling. While brand loyal consumers tend to
45
Krishnamurthi, L., and Raj, S. P.: An Empirical Analysis of the Relationship between Brand Loyalty and Consumer Price
Elasticity, Marketing Science, 10.2, (1991), p.172 - 183
46
Jacoby, J., and Chestnut, R. W.: Brand Loyalty:Measurement and Management, John Wiley and Sons, New York, (1978)
47
Schindler, R.: How Cents-Off Coupons Motivate the Consumer, in Kathrine E. Jocz (Ed.), Research on Sales Promotion:
Collected Papers, Marketing Science Institute, Cambridge, Mass, (1984)
48
Lau, Mei-mei, Man-Tsun Chang, Ka-Leung, and Wing-Sun Liu: The Brand Loyalty of Sportswear in Hong Kong, Journal of
Textile and Apparel, Technology and Management, 5.1, (2006), p. 1 - 13
25
accelerate their purchases and stockpile, switchers do not have a strong need to do so as
they rely on the fact that there will always be some brand on promotion in the
category.49
Research also revealed that sales promotions influence repeat purchases. Coupons and
discounts are supposed to influence the average repeat purchase rate negatively. Based
on results of a study, repeat purchase rate after a sales promotion was lower than repeat
purchase rate after a purchase for a regular price. Consumers who switched to a brand
voluntarily will have a higher probability to repeat the purchase in the future than those
who bought the brand in response to a promotion. 50 Further research showed that sales
promotion (particularly coupons) for low-involvement products increase purchases,
which consequently increase price sensitivity.51
A study made by Komal Nagar in 2009 is concerning the effects of sales promotion on
purchase behaviour of loyal and non-loyal consumers. It tries to identify whether a loyal
consumer will be attracted to switch to competitors brand by his sales promotion, and
whether the switching behaviour of non-loyal consumers is affected by sales
promotions. The study was conducted in India with focus on two FMCG categories
washing powders and shampoos. It tried to explore the effect of sales promotion on
loyal and non-loyal consumers (brand switchers).52 The study further tests whether the
brand switching behaviour of consumers with different socio-economic background is
affected differently by sales promotion. The study focuses both on behavioural and on
psychological aspects of brand loyalty.
Findings of the study of Nagar revealed that in washing powder category, the non-loyal
consumers have a higher tendency to switch brands due to sales promotions than loyal
consumers. However, in case of shampoo category, the loyal and non-loyal consumers
do not differ much in their brand switching behaviour due to sales promotions. The
results also show that age and income are not factors influencing brand loyalty.
The results of the study imply that managers should create strategies for products
individually as consumer behaviour differs in the two observed categories. Marketers
should also try to find out more about the brand switching behaviour of consumers of
each of their categories. Moreover they should develop specific programs for loyal and
Grover, R., and Srinivsan, V.: Reflection on a Simultaneous Approach to Market Segmentation and Market Structuring, Journal
of Marketing Research, 29.4, (1992), p. 474 - 476
50
Dodson, J. A., Tybout, A. M., and Strenthal, B.: Impact of Deals and Deal Retractions on Brand Switching, Journal of
Marketing Research, 15 (February), (1978), p.72 -81
51
Blattberg, R. C., and Neslin, S. A.: Sales Promotion: Concepts, Methods and Strategies, Prentice-Hall, Englewood Cliffs, NJ,
(1990)
52
Nagar, Komal: Evaluating the Effect of Consumer Sales Promotions on Brand Loyal and Brand Switching Segments. VISION The Journal of Business Perspective Vol.13, No. 4, (October-December 2009), p. 36-45
49
26
non-loyal segments of consumers. The research reveals that creating a new loyal
customer is five times more expensive than retaining current loyal customer.53 The
consumer retention has several benefits, apart from reduced costs of gaining such
customer, also higher margins are gained as loyal customers are less price-sensitive,
and sales are increased as these customers tend to buy more products from a company
they are loyal to.54
3.4 Long-term effect of sales promotion on brand image

Sales promotion is an inevitable tool nowadays. Many companies, especially those with
premium brands, are however concerned with the impacts sales promotion has on the
long term brand image.
Some of the effects of sales promotions have been discussed. Most of them, however,
were short term ones. The question is, whether these effects do not happen at the
expense of the long-term effects advertising could have had on the company. According
to studies, there is an evidence of negative effects sales promotions have on brands, as
they have no brand-building effect, especially for well-established ones.55 Moreover, it
is argued that price sales promotions affect mainly current customers, with rare effects
on new customers.56
Premium brands often build the brand image through advertising, sometimes however
the image can be diluted by other communication channels. Nevertheless, as mentioned
before, the retailers have a very strong position nowadays, and therefore play an
important role in consumers perception of a brand, as the brand image can be
influenced also by the placement of the brand in-store.
According to a research, price sales promotions increase price sensitivity of some
consumers, as they can perceive the product more expensive when the sales promotion
is over.57 As previously mentioned, loyal consumers are less price-sensitive. According
to the sources, most of the negative effects of sales promotions are caused by the price
reductions.
53
Nagar, Komal: Evaluating the Effect of Consumer Sales Promotions on Brand Loyal and Brand Switching Segments. VISION The Journal of Business Perspective, Vol.13, No. 4, (October-December 2009), p. 43-45
54
Lau, Mei-mei, Man-Tsun Chang, Ka-Leung, and Wing-Sun Liu: The Brand Loyalty of Sportswear in Hong Kong, Journal of
Textile and Apparel, Technology and Management, 5.1, (2006), p.1 - 13
55
Ries, A., Ries, L.: The death of advertising, Brand Strategy, No. 164, (2002), p. 30
56
Simonson, I., Carmon, Z., OCurry, S.: Experimental evidence on the negative effect of product features and sales promotion on
brand choice, Marketing Science, Vol. 13, No. 1, (1994), p. 23-40
57
Alvarez, A.B., Casielles, V.R.: Consumer evaluations of sales promotion: the effect on brand choice, European Journal of
Marketing, Vol. 39, No. 1/2, (2005), p. 54-70
27
In chapter one it was already discussed how sales promotions can be classified. One
more view of sales promotion types is to divide them into value-increasing and valueadding.
Value-increasing methods are very common in FMCG; they influence price or quantity
of a product (bonus packs, coupons, discounts). These price promotions focus mainly on
price-sensitive consumers. There is a risk of perceived decline of value.58 For example
Procter & Gambles unsuccessful Every Day Low Pricing (EDLP) strategy illustrate
these conclusions: it was found that the price cuts were associated with decreased value,
as the company had previously promoted its brands as premium brands.59
Value-adding promotions on the other hand are more suitable for more affluent target
audience and for premium brands. Among these methods are gifts, samples,
information, point-of-purchase displays and competitions. All of the mentioned tools
have a certain relationship-building character. Loyalty programs even aim creating
relation with the customer and avoiding brand switching.
Companies should therefore create their communication mix strategically, with a
creative use of both advertising and various types of sales promotions. In case of a
premium brand, value-adding sales promotions should prevail.60
3.5 Empirical generalizations about sales promotions

