9.Promotions

12

Promotions

McGraw-Hill/Irwin

Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

Changes in Advertising and Promotion Spending 1981

1986

1991 1994 1998

Advertising

43%

34%

25%

26%

22%

Consumer Promotion

23

26

25

25

20

Trade Promotion

34

40

40

49

58

12-2

Simplified Channel and Promotion Structure Manufacturer 1

Manufacturer 2 Trade promotion

Customer promotion

Channel A (Retailer A)

Channel B (Retailer B)

Retail promotion

Customer

12-3

Customer Promotion Objectives Objective I. Long-run (relationship building) A. Awareness enhancement B. Image enhancement II. Short-run (transactional) A. Current customers 1. Buy more 2. Be more loyal 3. Buy now B. Occasional customer (deal prone; brand switchers) Capture next purchase C. Noncustomers Trial

Typical Programming Sweepstakes, contests, tie-ins Sponsorships Volume discounts/special “value” packages “In pak” coupons, premiums, frequent buyer programs Rebates, coupons

Coupons, displays, rebates Trial sizes, sampling

12-4

Trade Promotion Objectives Objective Transactional: increase stocking levels

Transactional: increase sales efforts

Typical Programming Volume allowances Financing terms Discount/price cuts Slotting allowances Advertising allowances Display allowances Premiums Contests Sales force incentives (not all dealers allow this) Free goods

Relationship building

12-5

Factors Affecting the Advertising and Promotion Budget 1. The product is relatively standardized (as opposed to when the product is produced or supplied to order). 2. There are many end users. 3. The typical purchase amount is small. 4. Sales are made through channel intermediaries rather than directly to end users. 5. The product is premium priced. 6. The product has a high contribution margin. 7. The product or service has a small market share. 12-6

Final Customer Promotions 1.

Product-Based Promotions A. B.

Additional volume/bonus pack Samples 1. 2. 3. 4.

2.

Price-based Promotions A. B.

Sale Price Coupons 1. 2. 3. 4.

C. D. E.

3. 4. 5.

Central location Direct (e.g., mail) Attachment (in/on-pack coupons) Media placed (clip-and-save coupons)

Central location (e.g., in-store) Direct (mail) Attachment (in/on-pack) In media (e.g., website)

Refunds/rebates Financing terms Frequent users

Premiums Place-based promotions Games 12-7

Trade Promotions I.

Product based A. Free goods B. Consignment/returns policy

II. Price based A. Buying allowances B. Financial terms

III. Place based A. Slotting allowances B. Display allowances C. Warehousing/delivery assistance 12-8

Trade Promotions IV. Advertising and promotion based A. Co-op advertising B. Selling aids C. Co-op selling

V.

Sales based A. Bonuses and incentives B. Contests and prizes

12-9

Coupon Impacts • Accelerated regular purchases • Regular buyers on the brand simply buy sooner

• Accelerated captured purchases • Purchasers who neither would have brought at the time nor bought the promoted brand but are persuaded to do both by the promotion

• Unaccelerated regular purchases • Regular buyers who use the coupon as a “bonus” price cut

• Unaccelerated captured purchases • Purchasers of other brands who switch to the promoted brand because of the promotion

12-10

Impacts of Promotion • Temporary retail price reductions substantially increase sales • Higher market share brands are less deal elastic • The frequency of deals changes the consumer’s reference price • The greater the frequency of deals, the lower the height of the deal “spike”

12-11

Impacts of Promotion • Cross-promotional effects are asymmetric, and promoting higher quality brands affects weaker brands • Retailers pass through less than 100% of trade deals • Display and feature advertising have strong effects on item sales • Advertised promotions can result in increased store traffic • Promotions affect sales in complementary and competitive categories 12-12