Selecting Trade Promotion Tools

Manufacturers use a number of trade-promotion tools (Table 5.10). Surprisingly, a higher proportion of the promotion pie is devoted to trade-promotion tools (46.9 percent) than to consumer promotion (27.9 percent), with media advertising capturing the remaining 25.2 percent. Manufacturers award money to the trade for four reasons:

1. To persuade the retailer or wholesaler to carry the brand: Shelf space is so scarce that manufacturers often have to offer prices off, allowances, buyback guarantees, free goods, or outright payments (called slotting allowances) to get on the shelf, and once there, to stay on the shelf.

2. To persuade the retailer or wholesaler to carry more units than the normal amount: Manufacturers will offer volume allowances to get the trade to carry more in warehouses and stores. Manufacturers believe the trade will work harder when they are "loaded" with the manufacturer's product.

3. To induce retailers to promote the brand by featuring, display, and price reductions: Manufacturers might seek an end-of-aisle display, increased shelf facings, or price reduction stickers and obtain them by offering the retailers allowances paid on "proof of performance."

Source: Adapted from Jacques Chevron/'Branding and Promotion:Uneasy Cohabitation," Brandweek, September 14,1998, p. 24.

to tie it all together. . . . Companies use telepromotions not only to pull product through at retail but also to identify customers, generate leads, build databases and deliver coupons, product samples and rebate offers.58

In deciding to use a particular incentive, marketers have several factors to consider. First, they must determine the size of the incentive. A certain minimum is necessary if the promotion is to succeed. A higher incentive level will produce more sales response but at a diminishing rate.

Second, the marketing manager must establish conditions for participation. Incentives might be offered to everyone or to select groups. A premium might be offered only to those who turn in proof-of-purchase seals or UPC codes. Sweepstakes might not be offered in certain states or to families of company personnel or to persons under a certain age.

Third, the marketer has to decide on the duration of promotion. If the period is too short, many prospects will not be able to take advantage of it. If the promotion runs too long, the deal will lose some of its "act now" force. According to one researcher, the optimal frequency is about three weeks per quarter, and optimal duration is the length of the average purchase cycle.59 Of course, the optimal promotion cycle varies by product category and even by specific product.

Fourth, the marketer must choose a distribution vehicle. A fifteen-cents-off coupon can be distributed in the package, in stores, by mail, or in advertising. Each distribution method involves a different level of reach, cost, and impact.

Fifth, the marketing manager must establish the timing of promotion. For example, brand managers develop calendar dates for annual promotions. These dates are used by the production, sales, and distribution departments.

Finally, the marketer must determine the total sales-promotion budget. The budget can be built from the ground up, with the marketer choosing the individual promotions and estimating their total cost. The cost of a particular promotion consists of the administrative cost (printing, mailing, and promoting the deal) and the incentive cost (cost of premium or cents-off, including redemption costs), multiplied by the expected number of units that will be sold on the deal. In the case of a coupon deal, the cost would take into account the fact that only a fraction of the consumers will redeem the coupons. For an in-pack premium, the deal cost must include the procurement cost and packaging of the premium, offset by any price increase on the package.

The more common way to develop the budget is to use a conventional percentage of the total promotion budget. For example, toothpaste might get a sales-promotion budget of 30 percent of the total promotion budget, whereas shampoo might get 50 percent. These percentages vary for different brands in different markets and are influenced by stage of the product life cycle and competitive expenditures on promotion.

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