The previous chapters showed that the researchers have differing opinions on many
subjects concerning sales promotions, and that their conclusions are sometimes
inconsistent. However, several generalizations can be concluded, partly based on what
was previously mentioned, partly on other research studies and empirical experience.
Regarding factors influencing consumer responsiveness to sales promotions, generally
psychographic and personality factors are considered more important than demographic
ones. Nevertheless, the reaction to sales promotion differs from category to category
and depends on the product characteristics as well.
Products that are on sales promotion are perceived more valuable by the consumers due
to their extra added feature. Therefore sales promotions have the power to influence
consumer behaviour and consequently consumer decision making.
58
Srinivasan, S.S., Anderson, E.R.: Concepts and strategy guidelines for designing value enhancing sales promotions, Journal of
Product & Brand Management, Vol. 7, No. 5, (1998), p. 417
59
Gardener, E., Trivedi, M.: A Communications Framework to Evaluate Sales Promotion Strategies, Journal of Advertising
Research, Vol. 37, No. 2, (1998), p. 67-71
60
Mandi, Danijela: Long-term Impact of Sales Promotion on Brand Image, Trit, Vol. XXI (2009), p. 235 - 246
28
When evaluating a product, consumers compare the gains and losses from the purchase.
Whether a product is purchased depends on a sum of utilities from both acquisition and
transaction utilities. The decision making process consists of two parts. First, price paid
is compared to the value of the product (monetary promotions are more likely to be
perceived as a reduced loss, whereas non-monetary promotions are more likely to be
seen as a gain). Second, every consumer is assumed to have an internal reference price
which serves as a benchmark for all purchases. However frequent deals on a brand
usually reduce consumers reference price for that brand. Such lowering also lowers the
brand equity, which is undesirable for the manufacturer, because his ability to charge
premium prices will diminish as well. Therefore, an excessive usage of price sales
promotions can reduce the consumers responsiveness to a particular sales promotion. 61
There is clear evidence that sales promotions lead to immediate increases in sales. These
promotional peaks occur in the short term, however, they have also influence on periods
preceding and following the promotional period. The consumers can be waiting for a
promotional discount or can reduce their spending after they purchase during the
promotion and stockpile. However, the effect called stockpiling can be either negative
or positive for the manufacturer. When a brand is promoted, the consumers can either
stockpile and thus increase their total amount purchased (and also increase the shopping
frequency), they can however also reduce the future purchases and keep the same
frequency, which is not desired by the producers. The immediate sales increase anyway,
but the future shopping behaviour of the consumers has to be taken into account to see
the total effect of stockpiling. Moreover, when sales promotions are done too often,
consumers get used to it and are waiting to purchase the product when it is promoted.
The effects of consumer stockpiling also depend on the product character. In case of
perishable goods, such as mentioned yoghurt, the consumption effect was large, as
consumers increased their usage frequency when they created inventory by the
stockpiling. In case of ketchup, a product which is not used on a daily basis and is less
perishable, the consumer effect was lower and the current brand switching prevailed.
The effects also vary for market leader brands and for brands with a little market share.
As the market leader already owns a big portion of the market, there is not such a big
potential for growth as in case of market nicher. This is related with the fact that high
market share brands are less deal elastic, because they have proportionally less
consumers to gain than brands with smaller market share.
Sales promotions in one category influence sales of other categories. Namely, sales of
brands in competitive and complementary categories are affected. For example, if
61
Shimp, T.: Advertising, Promotion, and other aspects of Integrated Marketing Communications, 7th edition, (2007), p. 519-522
29
tortilla chips are promoted, sales of salsa brands probably increase, and on the other
hand sales of competitive potato chip category are expected to decrease. 62
Sales promotions can increase the brand switching, but they are also beneficial as they
increase the knowledge of producers brand and increase the probability of trials. The
responses towards sales promotions differ by loyal consumers and brand switchers. The
brand loyal consumers tend to accelerate their purchases and stockpile, switchers do not
have a strong need to do so and rely on other sales promotions. Moreover, price sales
promotions increase price sensitivity of some consumers. Also, when the product is
discounted, it can be perceived as a decreased value and quality. Therefore, for more
premium brands value adding promotions like gifts and premiums are recommended.
The brand switching effects are different for high quality brands and for lower quality
brands. If a high quality brand is promoted via a price reduction, it will attract a lot of
switchers who normally buy cheaper brands and thus it will steal their sales.
Nevertheless, if a lower quality brand is promoted, it is not likely to attract switchers
from higher quality brands. The switching behaviour is therefore asymmetric.
As was already previously concluded, when a brand is placed on price deal, sales
generally increase. But when a brand is simultaneously is advertised in the retailers
magazines or leaflets, has point of purchase advertising, sales increase more
substantially. 63 Therefore, always the most effective solution is integrated campaigns,
where more tools are used. The retailer plays an important role, as it is the final article
in the whole value chain.
62
63
Shimp, T.: Advertising, Promotion, and other aspects of Integrated Marketing Communications, 7th edition, 2007, p. 519-522
Shimp, T.: Advertising, Promotion, and other aspects of Integrated Marketing Communications, 7th edition, 2007, p. 519-522
30
4 The evaluation procedure

As was outlined in previous chapters, there are various sales promotion schemes, and
their usage differs according to the target audience and brand characteristics. Numerous
alternatives are available for the producers when planning their sales promotions. Also
there are number of objectives that can be achieved by the sales promotion programs.
Therefore the manufacturer should use a systematic program for evaluating of potential
promotions, both in the stage of planning and in the stage of posterior appraisal to
measure how effective they were.
In the stage of planning, the promotion ideas should be evaluated to determine which
have the best chance to succeed. A simple three-step model can be used64
1. Identify the objectives
The most important step is to set clear objectives to be accomplished by the sales
promotion. Such objective can be for example to generate short-term incremental
sales, to encourage trial, to encourage more consumption or penetration, to gain
distribution, to induce brand switching, to improve brand image and so on. The
objectives of the manufacturer, moreover, often differ from the objectives of the
retailer.
So called SMART principle applies in this case.65 The objectives should be specific,
measurable, achievable, realistic and timed.
2. Achieve agreement
There are usually more parties involved in the decision making process (brand
management, sales, etc.). Each decision maker has different goals in mind, and
therefore a final consent is important.
3. Evaluate the idea
When designing a sales promotion program, the planner should ask himself several
questions:
64
Shimp, T.: Advertising, Promotion, and other aspects of Integrated Marketing Communications, 7th edition, 2007; p. 569-572
Doran, G. T.: There's a S.M.A.R.T. way to write management's goals and objectives. Management Review, Volume 70, Issue 11
(AMA FORUM), (1981), p. 35-36
65
31
Is the idea a good one? Every idea should be compared to the previously
stated objectives.
Will this sales promotion idea be appealing for the target audience? The
target market should represent a benchmark against which all ideas
should be evaluated.
Is the idea unique or is something similar used by the competition?

Creativity even in case of sales promotions plays a very important role.
Is the sales promotion message clearly presented to the target market?

Will the target audience notice, understand and positively respond to the
sales promotion? For a sales promotions success it is vital that the sales
promotion schemes are user-friendly.
Is the idea cost-effective? The planner should evaluate whether the

objectives will be achieved at affordable cost. This question will be
further discussed in the practical part.
After the conduction of a sales promotion, there should be a program for its posterior
evaluation. Such evaluation can be useful for future sales promotion planning. The
promotional program can be for example judged in terms of five features the five
E66:
Expense:
It is the sum of direct investments in the sales promotion. These generally include the
cost of creation of the sales promotion materials, expenses of advertising it and
payments to the retailers, competition prizes etc.
Effectiveness:
This feature represents the incremental sales which were accomplished during the
promotional period.
Efficiency:
It is sales promotions cost per unit sold. It is calculated as total cost divided by total
units sold during the promotional period.
66
Shimp, T.: Advertising, Promotion, and other aspects of Integrated Marketing Communications, 7th edition, (2007), p. 569-572
32
Execution ease:
This means the total effort and time invested into the planning and execution of the
sales promotion. Logically, less demanding sales promotions are preferred if everything
else held constant.
Equity enhancement:
This characteristic is hardly measured, as it is more a subjective assessment of whether
the sales promotion has enhanced the brand image or not. The evaluation depends on
brand positioning and the target audience.
These criteria are just informative suggestions of what should be monitored by the
brand managers. However, every firm has to develop their own models for sales
promotion evaluations.
33
5 Sales promotion evaluation67

The following part has been hidden due to confidentiality reasons.
The sales promotional planning and evaluation are continuously developing areas,
which are influenced by changes in consumer insight. Although sales promotion
spending is very high, not much time and effort is devoted to previous and posterior
evaluations.
The evaluation of sales promotions should focus on the specific objectives against the
cost of each sales promotion. The success of a sale promotion depends on many factors.
Firstly, it depends on the promotional type itself, it is also influenced by the nature of
the product category, the target market, the expected sales response, and the competitive
environment. As was already discussed in the previous chapters, the manufacturer must
be careful with the brand image, as some promotional schemes can harm it.
Figure 3 The difference between trade and consumer promotions
67
Nestl S.A.: Nestl Promotion Planning & Evaluation Guidelines, (created 2000, revised 2006)
34
In fact, there is no real difference between these two types; the only thing Nestl
distinguishes is the style in which the sales promotion is used. In case of trade
promotions, they are perceived by the consumers as initiated by the retailer, not the
manufacturer. The aims of these two types of sales promotions often vary too. Whereas
consumer sales promotion can aim gaining as much information about the consumer
(consumer competition), or other goals which are not directly reflected in the sales or
margin, the trade sales promotion should always aim increased sales and margin in the
first place.
Sales promotion planning
It is important to plan the sales promotions strategically, in order to develop such a
promotional program that would add value to manufacturers brands. Therefore, each
plan must be consistent with the short and long term interests of the promoted brand. If
such consistency is not ensured, there is a risk of a failure of the promotion and waste of
the invested funds.
35
Measuring sales promotions

