Transcript Sales Promotion Overview and the Role of Trade

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Sales Promotion
Overview and the Role
of Trade Promotion
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Chapter Objectives
After reading this chapter you should be able to:
1. Understand the nature and purpose of sales
promotions.
2. Know the factors that account for the increased
investment in promotions, especially those that are
trade oriented.
3. Recognize the tasks that promotions can and cannot
accomplish.
4. Appreciate the objectives of trade-oriented
promotions and the factors critical to building a
successful trade promotions program.
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Chapter Objectives (cont’d)
5. Explain the various forms of trade allowances and
the reasons for their use.
6. Be aware of forward buying and diverting and how
these practices emerge from manufacturers’ use of
off-invoice allowances.
7. Appreciate the role of everyday low pricing
(EDLP) and pay-for-performance programs as
means of reducing forward buying and diverting.
8. Understand nine empirical generalizations about
promotions.
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It’s a Matter of Power: Nike versus Foot Locker
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The Nature of Sales Promotion
What Exactly is Sales Promotion?
• All promotional activities (excluding advertising,
public relations, personal selling, direct marketing,
and online marketing/social media) that stimulate
short term behavioral responses from consumers, the
trade (i.e., distributors, wholesalers, or retailers),
and/or the company’s own sales force.
• Incentives in addition to the product’s basic benefits.
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Examples of Sales Promotion Techniques
Consumer
Trade
Sales Force
Samples
Coupons
Price-offs
In/on pack premiums
Self-liquidating
premiums
Bonus packs
POP materials
Contests
Sweepstakes
Games
Buying allowances
Push money
Merchandise allowances
Advertising allowances
Display allowances
Specialty advertising
Trade shows
Sales contests
Bonuses
Meetings
Sales aides
Training materials
POP displays
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Baseball Promotions:
The Good , the Bad, and the Ugly
•
•
•
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Taco Bell, Steal a Base – Free Taco, World Series Promotion
True Value – MLB Opening Day Free Baseball Promotion
Ten Cent Beer Night, Municipal Stadium, Cleveland, OH
Disco Demolition Night, Comiskey Park, Chicago, IL
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Figure 18.1: Brand-Level Promotion Targets
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Developments Underlying the Growth in
Promotions
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Push and Pull Strategies
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A Shift in Accounting Rules
• Promotions expenditures are now treated as
reductions in sales revenue instead of as current
expenses
• Under the “new” rules, price-discounting promotions
are appropriately treated as direct reductions from
revenue rather than as indirect expense reductions
• This can motivate brand managers to allocate
relatively more money into advertising or into other
forms of sales promotions other than price discounts
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Illustration of “Old” and “New” Accounting
Procedure
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Sales Promotions Can …
• Stimulate sales force enthusiasm for a new, improved, or
mature product
• Invigorate sales of a mature brand
• Facilitate the introduction of new products to the trade
• Increase on- and off-shelf merchandising space
• Neutralize competitive advertising and sales promotions
• Obtain trial purchases from consumers
• Hold current users by encouraging repeat purchases
• Increase product usage by loading consumers
• Preempt competition by loading consumers
• Reinforce advertising
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Sales Promotions Cannot …..
• Compensate for a poorly trained sales force or a lack
of advertising
• Give the trade or consumers any compelling longterm reason to continue purchasing a brand
• Permanently stop an established brand’s declining
sales trend or change the basic nonacceptance of an
undesired product
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Invigorating Sales of a Mature Brand
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Problems with an Excessive Emphasis on
Sales Promotion
It can:
1. Damage image of product
2. Diminish brand loyalty
3. Reduce consumption
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Specific Decisions to Be Made in All Sales
Promotion Programs
1.
2.
3.
4.
5.
6.
Size of the incentive (e.g., 15-20% savings)
Conditions for participation
Distribution vehicle
Duration of promotion (e.g., repurchase cycle)
Timing of promotion
Total sales promotion budget
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Trade Promotions
Scope and objectives:
• Introducing new or revised products
• Increasing distribution of new packages or sizes
• Building retail inventories
• Maintaining or increasing the manufacturer’s share of
shelf space
• Obtaining displays outside normal shelf locations
• Reducing excess inventories and increasing turnover
• Achieving product features in retailers’ advertisements
• Countering competitive activity
• Selling as much as possible to final consumers
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Ingredients for a Successful Trade Promotion
Program
Key Ingredients to Success
• Financial incentive
• Correct timing
• Minimize retailer’s effort/cost
• Quick results
• Improve retailer performance
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Examples of Trade Promotion Types
1. Trade Allowances
a) Off-invoice allowances
b) Bill-back allowances
c) Slotting allowances and exit fees
2. Cooperative advertising and vendor support
programs
3. Trade contests and trade incentives
4. POP materials
5. Training programs
6. Specialty advertising
7. Trade shows
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Major Forms of Trade Allowances
Off-invoice allowances
• Most frequently used form
• Free goods or price reductions (e.g., “on deal”) for
purchases of specific quantity of goods (e.g., 5 free cases or
5% off if purchase 50 cases)
• Retailers do not necessarily pass along the discounts to
consumers
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Major Forms of Trade Allowances
Bill-back allowances
• Retailers receive allowances for featuring the
manufacturer’s brand in advertisements or for
providing special displays. The retailer bills back
the manufacturer for services rendered.
