Sales Promotion Management

Business 9318, Winter 2005

Dr. Katherine Gallagher
Objectives
• To introduce sales promotion
• To describe the unique functions of sales
promotion
• To describe the role of sales promotion in an
integrated brand communications program
• To examine some of the more subtle issues
about sales promotion
Scope and Role of Sales Promotions
• Extra incentive to buy
• Acceleration tool
• Targeted to different parties
– trade
– consumers
The Growth of Sales Promotions
• Communication dollars have moved away
from advertising to sales promotion, due to:
– Increased power of retailers
– Brand proliferation and parity; decreasing brand
loyalty
– Increased promotional sensitivity
– Increased fragmentation of mass media audiences
– Short term focus in corporate rewards
– Increased accountability
– Competition
Trade Promotions
• Directed at wholesalers, retailers, and other
marketing intermediaries
• First step in the sales promotion effort
• Theoretically, incentives passed on to
consumers
Trade Promotions
• Objectives
– Obtain distribution for new products
– Maintain trade support for established brands
– Encourage retail display
– Build retail inventories
• Success factors
– Financial incentive
– Correct timing
– Minimal retailer effort and cost
– Quick results
– Improve retailer performance
Consumer Promotions
• Objectives
– Obtaining trial and repurchase
– Increasing consumption of an established brand
– Defending current customers
– Targeting a specific market segment
– Enhancing IBC and building brand equity
Profitability
• Trade-off:
– incremental sales volume
– reduced margin
• Profitability depends on consumers’
responsiveness to deals within a product
category
Consumer Responsiveness to Deals
All Consumers

On- and Off-Deal On-Deal Only

Consumers Consumers
(S8)

Loyalists Switchers

Non-Deal-Prone Deal-Prone Non-Deal-Prone Deal-Prone

Loyalists (S1) Loyalists Switchers (S5) Switchers

Stockpiling Exceptionist Stockpiling-Exceptionist

Loyalists (S2) Loyalists (S3) Loyalists (S4)

Nonstockpiling Stockpiling
Switchers (S6) Switchers (S7)
Deal Profitability by Consumer
Responsiveness Segment
• Promotion insensitives
– no additional sales on deal
– unprofitable
• Stockpiling loyalists
– sales on deal borrowed from future sales
– unprofitable
• Nonstockpiling promotion sensitives
– sales depressed when there are competitive promotions
– profitable iff
MD(SD/SN) > MN
Deal Profitability by Consumer
Responsiveness Segment
• Stockpiling promotion sensitives
– sales depressed due to own deals and competitive deals
– even more profitable than NPS if
MD(SD/SN) > MN
• On-deal-only consumers
– profitable by definition
л = SD x MD
Deal Profitability by Consumer
Responsiveness Segment
• Putting a brand on deal is:
– unprofitable if consumers are promotion-insensitive or
stockpiling loyalists
– profitable if consumers are on-deal-only
– either profitable or unprofitable if consumers are
nonstockpiling or stockpiling promotion-sensitive
Considerations in
Developing a Sales Promotion
• Short term impact
– Sales
• Long term effect on the brand
– Brand equity
– Profitability
• Competitive reaction
– Retaliatory promotions
• Quick fix?
Franchise-Building and
Nonfranchise-Building Promotions
• CFB promotions
– communicate distinctive brand attributes
– reinforce brand identity
– encourage repeat purchase and brand loyalty
– convert consumers to loyal customers
• Non-FB promotions
– accelerate purchase decision process
– generate immediate increase in sales
– borrow customers from other brands
Sales Promotion and Brand Equity
• A brand has equity if consumers have positive,
unique, and accessible associations
 brand equity  desirability
 marcom costs
 trade leverage
 prices
 brand extensions
 price competition
 profits
Sales Promotion and Brand Equity
• Requirements for successful branding
– Consistent quality
– Differentiable advantage
– Communication of the differentiable advantage
• The problem: commoditization
– Difficult to make a product that is truly different
– Difficult to sustain a differentiable advantage
• Widely held technical expertise
• Ever faster dissemination
• Reverse engineering
Sales Promotion and Brand Equity
• The usual response to commoditization
– Compete on price
– Shift marcom $ from advertising to sales
promotion
• The result
– Increased price sensitivity
– Decreased brand loyalty
– Decreased brand equity
Sales Promotion and Brand Equity
• But…
– Consumers still need the information that brands
convey
– Consumers may no longer be loyal to one brand,
but they are loyal to brands
– Successful brand differentiation is still possible,
through marketing communications
Research Findings
• Above average price brands (nonprice message)

– Advertising  ?? differentiation
?? price competition

– Sales promotion  ?? differentiation

?? price competition
Research Findings (2)
• Lowest price brands (price message)

– Advertising  ?? differentiation
?? price competition

– Sales promotion  ?? differentiation

?? price competition
Research Findings (3)
• Avg./lower price brands (non-price/price message)

– Advertising  ?? differentiation
?? price competition

– Sales promotion  ?? differentiation

?? price competition
Implications
• Communicating a unique and valued position
leads to an increase in brand differentiation.
• Communicating a non-unique position leads
to a decrease in brand differentiation.
• Non-unique price messages are dangerous.
• Especially for above-average price brands,
advertising seems more valuable and sales
promotion seems less valuable than
previously thought.
Sales Promotion Trap

OUR FIRM

ALL OTHER Cut back Maintain

FIRMS promotions promotions
Cut back
promotions
Maintain
promotions
Summary
• Sales promotions provide a short term incentive to
purchase NOW.
– Trade promotions can get dealer support for both new and
established brands
– Consumer promotions can increase trial and/or repurchase
and can be used either offensively or defensively.
• Profitability depends on deal responsiveness
• CFB promotions are usually superior
• Overuse or inappropriate use of sales promotions
may harm brand equity
• Don’t fall into the sales promotion trap!