The sales promotion has to be measured against its objectives. The measures must
determine whether the sales promotion is effective and efficient, both at the stage of
planning (pre-evaluation) and at the stage of evaluation (post-evaluation).
In the previous chapter the main evaluation criteria, so called five Es were described.
For Nestl, three areas are important to be measured in sales promotion evaluation:
effectiveness, efficiency and equity (see Figure 4).
Effectiveness can be measured as the incremental sales to the end consumer. The
manufacturer is usually not interested in filling warehouses of the retailers or building
stocks in stores, as this does not build the brand.
Efficiency measures how much it costs the manufacturer to gain the effectiveness of the
sales promotion. Therefore, effectiveness should be considered before efficiency.
Efficiency is the gain or loss of incremental marginal contribution (marginal profit per
unit sold) to the manufacturer.
Equity in this case refers to brand equity, which is the economic value of the brand
through the strength of its authority for the consumer (e.g. how much more is he or she
willing to pay for our brand than for competition, or how much more often he or she
chooses our brand versus competitive brand).68 Out of the three measures, equity is
hardest to measure.
Figure 4 Three areas of measurement in sales promotion evaluation
As implied by the text above, effectiveness and efficiency are the most important
measures for the sales promotion evaluation. Moreover, these two measures are
interrelated and cannot work in isolation. Maximizing both of them is a balance.
Following two KPIs are applied for the pre- and post-evaluation.
68
Nestl S.A.: Nestl Promotion Planning & Evaluation Guidelines, (created 2000, revised 2006)
36
37
5.1 The process of sales promotion planning and evaluation

The sales promotions should be evaluated to ensure continuous improvement. It is
important to evaluate the promotion in the planning stage as well as after it is executed
against the objectives that were set. Such evaluation enables the manufacturer to
understand what went right and what went wrong, and apply it in the future. The
process consists of three phases: sales promotion planning, execution and evaluation.
Figure 5 describes the whole planning and evaluation process.
38
Figure 5 The promotion planning & evaluation process
Phase 1: sales promotion planning

Sales promotion planning process consists of several steps. First of all, as was already
mentioned in previous chapters, SMART objectives must be stated and documented.
Second step lies in defining so called Point of Purchase (POP) drivers factors
influencing the level of sales of a product (e.g. promotion price, in-store location,
secondary placement, number of facing, etc.). The POP drivers must be well defined to
find out the relevant drivers for particular category and brand. Step three is to define
sales promotion estimates of revenue and cost. The last step is to measure the planned
incremental sales and incremental marginal contribution for a sales promotion against
the objectives (so called viability analysis).
Phase 2: Execution of the sales promotion
While the sales promotion is executed, data should be collected on external factors
which could affect the promotion (e.g. out of stocks, confirmation that the promotion
took place, competitor activity, check whether the agreed quantity was purchased by the
retailer etc.). These factors should be monitored and recorded, as the data assist while
analyzing the results.
39
Phase 3: Evaluation of the promotion

This phase consists of three steps. Step one is to gather financial data after the
promotion is completed. This should be done as soon as the data is available, and in
case some data are unavailable then estimates can be used instead. Step two is analyzing
results to objectives. Successes or failures should be analyzed to define what can be
improved. Also, significant differences to plan should be studied and explained. Last
step of the analysis is to gain learnings on what to expect of the promotions, what types
of promotions to use and on what products. Such information can be applied to the
category and brand strategy.
40
B) PRACTICAL PART
6 Hypotheses statement
As was mentioned several times in the theoretical part, it is undoubted that sales
promotions have the ability to influence the consumer decisions about purchase in the
very last moment and bring an immediate increase of sales volume. As was discussed in
the theoretical part, sales promotions have various effects on consumer behaviour, brand
image, and post-promotional shopping behaviour. They are also very costly and
represent a significant portion of the suppliers budget. Therefore, it is important to
carefully plan the sales promotions and anticipate their effects, and consequently
measure the real impacts that the sales promotions caused.
Based on the theoretical findings and generalizations about sales promotions and their
effects, three hypotheses were set. The aim of the practical part is to prove or disprove
their validity.
As the thesis was written with focus on the RTEC category, the hypotheses are related
mainly to this category.
Hypotheses statement:
H1: Sales promotions generally bring about a significant increase in sales, but this
effect is in most cases followed by a drop in sales below the base sales.
H2: Sales promotions of bigger formats of cereal packages are noticeably more
efficient than sales promotions of smaller formats.
H3: Repeated sales promotions lead to increased consumption of RTEC due to the
consumption effect of stockpiling. This effect is even more significant in case of
sales promotions with high promotional bumps and high promotional frequency.
To be able to prove the stated hypotheses a program which would enable the
measurement of sales promotion effects was needed. Therefore, an evaluation program
was developed and a relevant number of sales promotions executed in the RTEC
category were evaluated. The aim of the following chapters is to analyze all the
evaluated sales promotions, and identify some relevant conclusions about their effects.
Moreover, the developed evaluation program will be further used by the company
Cereal Partners Czech to determine the effectiveness and efficiency of the planned and
executed sales promotions.
41
7 Background
As follows from the theoretical part, to determine whether to launch a sales promotion,
and to choose the right sales promotional scheme, it is necessary to evaluate the ideas in
the planning stage. It is, however, just as important to evaluate the sales promotions that
were already executed to see whether they were successful or not, and to learn what
should be improved in the future. Therefore, a reliable evaluation program is necessary
for every manufacturer who is planning and evaluating a sales promotion. Such
evaluation program should consist of two parts, pre-evaluation (for the planning stage)
and post-evaluation (for the stage after the sales promotion execution). During the
authors work in Nestl, a. s., in the division of Cereal Partners Czech Republic (CPC),
an incentive for a creation of such evaluation program arose.
7.1 About the company

Cereal Partners Worldwide (CPW) is a joint venture between Nestl and General Mills,
and is one of the leading producers of ready-to-eat cereals (RTEC). CPW is
headquartered in Switzerland, and operates in over 130 countries worldwide. One of the
CPW subsidiaries is Cereal Partners Czech Republic, a distributor of the ready-to-eat
cereals in the Czech market, which operates in the country since 1997. In Europe, the
CPW cereals are sold under the Nestl brand, therefore in the further text will be called
Nestl cereals.69
7.2 The category characteristics

Ready-to-eat cereals (RTEC) in the Czech market represent a dynamic and developing
category. The category can be divided into two main segments, cereals for kids, and
cereals for adults. The category is growing both in value and volume.
The Czech cereal market
The Czech market is still an emerging market regarding the consumption of cereals, as
the product has not penetrated all families yet. Traditionally, a typical Czech breakfast
would consist of bread and butter with cheese or marmalade. Figure 6 shows the
consumption per capita comparison within Europe. In contrast to some other European
countries, such as Great Britain, where the ready-to-eat cereals (RTEC) represent the
most common breakfast variant (ca 6 kg per capita in 2010), the consumption of cereals
per capita in the Czech Republic is still quite low (0.83 kg in 2010). The consumption,
however, is still growing, especially among kids. There is therefore a big potential for
growth and further development of the category.
69
Cereal Partners Worldwide official webpage: http://213.225.147.145/cpw/. Obtained 5.11.2011
42
Figure 6 Consumption of RTEC per capita in 2010

Consumption per capita [kg] / breakfast cereals in 2010
7,00
6,00
6,00
5,00
4,00
3,59
3,00
2,29 2,24 2,19

2,13 2,07
1,92
2,00
1,75
1,45 1,41 1,32

1,27
1,00
1,11 1,09 1,05 0,98

0,87 0,83 0,80 0,78 0,76
0,70
0,52 0,37
0,14
Turkey
Bulgaria
Romania
Latvia
Slovakia
Hungary
Croatia
Lithuania
Czech Republic
Italy
Greece
Slovenia
Austria
Poland
Denmark
Estonia
Spain
Sweden
France
Germany
Switzerland
Belgium
Norway
Portugal
United Kingdom
Ireland
0,00
Source: Internal company calculation from AC Nielsen and Eurostatt national statistics
Figure 7 The development of sales volume of RTEC in the CR

Sales volume of RTEC 2008 - 2010 in the CR
10 000 000
8 514 972
8 627 327
8 702 784
2008
2009
2010
8 000 000
6 000 000
4 000 000
2 000 000
0
Ready-to-eat cereals (kg)