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Large Chains Don’t Always Pass Along Deals
to Consumers (Why?)
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Forward Buying and Problems
Forward Buying
Buying larger quantities than needed due to deals.
• Forward buying problems:
1.
2.
3.
4.
Deal savings not passed on to consumers
Retailer and distributor costs increase
Manufacturers have higher production costs
Diverting
• One possible solution: billing for the deal and holding
inventory/producing when needed
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Diverting and Problems
Diverting
Occurs when a manufacturer restricts a deal to a limited geographical area
rather than making it available nationally. Retailers then buy abnormally
large quantities at the deal price and then sell off, at a small profit margin, the
excess quantities in other higher-priced geographical areas.
Diverting Problems:
1.
Undermines regional marketing efforts
2.
Products intended for foreign markets are diverted back into
domestic markets
3.
Product quality can suffer due to delays
4.
Product tampering can be more difficult to trace due to
diverting
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Major Forms of Trade Allowances
Slotting allowances
• The fees manufacturers pay retailers for access to a
slot, or location in retailer’s (e.g., grocer’s)
warehouse
• Typically paid (in cash) by a manufacturer to get its
new brand accepted by retailers
• Any problems with slotting fees?
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Exit Fees
• In order for the brand to remain in the chain’s
distribution center, an average weekly
volume amount must be met.
• If the brand does not meet the stipulated sales
amount, the chain will issue a deslotting
charge. The charge, or exit fee, is intended to
cover handling costs for removing the item
from the distribution center.
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Category Management
• Category Management: a system established by
Procter & Gamble whereby each product category
within a company is managed by a category manager
who has direct profit responsibility (also at retail
level)
• Why the shift from brand mgt.  category mgt.?
•
•
•
•
Different consumer preferences across regions of country
Scanner data (including competitive data)
Shift of power from manufacturers  retailers
Need for a longer-term focus
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Five Stages of Category Management
(SKUs, Planograms)
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Other Efforts to Try to Rectify Trade Allowance
Problems
• Everyday Low Pricing (EDLP)
• Pay-for-Performance Programs
• Account-Specific Marketing
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Everyday Low Pricing (EDLP)
Everyday Low Pricing: Is a form of pricing whereby a
manufacturer charges the trade the same price for a particular
brand day in and day out.
• Introduced by P&G in the 1990’s due to its desire to compete
on the basis of providing product value and not mere price
savings.
• Because off-invoice allowances are not offered under this
pricing strategy, wholesalers and retailers have no reason to
forward buy or divert.
• Yet, it is rare for an item to sell at the same (low) price
throughout the entire country.
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Pay-for-Performance
Pay-for-Performance: Rewards retailers for actually selling
the manufacturer’s brand supported with a trade allowance
rather than for merely buying the brand at an off-invoice price.
This also is known as a “scandown.”
1. Agreed upon period for mfg. offer of deal price ($1.79) to
retailer (vs. regular price of $1.99)
2. Retailer's scanning verifies 5,680 units sold at $1.79
3. Mfg. reimburses retailer for:
a) Reduced margin .20 @ 5680 units =
$1,136
b) Trade allowance .05 @ 5680 units =
284
$1,420
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Account Specific Marketing
Account Specific Marketing: Also called co-marketing, this
characterizes promotional and advertising activity that a
manufacturer customizes to specific retail accounts.
• Promotion dollars are directed to specific retail customers
• Manufacturer advertising and promotion programs are
developed in concert with retail advertising and promotion
programs
• Requires a lot of effort in both development and
implementation and is costly, so interest among packaged
goods companies may have peaked
• That said, powerful retailers benefit from well-designed
account-specific programs, so account specific marketing is
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here to stay
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Cooperative Advertising
• Cooperative (co-op) advertising: An
arrangement between a manufacturer and
retailer whereby the manufacturer pays for all
or some of the advertising costs undertaken
by the retailer. It is initiated by the
manufacturer.
• Compare this to vendor support system (same
as a co-op, but initiated by large retailers)
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Cooperative Advertising
Five Common Elements
•
•
•
•
•
Specified time period
Accrual
Payment share
Performance guidelines
Billing for reimbursement
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Cooperative Advertising
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Trade Contests, Incentives and Push Money
Trade contest generally based on
Trade
incentives
Push money
managers meeting a sales
goal
given to retail managers and
salespeople for performing
certain tasks
provides financial incentives
to retail salespeople to
aggressively sell to
consumers a selected item
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Specialty Advertising
Specialty Advertising
An advertising and promotions medium that
utilizes useful or decorative articles to transmit
to a target audience an organization's
identification and promotional message
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Nine Empirical Generalizations about
Promotions
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