Sales promotion complements other marketing mix elements at various points in the marketing channel. Trade promotion is used by the manufacturer to encourage distributors to behave in a certain way with respect to the manufacturer's products and services (Figure 10.8). The manufacturer also designs sales promotions which are implemented directly at consumer level. Sales promotion to the retail trade and directly to consumers are the most common versions in use; sales promotion is predominantly a consumer market phenomenon. Trade promotion attempts to move product through the channel, provide price incentives, merchandise, assist in co-operative advertising and implement dealer contests. The objectives of trade promotion are to do the following:
■ provide in-store sales support
■ increase the level of trade inventories
■ improve product distribution
■ motivate channel trade.
Consumer promotion uses various forms of direct incentives to encourage the final customer to buy the manufacturer's product rather than some other. The objectives of consumer promotions are:
■ to obtain product trial
■ to encourage loyalty
■ to introduce new or improved products, new packaging or new product sizes
■ to encourage customers to trade up
Figure [10.8] Sales promotion in the marketing channel
Figure [10.8] Sales promotion in the marketing channel
■ to promote more frequent purchase
■ to capitalize on special circumstances, e.g. a local festival or sports event.
Very often the mass media are used to advertise the sales promotion itself.
The task for the manufacturer is to ensure that all types of promotion are co-ordinated and that no element conflicts with any other. This is very difficult to achieve since retailers typically have very different objectives than manufacturers. In circumstances where profit goals are unlikely to be achieved, it is a relatively easy matter for an organization to cut advertising expenditure, which has a longer-term effect, than sales promotion budgets which have a more immediate and visible effect on sales volumes. A second contributory factor for the popularity of sales promotion is that sales volumes, not values, are still used by many companies as the basis on which to evaluate and reward retailers and compensate sales people. Evaluation methods based on volume usually do not reflect a profitability criterion especially when heavy sales promotions are involved. At the same time brand managers operate under performance criteria which are essentially in conflict. They are often held accountable for a combination of profit and volume or share gains. This inconsistency in performance criteria and associated compensation systems for brand managers and sales managers leads to inevitable conflict and damage to the organization.
Another reason for the relative growth of sales promotions may be due to the relative ease with which effectiveness may be judged compared to advertising. By depending solely on intuitive and qualitative measures to judge effectiveness rather than quantitative techniques, advertising agencies and brand managers have weakened the case for brands.
There are life-cycle effects in the use of sales promotion. Sales promotion can be effective in the pioneering and late maturity or renewal stages of the life cycle. In general the ratio of advertising to promotion tends to change over the life cycle. Frequently, when product categories reach maturity, brand differentiation declines and many indistinguishable brands proliferate the market.
Market maturity leads to less differentiation and, therefore, an increase in price and promotion responsiveness. Furthermore, customers learn, as a result of manufacturers' initiatives, to respond to promotions. The lower the differentiation among brands, the higher tends to be the ratio of sales promotion expenditure to sales (Quelch etal. 1984). It may also be true that the effect of advertising may decline as markets mature. With increases in advertising, its marginal productivity declines compared to trade and consumer sales promotion. Higher levels of promotion relative to advertising are associated with brands that:
■ have a profit contribution rate below the company average
■ have little brand loyalty
■ have little competitive differentiation
■ are directed toward children
■ are purchased with little planning
■ are in the introductory or renewal stages of the life cycle
■ have a pronounced seasonal sales pattern
■ have a small share of the market
■ compete in markets where private labels are important (Strang etal. 1975). Extra costs and brand debasement
Engaging in sales promotion gives rise to additional costs at manufacturer level as it is necessary to produce in peaks and troughs to meet the increased demand and subsequent decline. Trade promotions have often been referred to as costly affairs for manufacturers. Powerful organizations strike back by reducing discounts offered to retailers for some but not all products in the portfolio, thereby leaving the total purchase cost to retailers about the same as before.
By following this pricing and sales promotion approach these companies expect that the lower prices will eliminate the manufacturing and distribution inefficiencies caused by sales promotions, allow a decrease in regular retail prices to customers and eventually restore brand loyalty among buyers. Such a strategy can work only if the organization has a portfolio of well-known brands in demand which the retailer is reluctant to boycott. The fear from the organization's viewpoint is that competitors will continue to offer retailers attractive concessions in order to control greater shelf space. If more powerful manufacturers withstand this pressure, weaker competitors could then face increased competition from discounts if they continue to offer deals to powerful retailers.
While the direct costs implications of sales promotions may be considerable, a more fundamental cost is the possible debasing of brands created by continuous sales promotions which encourages many shoppers to purchase products only when 'on sale'. There has been considerable debate concerning the effects of sales promotion on brand equity. The generally accepted view is that sales promotion has a negative effect. While advertising is believed to increase market share, heavily sales-promoted brands tend to lose market share (Strang etal. 1975). Product sampling tends to be an exception since it can help to build awareness especially for a new product. In the case of packaged goods, retail promotions benefit brand leaders over weaker brands (Blattberg and Neslin 1990). The buyer perceives a strong brand to be a quality product and thus can claim a higher price. A sales-promoted brand, however, is often perceived as being of lower quality, otherwise it would not need to be promoted (Dobson etal. 1978).
In recent years some retailers have adopted an everyday low-price policy to avoid the haggling over sales promotion deals. Replacing sales promotions, which often produce wide swings in sales and prices, with relatively stable, low prices, eases the time and cost pressures of implementing price promotions and reduces any mistrust that exists between manufacturers and retailers and between retailers and customers. Retailers with strong private label brands are not so accommodating, however, in situations where the real competition is between private label and brands ranked third or fourth. Accommodation is easier to find for dominant brands where mutual interest exists. For example, Elida Gibbs tried the everyday lower price strategy but was forced to return to promotions as it lost share to brands on promotion.
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