Source: MEMRB data purchased by CPC
The development of the category in the Czech market in recent years is depicted in
Figure 7. The graph shows sales volume in kg in the Czech market (covering the
traditional trade and the modern trade except for Kaufland) over the years 2008 to 2010.
A positive trend can be seen, as the sales volume slightly increases from year to year. A
further growth of the whole category sales is still expected in following years.
43
Product
Nestl cereals are divided into three main segments, cereals for adults (Fitness, msli,
and corn flakes), cereals for kids (Cini Minis, Nesquik, Chocapic etc.). Apart from that,
CPC distributes also bars (cereal bars and msli bars). The kid cereals are the crucial
segment for the company. The kid cereals are available in two sizes of packaging, small
(in average 250 grams), and big (in average 500 grams).
Competitive environment
Czech consumers are typical with their preference of national products; nevertheless,
Nestl is the leader in the market, and it is also setting the trends in the whole category.
Regarding its competition, there are just a few big players, mostly Czech manufacturers,
for example Emco and Pragosoja. Other important competitors are the private labels of
retailers, which are often produced by the mentioned Czech manufacturers. Private
labels often imitate the products of the market leader, but offer them for a very low
price compared to the rest of brands. To succeed in such a competitive and dynamic
environment, it is necessary to regularly come up with sales promotions and advertising,
to attract the consumers and be visible enough. That is the reason, why Nestl executes
in average about 400 sales promotion activities yearly.
Customers
In the FMCG sector, the products are distributed to the end consumers via the retailers
or other customers, and are therefore not delivered directly. The structure of the cereal
market is following: the stores/chains (further customers) are divided into two main
groups, modern trade, and traditional trade. Into the modern trade belong all retailers
and chains, such as Tesco, Kaufland, Billa, Globus, Interspar, Albert, Makro and Penny
market. Into the traditional trade belongs the rest, meaning wholesalers, such as Coop,
Hruka, and even medium and small groceries. For Nestl, the modern trade represents
more than three quarters of the sales volume.
As the previous chapters imply, the international retail chains were gaining on power
during the last decade, and nowadays it is them, who are more powerful than the
manufacturers. The retailers require a payment for a listing of new product, for an
additional shelf space, for leaflet advertisement, and for many other activities.
Therefore, to be visible and attractive for the consumers, the manufacturer has to invest
in sales promotion. In case of Nestl cereals, trade sales promotions are combined with
consumer sales promotions.
44
During the yearly negotiations, conditions for the future twelve months are agreed
between customers and the manufacturer. To be able to sell their products in the
retailers stores, the manufacturer has to offer the retailer several incentives. Usually, a
price off from all invoices is agreed, the number of leaflets is decided and other rebates
of payments are set. Apart from the initially agreed set of conditions, the manufacturer
has to pay for every ad hoc sales promotion, such as additional leaflet advertising,
secondary placement, or an in-out activity (a promotional product, which is not listed).
It is necessary to calculate the costs carefully in order to find out whether such activity
is worth or not.
7.3 The initial situation

Before the evaluation program development was started, the initial situation of the
company was carefully analyzed.
Types of sales promotions executed

Typical sales promotions executed by CPC are leaflet advertising, advertising in
retailers catalogue (e.g. Globus), advertisement in a retailers magazine (e.g. Albert
magazine), in-store secondary placement with usage of POP media, seasonal
multipacks, bonus packs, premium packs, and consumer competitions. The named
promotional tools are often also combined.
Promoted products
Almost all Nestl cereals are promoted. They are usually clustered into groups. The
usual groups are following: fitness products; big packs of kid cereals; small packs of kid
cereals; msli, and bars. Nevertheless, sometimes a single brand or umbrella brand is
promoted, such as Cini Minis (single or together with Strawberry Minis) or Nesquik
(single or with Nesquik Duo). To ensure that the promotion evaluation program is
flexible enough, a selection of any combination of products will have to be enabled.
45
Data sources
To be able to evaluate the sales promotions, a reliable sales data is necessary. CPC has
two main data sources available. Internal, SAP, sales data, and purchased sales data
from AC Nielsen. The SAP data reports sales to the retailers. AC Nielsen data shows
sales to the consumers. For the sales promotion evaluation the purchased data is more
valuable, as it reports the real sales to the end consumer. As already stated, the
manufacturer is not interested in building stock in customers warehouses or in the
stores, but what matters are the sales to the consumers. However, for some products the
purchased data is not available, and thus has to be substituted by the internal data.
Moreover, the purchased data cover only the modern trade, however in contrast to
internal data, purchased named data for traditional trade is unavailable. Thus, a
combination of both purchased data and internal data is needed.
Because the sales promotions usually take place for 2 to 3 weeks, to be able to observe
and measure the effect, sales data on a weekly basis is needed. Moreover, as different
sales promotions are executed in different retail chains, data on a chain level have to be
used.
46
8 Promo evaluation program

8.1 Promo evaluation program requirements
The required evaluation program should fulfil following prerequisites:
It should enable both pre-evaluation and post-evaluation. First, in the planning

stage the program should work with expected sales and cost. Second, in the
evaluation stage it should work with real data.
The program should enable a combination of both internal and purchased data,
with a preference of purchased data where available. The data sources should be
combined in such way, that all important products and stores are covered.
There should be a set of user friendly forms, where all the entry variables will be
filled. One form should contain a selection of stores, where the sales promotion
takes place. A multiple selection should be enabled for cases of a promotion
which is executed globally. Other form should contain a list of products, where
the promoted products can be selected. The final form should contain a set of
cells, where all the relevant costs of the evaluated sales promotion will be filled.
Part of the entry forms should also be a selection whether a pre-evaluation or
post-evaluation is to be performed.
The outputs of the program should contain a calculation of two KPIs the
measures of effectiveness and efficiency (see more in the Nestl guidelines in
Chapter 5).
Next output should be a graph showing the base sales of the promoted products
and the promotional bump.
47
8.2 Processes within the evaluation program

The evaluation program (further promo evaluation program) was programmed in
Microsoft Excel with the use of VBA Macros. Excel was chosen because it is a
relatively simple and user friendly software enabling calculations, forms and graphs
creation, and programming of Macros. The processes within the promo evaluation
program can be divided into three main steps:
1. Data preparation
2. Data processing
3. Promo evaluation
8.2.1
Step one: Data preparation
Figure 8 Step one: Data preparation
Source: Author
The first step in the construction of the program is the data preparation. The whole
process is simplified in Figure 8. As mentioned previously, there are two main sources
of CPC data (internal and purchased), and both of them are needed. The time period for
which the data is exported was decided to be 52 weeks, long enough to measure the
base sales and to see the post-promotional effects. However, each source has a slightly
different structure. The sources differ in the naming of the products and stores. Also,
internal (SAP) data contain more products and stores than the purchased data; they also
contain a specific product code matched to each product.
The structure of the purchased sales data is described in Figure 9:
48
Figure 9 Purchased data structure

Chain name 1
Week 1
Product name 1
200
Product name 2
300
Week 2
Week 3
350
100
Sales volume in kg
250
458
Week 51
Week 52
450
150
145
369
Blank row
Blank row
450
150
Blank row
Blank row
Blank row
Blank row
200
350
100
Chain name 2
Product name 1
Blank
row
Source: Author
The internal SAP data has a similar structure; however, next to each product there is a
unique product code, and each store (chain) has a unique store code (see Figure 10).
The final KPI calculations should be done with sales data in value (CZK). However,
also in this aspect the two sources vary. The internal data is reported in prices from the
Nestl internal price list. The purchased data is available either in volume (kg) or in
value in final prices set by the retailers. For the purposes of promo evaluation the
Nestl price list data is more suitable because the Nestl revenues are important for the
promo evaluation, not the revenues of the retailers. Moreover, the yearly conditions are
agreed with the retailers based on the Nestl price list prices, and the incentives to
retailers are calculated also from the price list prices. The final data structure therefore
has to be unified also in this aspect.
The purchased data is imported onto a sheet called NIELSEN. The internal data is
imported onto a sheet called SAP (see Figure 10).
Figure 10 Internal sales data
Source: Author
49
8.2.2
Step two: Data processing
Figure 11 Step two: Data processing

Convert NIELSEN sales
volume data to sales value
in CZK
Create a sheet for each

store
Rewrite SAP data with

NIELSEN data in all stores
sheet where available.
Product_List used.
Paste SAP sales data of

each store to
corresponding sheets
Source: Author
Processes within this part are summarized in Figure 11. The purpose of this step is to
unify the data from the two sources and combine them in such way that the purchased
data will replace the internal data where possible.
To unify the data from the two mentioned sources a method of indexation was used. A
list of all Nestl cereal products was prepared on a sheet called Product_List (see
Figure 12). All products from the purchased data were listed plus the rest which was
available only in the internal source of data (SAP) was added. All of the products were
matched with the internal product codes. The list contains also gross proceeds of sales
(GPS), which is the annual budget sales value, adjusted marginal contribution (AMC)
also taken from the annual budget, and price list price per kg for each product. This list
of all Nestl cereals serves as an indexation tool.
Figure 12 Product_list sheet structure
Source: Author
50
To unify the prices in which the data is reported, the program converts the purchased
data exported in volume (kg) into sales value (in internal price list prices). First, the
program searches all products in the NIELSEN sheet, row by row, and when they are
matched with a product name in the Product_List sheet, they are assigned with the
corresponding product code. When this is finished, the program finds the corresponding
product price in the Product_List sheet and multiplies each cell containing sales in kg
by the appropriate product price. Thus the appropriate sales value data is obtained.
Then, the internal data has to be separated so that sales data of each chain are copied
onto a separate sheet. Each sheet is then named by the chain name. The internal data on
each sheet is then replaced by the purchased data where available. To be able to replace
the data, an indexation method has to be used again.
Parallel to the Product_List a list of all stores was created and placed on a sheet named
help_stores. Figure 13 describes the structure of this sheet. There is a list of all
available stores, in the first column, there is a SAP store name, in the next column, there
are the Gross proceeds of sales (GPS) from the annual budget for a particular chain, in
the next column, there are the Trade terms agreed yearly with the retailers (for more
information see Chapter 5), in the last column there is a corresponding store name from
the purchased Nielsen data. The fourth column, named NIELSEN contains a binary
variable which has only two values: true or false. In case of chains, for which the
purchased data is available, a true value was set. For the rest of stores, which are not
available in the purchased data and are contained only in the internal data, a false
value was assigned. This list, again, serves as an indexation tool.
Figure 13 Help_Stores sheet description
Source: Author
51
The program first searches the SAP sheet and looks for chain names in the first
column. Whenever it finds a chain, it copies out all the sales data belonging to this chain
and pastes it onto a separate sheet named according to the chain name. Then the
program executes the replacement of SAP data with the purchased NIELSEN data. It
goes through the chain list in the sheet help_stores and looks for stores, which are
available also in Nielsen data (assigned true in the NIELSEN column). Whenever a
row containing true is found, the program reads the corresponding NIELSEN name of
the store and then opens the NIELSEN data sheet and copies all the sales data
belonging to the mentioned store. The program then opens a corresponding store sheet
and replaces the SAP sales data where available. For the replacement the SAP product
code serves as an indexation tool. The program then continues with all stores available
in NIELSEN sheet. As a result, each store (chain) sales data is located on a separate
sheet, where the desired combination of SAP and NIELSEN data is contained.
52
8.2.3
Step three: Promo evaluation
The last step consists in the evaluation of the promotion. In this step a user of the Promo
evaluation program will fill in all the necessary inputs and after a calculation the final
KPIs and a graph will be obtained as outputs. This final step can be divided into four
main parts (see Figure 14). The green segments represent the steps which have to be
done manually by the user; the blue segments are done automatically by the program.
Figure 14 Step three: Promo Evaluation (green steps are done manually, blue steps automatically)
1.
2.
3.
The summarization table

is prepared
Fill in forms on the

Input/Output sheet
Calculation of KPIs
Save the outputs in the

Summarization table
All promotion inputs are

filled in
Selection of Pre- or Postevaluation
Indicated data appear on

a linked sheet "Form"
The final results and graph

are reviewed
The data is transferred

into Input/Output sheet
Fill the name and period

of the Promotion
A table with the weekly

sales of the promoted
products for the chosen
stores is created
If necessary, the
evaluation period is
adjusted
Fill all the costs of the

promotion from the
summarization table
Mark the products
entering the Promotion
Choose the stores
involved and run the
calculation
Base sales and total

promotion sales is
calculated
4.
The results are approved

and automatically filled
back in the
summarization table
The file is saved under the
promo name (post)
Graph with promo data is

created
The bubble graph is

displayed by filtering out
the unnecessary data
Calculation of %TT and

%AMC
The obtained data is filled
into Pre/Post evaluation
Form on the Input/Output
Sheet
The Promo KPIs are
calculated
The file is saved under the
promo name (pre)
Source: Author
1. Summarization table preparation

First, the Summarization table is manually filled with data of all evaluated sales
promotions (see Figure 15). This table is located on a separate sheet and serves as a
source of all sales promotion data. Each sales promotion data is located in a separate
row. Following columns are filled in the table: the name of sales promotion, customer
(where the sales promotion takes place), purchase period (a period for which the
53
customer is buying Nestl cereals with a discount), evaluation period (a period which
contains all effects of the sales promotion; it is not only the period when the products
are promoted, but also the period after the promotion, so that also the post-promotional
effects are included), list of promoted products, and list of costs (POS is the cost of
displays and other POS materials, leaflet is the payment to the customer for a presence
on its leaflet, discount is the price off granted to the customer for the promotional
period). The orange and violet columns next to the Cost (Pre-evaluation and Postevaluation) will be filled automatically after the evaluation process is executed. The last
column, Status, serves for identification whether a sales promotion has already been
evaluated or not.
Figure 15 Summarization table
Part one:
Part two:
Source: Author
When a sales promotion is entered in the table, the status field is left empty. After a
promotion is pre-evaluated, number 1 is automatically written into the status field. After
a post-evaluation is done, number 2 is filled in.
54
2. Fill in forms on the Input/Output sheet

On the next sheet, called Input/Output, there is a set of forms where all information
about an evaluated sales promotion is, partly automatically, partly manually, filled in.
When the button New input (1) is pressed, the sales promotion data from the first row in
the summarization table, where the status is empty (meaning which has not been
evaluated yet), is transferred and Promotion name, Evaluation period, Promotion
mechanics and all costs are filled in automatically. Second step is to manually mark
which products are promoted and to choose at which stores the promotion takes place
(2).
Figure 16 Input/Output forms
1.
2.
Source: Author
55
3. Calculation of KPIs
When all the inputs are filled, it is possible to approach the calculation of the final KPIs.
First, however, two important components need to be calculated - base sales and total
promotional sales. As defined in Chapter 5, base sales is the average level of sales
volume over some period. In this program, base sales is calculated as a median of sales
values over the past 52 weeks, where 20% of the top and bottom extreme values are
trimmed. The total promotional sales (further total sales) is summed up over the
evaluation period.
To enable the calculation of base sales and total sales, the relevant products sales
values need to be summed up for all the stores where the sales promotion takes place.
All these partial calculations are done automatically on a linked sheet called Form
(see Figure 17). The following input variables from the Input/Output sheet are
referenced: the list of selected stores, length of the sales promotion (in weeks), and the
selected products.
Figure 17 Form sheet
List of selected
products
Evaluation period
Weekly sales per

product summed
up for all stores
12%
Trade terms
calculation
Sum of GPS
and AMC
Promo week
Base sales and

total sales
calculations
Source: Author
On the Form sheet, there is a list of all products including their GPS and AMC copied
from Product_List. When a product is marked in the check box in the Input form
(Figure 16), a true value is written next to the product in the Form sheet, if it is not, a
false value is matched and the row with sales values is filled with zeros. Then with the
use of a user-defined function named Data_Lookup (an extended version of Excel
lookup function, which is able to search data on multiple sheets according to the sheet
name) the program fills a table with the weekly sales of each promoted product,
56
summed up for all the chosen stores. The sales per week are then summed up in the
bottom row, and the base sales is then calculated from these values.
According to the chosen evaluation period a raw below base sales is entered, matching
0 to a non promo week and 1 to a promo week. The weekly sum of sales is
multiplied by the number from the below row, so that non-promotional sales are
multiplied by zero and promotional sales are multiplied by one, and thus only the
promotional sales values are chosen. The total promotional sales are then simply
calculated as a sum of the weekly promotional sales.
Based on the data from the above mentioned table a graph is created (see Figure 18),
where the x axis shows the week number and the y axis shows the total sales and base
sales in CZK. The two violet vertical lines border the evaluation period.
Figure 18 Sales promotion graph
Sales promotion
700000
600000
500000
400000
weekly sales
base sales
evaluation period
300000
200000
100000
Source: Author
For the final calculation of the KPIs two more components need to be calculated: %TT
(trade terms) for the chosen combination of stores, and %AMC (adjusted marginal
contribution) for the chosen combination of products.
The %TT is automatically calculated by the program as a weighted average dividing the
sum of TTS (Trade terms) by the sum of GPS of the selected stores (see Figure 13). The
57
resulting percentage is the trade terms for the selected combination of stores (see Figure
17).
The rest of all calculations is done on the main Input/Output sheet with the use of
simple formulas in the cells in the pre and post-evaluation forms.
Figure 19 Evaluation form
Source: Author
Figure 19 depicts the form from the Input/Output sheet that was initially filled the input
variables (yellow cells). At the end of all partial calculations, the results are filled back
in the form and the final KPI calculations are done automatically with the use of simple
formulas.
Uplift represents the incremental sales and is calculated as:
Total sales value is referenced from the Form sheet.
Promotional benefit represents the pure benefit brought by the promotion and is
calculated as
The above mentioned %TT value is referenced from the Form sheet.
The %AMC is calculated as a ratio of total AMC and total GPS referenced from
the Form sheet, as is depicted in Figure 17.
58
The final KPI formulas are adopted from the Nestl guidelines, Chapter 5:
The sales promotion KPI
The incremental sales KPI
As is visible in Figure 16, it is possible to switch between pre and post-evaluation,

depending on the stage of the sales promotion. To distinguish which form is chosen, the
text in the inactive form will turn grey. The KPI calculations are identical for both
evaluations with the only difference in the total sales calculation. Whereas in postevaluation the total sales is calculated from the real sales data as was described in the
paragraphs above, in case of pre-evaluation no real data are available yet. Therefore, an
estimation of total expected sales has to be used instead.
After a pre-evaluation is done, the same file is going to be used for future postevaluation. As there are formulas in the pre-evaluation form, data could be overwritten
by the post-evaluation values. Therefore, the formulas have to be converted into values
in order to protect the data from further changes. This is done by pressing the save
button. In the same time, the file is saved under the name from the promotion name
cell, into a previously specified folder. The outputs are also sent back to the
summarization table by pressing the save outputs button (see Figure 16).
When a post-evaluation is done, the user opens the already existing file containing the
pre-evaluation, switches to post-evaluation, and new calculations will be performed.
When the results are obtained, it is necessary to review the graph and check whether the
evaluation period was chosen correctly. It is important to include also the postpromotional period, to cover also the post-promotional effects. Further to this topic will
be discussed in the next chapter. When the period is correct, the post-evaluation effects
are sent to the summarization table by pressing the save output button. The evaluation
process is complete.
4. Saving the outputs into the summarization table
As was explained, the summarization table serves not only as a source of sales
promotion data, but also as a storage where all the obtained results are recorded. This
is convenient for further analyses of the evaluation results. The results can be filtered by
various variables (the promoted product group, the chain, date etc.) and thus display
59
only those promotions we wish to compare. To visualize the results, a bubble diagram is
linked to the summarization table showing the filtered data (see Figure 20).
Figure 20 Bubble diagram
Source: Author
The diagram has three dimensions:

1. The size of the bubble represents the promotional benefit calculated as
2. The vertical axis represents the incremental sales KPI (the effectiveness)
3. The horizontal axis represents the sales promotion KPI (the efficiency)
Thus, the best resulting sales promotions would have a large bubble and would be
situated in the upper right corner of the diagram.
60
9 Hypotheses verification
As was explained at the beginning of the practical part, the evaluation program was
developed as a tool for analyses of the sales promotion effects.
For the purposes of this thesis, there were 65 sales promotions evaluated. This
represents around a half of all the yearly sales promotions executed in the modern trade.
All of the evaluated sales promotions took place in 2011, and covered almost the whole
CPC portfolio. The sales promotions were executed in following chains: Ahold, Tesco,
Kaufland, Tesco, Billa, Globus, Makro, Penny market and Interspar. The promo
evaluation therefore covers all formats of the modern trade ranging from large
hypermarkets, through supermarkets, a discounter and cash and carry.
9.1 Verification of Hypothesis 1

H1: Sales promotions generally bring about a significant increase in sales, but this
effect is in most cases followed by a drop in sales below the base sales.
As was discussed in the theoretical part, sales promotions can have various effects on
consumer stockpiling. The effects vary from category to category, but generally a sales
promotion is followed by a drop in sales. Although a sales promotion can be successful,
the mentioned effect indicates that the consumers stockpile and postpone their next
purchase as a consequence of the sales promotion. The graph below shows an example
of such an effect (see Figure 21). It depicts a successful sales promotion which brought
increased sales for several weeks, but there was a significant drop in sales as a
consequence. To be able to evaluate a sales promotion, both effects should be taken into
account and summed up.
Pre/evaluationeffect
promo
Figure 21 Example of a post promotional
1600000
1400000
Promotional
effect
Post-promotional
effect
1200000
1000000
prodej
800000
base line
PROMO_PERIOD
600000
400000
200000
Source: Author
61
Out of the 65 evaluated sales promotions, there was a negative post-promotional effect
detected in 45 cases. This represents around 70% of the total.
It is important to mention that in 10 cases out of the 45 the sales data represented direct
purchases from the retailers (as for some products and retail chains the purchased data is
unavailable and internal SAP data had to be analyzed instead). The direct purchases
have a slightly different interpretation than the consumer purchases. When analyzing the
internal SAP sales data, they represent purchases which are well planned and done on a
regular basis. They are moreover often agreed with the supplier in advance. In case of
these direct purchases the post promotional drops of sales were even more significant
than in the rest of cases.
The rest of analysed sales promotions (35) represented purchases done by the end
consumers. The consequent drops of sales can be explained as an effect of consumer
stockpiling.
It was therefore proven that the hypothesis is correct and sales promotions in the RTEC
category usually cause slight drops in consequent sales. The reasoning behind can be
the character of the category, as the products are quite durable (with usual expiration
time of one year) and quite expensive (Nestl cereals are perceived as a premium
brand). People are therefore likely to plan their purchases and seek deals. This effect is
also supported by the fact that the economic crisis encourages the search for sales
promotions and deal proneness. As the sales promotions occur regularly, it can be
concluded that the consumers got used to them and are waiting with their purchases
until the product is on deal again.

H2: Sales promotions of bigger formats of cereal packages are noticeably more
efficient than sales promotions of smaller formats.
As the payments for leaflets and secondary placements bore by the supplier are fixed, it
is probable that sales promotions of products in bigger packages are more efficient than
sales promotions of product in smaller packages. The cost of the sales promotion is the
same for both package sizes, but the sold volume is likely to differ in favour of the
bigger formats.
To verify this hypothesis, several sales promotions of big and small formats of Nestl
products were evaluated and compared. Out of the 65 sales promotions, there were 27
sales promotions of big packages and 9 of small packages.
62
The Sales promotion KPI (the measure of efficiency) was compared. The score of the
two formats is shown in Figure 22.
Figure 22 Sales promotion KPIs for small and big kid cereals
Sales
Sales promotion 250 g promotion
KPI
Promotion 1
1,86
Promotion 2
1,27
Promotion 3
1,12
Promotion 4
1,10
Promotion 5
0,75
Promotion 6
0,63
Promotion 7
0,62
Promotion 8
0,33
Promotion 9
0,32
AVG=0.89
Sales
Sales promotion 500 g promotion
KPI
Promotion 1
2,84
Promotion 2
2,75
Promotion 3
2,42
Promotion 4
2,34
Promotion 5
2,34
Promotion 6
2,28
Promotion 7
2,22
Promotion 8
2,05
Promotion 9
1,77
Promotion 10
1,73
Promotion 11
1,69
Promotion 12
1,66
Promotion 13
1,57
Promotion 14
1,56
Promotion 15
1,55
Promotion 16
1,53
Promotion 17
1,46
Promotion 18
1,36
Promotion 19
1,30
Promotion 20
1,12
Promotion 21
1,11
Promotion 22
0,96
Promotion 23
0,92
Promotion 24
0,87
Promotion 25
0,74
Promotion 26
0,36
Promotion 27
0,20
AVG=1.58
The sales promotion KPIs of small formats range from 0.32 to 1.86. The arithmetic
average of all the nine values is 0.89. The sales promotion KPIs of big formats range
from 0.20 to 2.84. The average of the 27 values is 1.58. It is apparent that sales
promotions of products in bigger packaging resulted in significantly higher KPI values;
also the average resulted almost twice higher.
The results were plotted on a bubble diagram (see Figure 22). The small packages (250
grams) are represented by blue bubbles; the large packages (500 grams) are represented
by the red bubbles. The x axis shows the sales promotion KPI (promo KPI), which
represents the sales promotion efficiency. The y axis shows the incremental sales KPI
the sales promotion effectiveness. The size of the bubble represents the size of the
benefit of the sales promotion in CZK.
63
It is clearly visible that the two groups differ mainly in two variables: sales promotion
efficiency and promotional benefit (size of the bubble), the third variable, promotion
effectiveness is not dependent on the size of the package apparently. According to the
results, the large packages are scoring higher values of sales promotion KPI and also the
sizes of the bubbles are noticeably larger. Therefore, it can be concluded that sales
promotions of large packages are more efficient, because the fixed cost can be dissolved
in the high sales volume.
Figure 23 Bubble diagram small vs. large packages
Small vs large packages efficiency KPI

1,20
Incremental sales KPI
1,00
0,80
250 g
0,60
500 g
0,40
0,20
0,00
-0,50
0,00
0,50
1,00
1,50
2,00
2,50
3,00
3,50
Promo KPI
Source: Author
The hypothesis that sales promotions of bigger formats of cereal packages are
noticeably more efficient than sales promotions of smaller formats was therefore
approved.

H3: Repeated sales promotions lead to increased consumption of RTEC due to the
consumption effect of stockpiling. This effect is even more significant in case of
sales promotions with high promotional bumps and high promotional frequency.
Base sales represent the sales in periods when no sales promotions occur. It is assumed
to be the pure sales which would occur independently of the sales promotion activities.
64
In the created evaluation program, the base sales is calculated as a median of sales
values over the past 52 weeks, where 20% of the top and bottom extreme values are
trimmed. By removing the extreme values, it should be ensured that significant
promotional peaks and post promotional drops are removed from the base sales
calculation.
Moreover, it is assumed that repeated sales promotions may increase the average sales
value, as the effects of the sales promotions influence the buyers behaviour in a
positive way. As was mentioned in the theoretical part, consumers who have stockpiled
are likely to increase their consumption frequency and thus consume more on average
(so called consumption effect).
To prove this effect, the base sales of selected evaluated sales promotions were
compared to the average sales values. Moreover, the difference between base sales and
average sales was compared within two product groups and 6 retail chains, due to the
varying sales promotion frequencies.
The base sales were calculated with the use of the mentioned median formula, the
average sales were calculated as an arithmetic average of the 52 weekly sales values. A
frequency of sales promotions was set as a variable. All results were recorded in a table
(see Figure 24).
Figure 24 Consumption effect table
Product
1 Product group 1
2 Product group 1
3 Product group 1
4 Product group 1
5 Product group 2
6 Product group 2
7 Product group 2
8 Product group 2
9 Product group 2
Customer
TESCO
INTERSPAR
MAKRO
BILLA
TESCO
GLOBUS
INTERSPAR
AHOLD
BILLA
Base sales Average Consumption Consumption

No. of
Range
Range abs.
(CZK) sales (CZK)
effect
effect index promotions
index
112 325
157 557
45 232
40%
3
400 225 3,56
34 415
53 899
19 484
57%
5
178 634 5,19
28 160
36 812
8 652
31%
3
112 823 4,01
70 770
92 863
22 093
31%
3
355 207 5,02
535 679
805 018
269 339
50%
7 2 714 336 5,07
376 029
475 557
99 527
26%
9 1 289 260 3,43
190 177
262 196
72 018
38%
8
530 687 2,79
801 429
908 135
106 706
13%
11 1 778 764 2,22
316 010
446 131
130 121
41%
8 1 151 349 3,64
Source: Author
Two product groups were evaluated and compared (product group 1 and 2). Products 1
are generally promoted with lower frequency and have relatively small market share. In
contrast, products 2 are frequently promoted and have a large market share. The figures
below (Figure 25 and 26) depict series of sales promotions of both product groups. The
red line represents the base sales of the given product group. The green line represents
the average sales over the past 52 weeks. Both graphs depict noticeably higher average
sales value than the base sales value.
65
Figure 25 Base sales vs. average sales 1

Product group 1 - Tesco
600000
500000
400000
sales
base sales
300000
average sales
200000
100000
Source: Author
Figure 26 Base sales vs. average sales 2

Product group 2 - Tesco
3500000
3000000
2500000
2000000
sales
base sales
1500000
average sales
1000000
500000
Source: Author
To prove the hypothesis, 57 sales promotions were analyzed and compared. The sales
promotions were grouped into 9 series according to the product group and the retail
chain. The results of the analysis were recorded in the table in Figure 24.
66
In all cases the average sales were noticeably higher than the base sales. The difference
between average and base sales was set as a variable and called consumption effect. This
variable represents the increase of consumption caused by the sales promotions.
Consumption effect index represents the ratio of consumption effect to the base sales,
which is the percentage increase of sales due to the sales promotion. Number of sales
promotions is next variable representing the sales promotion frequency of the given
product group at a particular retail chain. Absolute range represents the range between a
minimum and maximum value within a given series. It shows the height of the highest
peak within each series. Last variable is range index, representing the ratio between
absolute range and base sales.
All sales promotion series had a positive consumption effect, which clearly confirms the
assumption that sales promotions increase the average sales due to the consumption
effect of stockpiling. The relationship between the consumption effect and other
variables was further analyzed.
Figure 27 Consumption effect index vs. range index
60%
50%
Consumption effect index
40%
30%
20%
10%
0%
2,00
2,50
3,00
3,50
4,00
4,50
5,00
5,50
Range index
Linear (Consumption effect index)
Source: Author
The results of the analysis were plotted into a scatter diagram (see Figure 27). The y
axis shows the consumption effect index, the x axis shows the range index. The blue
markers represent the relationship between these two variables. The linear trend line
67
depicts the positive correlation between the two variables. It is obvious that the
consumption effect increases with the size of the promotional bump. This proves the
first part of the hypothesis.
The second diagram (Figure 28) depicts the relationship between the consumption effect
index and the sales promotion frequency, represented by the number of sales
promotions within the past 52 weeks. At the beginning, the consumption effect
increases with increasing frequency of promotions, however, from the frequency of six
promotions per year the consumption effect is decreasing.
Figure 28 Consumption effect index vs. number of promotions
60%
50%
40%
30%
20%
10%
0%
0
10
12
Number of promotions
Poly. (Consumption effect index)
Source: Author
The results depicted in the second diagram did not approve the second part of the
hypothesis statement. However, the declining curve for the higher frequencies does not
necessarily mean that consumption effect is negatively related to higher frequencies of
sales promotions. The reasoning behind can be an inadequate method of base sales
calculation.
The median calculation where 20% of the extreme values are trimmed proved to be a
good approximation of base sales for lower sales promotion frequencies. In these cases
68
the sales promotional peaks fit into the 20% extreme values and are thus not included.
This is depicted in Figure 25.
However, in case of high frequency of sales promotion, the given base sales calculation
does not ensure removing all of the extreme values, and thus part of the extreme values
remain. The base sales is therefore overvalued and the resulting consumer effect is
lower. This base sales calculation also undervalues the sales promotion KPI results for
cases of high sales promotion frequency.
The hypothesis thus can be partly approved: Repeated sales promotions lead to
increased consumption of RTEC due to the consumption effect of stockpiling. This
effect is even more significant for sales promotions with high promotional bumps.
To approve or disprove the second statement high frequency of sales promotions
increase the consumption a further analysis would be needed with a use of an
improved base sales calculation methodology. As was described in previous paragraphs,
the current base sales calculation is suitable only for cases of relatively low sales
promotions frequency. Therefore, an improvement to the calculation could be
implemented. The percentage which is trimmed in the formula could be for example
positively correlated to the number of sales promotions per year. This could become a
subject of further research and analyses.
69
Conclusion
From the findings of thorough research of various academic resources conducted, as
well as from the practical case study, it is evident that the role of sales promotions
evolved over time. From an unimportant complement of marketing activities it became
a significant and from many perspectives even irreplaceable part of companies
communication mix. Sales promotion is a combination of marketing activities that
directly stimulate consumer behaviour. It has the ability to influence consumers
decisions in the very last moment of purchase; it can increase the effectiveness of sales
force and have eventually profound impact on retailers.
Sales promotion has two core benefits compared to advertising: 1) the promotion has
the ability to generate immediate sales, and 2) the executed promotion activities results
can be easily measured.
In addition to the abovementioned benefits, it was proven that a well-designed sales
promotion has the potential to facilitate launch of new products to the market, to revive
a maturing brand, to attract customers to a trial of new product, to increase the shelf
space, to offset competitors activities, to encourage repeat purchases of current
customers and to increase the frequency of consumer consumption.
Moreover, a well prepared sales promotion can strengthen advertising campaign of a
brand. To achieve maximum impact, manufacturer should create campaigns while
integrating all parts of communication mix within the promotion.
During the planning phase of companies communication mix, they should
appropriately identify and appreciate the nature and behaviour of their target audience.
The findings of this study demonstrate that consumer behaviour is influenced by many
factors, and so is responsiveness to sales promotion activities. Being the most critical
factors, multiple psychographic and demographic factors and their impacts were
discussed in the theoretical part of this thesis.
The secondary research revealed differing opinions of researchers on many subjects
concerning sales promotions, as well as the fact that the conclusions of their studies are
frequently inconsistent and even contradictory. However, the author was able to draw
the following generalizations:
70
Products that are on sales promotion are perceived more valuable by the
consumers due to their value added feature. However, an excessive usage of
price sales promotions can reduce the consumers responsiveness to a particular
sales promotion.
There is clear evidence that sales promotions lead to immediate increases in

sales. These promotional peaks occur in the short term, however, they have also
influence on periods preceding and following the promotional period. The
stockpiling effect can be either negative or positive for the manufacturer,
depending e.g. on the product character.
Sales promotions in one category influence sales of other categories, namely,

sales of brands in competitive and complementary categories are affected.
Sales promotions can increase brand switching, but they are also beneficial as
they increase the knowledge of producers brand and increase the probability of
trials. The brand switching effects are different for high quality brands and for
lower quality brands.
There is a huge amount of sales promotion schemes, and their usage differs according to
the target audience and brand characteristics. Numerous alternatives are available for
the producers when planning their sales promotions. Therefore the manufacturer should
use a systematic program for evaluating of potential promotions, both in the stage of
planning and in the stage of posterior appraisal.
One of the key outputs of the thesis was achieved, as the evaluation program was
successfully created. The unique tool evaluates a sales promotion from two main
perspectives: effectiveness and efficiency. In this context, effectiveness characterizes
how successful the sales promotion was in terms of sales volume increase. Efficiency,
on the other hand, incorporates the manufacturers expenses, and represents the ratio
between benefits and costs of a sales promotion.
Several hypotheses about sales promotion effects were defined and tested. To be able to
verify them, the self-developed program was used. The aim of the practical part was to
analyze all the evaluated sales promotions, and to identify specific and relevant
conclusions about their effects.
The aim was accomplished as 65 sales promotions executed in the RTEC category were
evaluated with consistent results throughout the sample.
In the concluding chapter, all stated hypotheses were tested with the use of the abovementioned self-developed evaluation program and real sales data from the RTEC
71
category. The research objectives of the thesis were successfully answered and
following key results were drawn from the analysis:
Sales promotions in the RTEC category usually cause slight drops in
consequent sales. The reasoning behind that can be explained by the character
of the category, as the Nestl products are quite durable and belong to the
premium segment. People are therefore quite likely to plan and postpone their
purchases in order to seek deals.
Sales promotions of bigger formats of cereal packages are noticeably more
efficient than sales promotions of smaller formats, because the fixed cost are
dissolved in the high sales volume.
Repeated sales promotions lead to increased consumption of RTEC due to the
consumption effect of stockpiling. This effect is even more significant for sales
promotions with high promotional bumps.
To analyze the relation of the sales promotions frequency and consumption
further research would be needed with a use of an improved base sales
calculation methodology.
Findings and results of the thesis are applicable not only on the RTEC category, but also
potentially on many other FMCG categories. The results of the thesis have a practical
utilization for forming the communication strategy of a FMCG company. Furthermore,
the developed evaluation program can be further utilized by the company for regular
planning and evaluations of sales promotions.
Finally, findings of the thesis are also beneficial for the academic research, as they
broaden the knowledge about the sales promotion and its effects. The results can serve
as a good source for further theoretical research and studies.
72
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Obtained 5.11.2011
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1. Nestl S.A.: Nestl Promotion Planning & Evaluation Guidelines, created
2000, revised 2006
75
List of Figures
Figure 1 Sales promotional targets .................................................................................. 12
Figure 2 Summarization of all stockpiling effects .......................................................... 22
Figure 3 The difference between trade and consumer promotions ................................. 34
Figure 4 Three areas of measurement in sales promotion evaluation ............................. 36
Figure 5 The promotion planning & evaluation process ................................................. 39
Figure 6 Consumption of RTEC per capita in 2010 ....................................................... 43
Figure 7 The development of sales volume of RTEC in the CR .................................... 43
Figure 8 Step one: Data preparation................................................................................ 48
Figure 9 Purchased data structure ................................................................................... 49
Figure 10 Internal sales data ........................................................................................... 49
Figure 11 Step two: Data processing .............................................................................. 50
Figure 12 Product_list sheet structure ............................................................................. 50
Figure 13 Help_Stores sheet description......................................................................... 51
Figure 14 Step three: Promo Evaluation ......................................................................... 53
Figure 15 Summarization table ....................................................................................... 54
Figure 16 Input/Output forms ......................................................................................... 55
Figure 17 Form sheet ...................................................................................................... 56
Figure 18 Sales promotion graph .................................................................................... 57
Figure 19 Evaluation form .............................................................................................. 58
Figure 20 Bubble diagram............................................................................................... 60
Figure 21 Example of a post promotional effect ............................................................. 61
Figure 22 Sales promotion KPIs for small and big kid cereals ....................................... 63
Figure 23 Bubble diagram small vs. large packages ....................................................... 64
Figure 24 Consumption effect table ................................................................................ 65
Figure 25 Base sales vs. average sales 1 ......................................................................... 66
Figure 26 Base sales vs. average sales 2 ......................................................................... 66
Figure 27 Consumption effect index vs. range index ..................................................... 67
Figure 28 Consumption effect index vs. number of promotions .................................... 68
76
List of abbreviations
AMC adjusted marginal contribution
AVG average
CPC Cereal Partners Czech
EDLP Every Day Low Pricing
FMCG Fast Moving Consumer Goods
GPS Gross proceeds of sales
KPI Key Performance Indicators
MC Marginal contribution
POP Point of Purchase
POPAI Point-Of-Purchase Advertising Institute
RTEC Ready-to-eat cereals
S.M.A.R.T. specific, measurable, achievable, realistic and timed
TTS total trade spend
TT Trade terms
List of used terms:

Adjusted marginal contribution Marginal contribution plus total trade spend
Base sales Average level of sales volume of a product over some period
Effectiveness A measure of the incremental sales to the end consumer
Efficiency A measure of how much it costs the manufacturer to gain the effectiveness
of the sales promotion
Marginal contribution Gross margin, obtained by subtracting variable cost from the
gross proceeds of sales
Promo evaluation The process of sales promotion evaluation
Pre-evaluation Evaluation of a promotion at the planning stage
Post-evaluation Posterior evaluation of a promotion
Purchased data AC Nielsen data
Total trade spend All expenses, price reductions and allowances to customers
(retailers) for their efforts to sell the products
Trade terms Yearly agreed conditions between a manufacturer and a retailer
Uplift (or incremental sales) The incremental volume sold above the base sales
thanks to the sales promotion
77

Raymon Magassey

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University of Economics in Prague

Faculty of Business Administration

The Effectiveness of Sales Promotion in the

Author: Bc. Lucie Mllerov

Prague, Czech Republic, 20 December 2011

Sales promotion definition ............................................................................... 10

Sales promotion types ...................................................................................... 11

Sales promotion objectives ............................................................................... 15

Factors influencing responsiveness to sales promotion .......................................... 17

Psychographic factors ....................................................................................... 17

Demographic factors ........................................................................................ 18

Sales promotion effects ........................................................................................... 20

Effect of sales promotion on consumer decisions ............................................ 20

Effects of promotion-induced stockpiling on sales .......................................... 21

Long-term effect of sales promotion on brand image ...................................... 27

Empirical generalizations about sales promotions ........................................... 28

The evaluation procedure ........................................................................................ 31

Sales promotion evaluation ..................................................................................... 34

The process of sales promotion planning and evaluation ................................. 38

Hypotheses statement .............................................................................................. 41

About the company .......................................................................................... 42

The category characteristics ............................................................................. 42

The initial situation ........................................................................................... 45

Promo evaluation program ...................................................................................... 47

Promo evaluation program requirements ......................................................... 47

Processes within the evaluation program ......................................................... 48

Step one: Data preparation ........................................................................ 48

Step two: Data processing ......................................................................... 50

Step three: Promo evaluation .................................................................... 53

Hypotheses verification ........................................................................................... 61

Verification of Hypothesis 1 ............................................................................ 61

Verification of Hypothesis 2 ............................................................................ 62

Verification of Hypothesis 3 ............................................................................ 64

How is the shoppers behaviour influenced by the sales promotion activities?

Shift of power from manufacturer to retailer

Strong positive of sales promotion, in contrast to advertising, is its ability to influence

1.2 Sales promotion types

Consumer sales promotions

Trade sales promotions (Retailers)

Sales force promotions

Figure 1 Sales promotional targets

Consumer sales promotions

Various discounts (dependent on the sold amount or in case of repeated

Products for free or symbolic price

Share of the point-of-sale advertising cost

Sales competitions or motivational programs (rewards for increased sales

3D advertisement tools (promotional products or gifts)

Rewards for product displays

Guaranteed buyback of products

Competitions in sales volumes or gaining new customers

1.3 Sales promotion objectives

Facilitate a launch of new products to the market many retailers refuse to

Attract customers to a trial of a new product

Strengthen advertising campaign of a brand if well integrated into the

Offset competitors advertising and sales promotion activities

Encourage repeat purchases of current customers by various continuity or

Stockpiling many deal-oriented sales promotions encourage the consumers to

2 Factors influencing responsiveness to sales promotion

2.1 Psychographic factors

Goldberg, Joel: What are Psychographics? Source: http://www.marketsegmentation.com/what_are_psychographics.html.

2.2 Demographic factors

access to sources of information about products and sales promotions. Therefore, a

3 Sales promotion effects