Chapter 11 Homework Assignment
1. How is advertising and sales promotion similar? Different? Which do you think is a more effective communication tool and why?
2. Are particular kinds of customer-oriented sales promotions more likely to have long-term effects on buying behavior than others?
3. Consider Figure 1.5 (“Strategies for Trade Dealing” (Power Point slide 25). What other products or services would fit into the four boxes?
4. Summarize the factors that affect the allocation of money between advertising and promotion. Considering the consumer franchise-building approach, when would you want the CFB ratio to be below the 50–55% recommended? When might you want it to be much higher?
5. A number of new in-store coupon delivery systems other than the Catalina system are being developed (e.g., free-standing kiosks). Compared to coupons delivered through the mail or newspapers and magazines, what kind of impact do you expect these coupons to have on consumer behavior other than simply inducing a one-time trial?
Light Blusy Sales Promotion Chapter Eleven Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 11-* Key Learning Points How sales promotion differs from other modes of communication The different types of sales promotions Differences between customer, trade, and retailer-oriented promotions Issues in the development of promotional strategy and objective-setting Allocating money between advertising and sales promotion Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall Key Learning Points The purpose of this chapter is to introduce the various aspects of sales promotion decision making. Key areas of learning are: • How sales promotion differs from advertising and other modes of communication • The different types of sales promotions available to the marketing manager • Differences among customer, trade, and retailer-oriented promotions • Issues in the development of promotional strategy and objective-setting • Allocating money between advertising and sales promotion Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 11-* Table 11.1 Automobile Company Average Sales Incentives in 2009 Visit Edmunds.com The chapter brief describes the history of sales promotion incentives in the auto industry. In the 1970’s auto manufacturers offered rebates as one-time incentive response to consumer “sticker shock” to rising prices. Unfortunately, the auto industry didn’t stop offering incentives, and they became commonly used on an annual basis. Promotional incentives continued throughout the 1990’s, justified as a way to combat the recession. In 2000, DaimlerCrysler attempted to reduce its promotional incentives, only to lose market share as competitors refused to follow their lead. GM’s experience in October of 2000 demonstrates the potential danger of promotions: while market share increased 2%, profits fell, as the no financing deal offered at that time cost the firm on average about $3000 per vehicle. Ford’s incentives sent marketing costs spiraling out of control and led to a -5.8% pretax profit margin. Marketing costs were a staggering 16.7% of the cost of each vehicle sold. Fast forwarding to 2009, incentives are still a problem in the industry. Table 11.1 shows the average incentives offered by the major manufacturers. GM’s in the same range as they were in 2000, averaging around $3500, though their financial situation is much more desperate. Plus, the government-sponsored “cash for clunkers” incentive program met with unparalleled success. Visit the Edmunds.com website and click on the “Latest Incentives” link to see what auto manufacturers are offering currently. Discussion note: It might be worthwhile to remind students of the prisoner’s dilemma (game theory) discussed in a previous chapter. No one firm can afford to STOP offering incentives unless ALL firms agree to do so. ChryslerDaimler’s attempt to do so in 2000 shows how unlikely this strategy is to work. Even though these promotions cost firms profit, they can’t afford to NOT offer them or they will lose customers to the competition. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 11-* “Sales promotion is an action-focused marketing event whose purpose is to have a direct impact on the behavior of the firm’s customers.” - Robert C. Blattberg & Scott A. Neslin Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall This definition can be broken down to shed some light on specific promotional activities and their purposes: ■ Sales promotions are action focused. They are intended to get customers to purchase. This is perhaps their most distinguishing feature. In addition, they normally attempt to get customers to purchase within a limited period of time. For example, coupons are intended to encourage customers to purchase the brand by the expiration date. ■ Promotions are marketing events. More precisely, they are discrete programs with well defined beginning and starting dates that offer incentives to customers to purchase or use the product. A coupon campaign has a beginning or drop date as well as an expiration date. Contests and sweepstakes also run over a limited period of time. Both are considered events. ■ Sales promotions are intended to have a direct impact on behavior. As we noted in Chapter 9, advertising usually works through a series of steps, or a hierarchy, from awareness to purchase. Promotions work directly on behavior. As a result, there is no question about how to evaluate the effectiveness of a promotional campaign or event: sales is almost always the measure of effectiveness. Although coupons do affect consumers’ psychological processes, the objective is purchase or trial, not attitude change. ■ Sales promotions influence both consumers and customers. It is important to note that customers include both end consumers and any channel members.. Thus, certain promotional devices are appropriate for getting consumers to buy. Others, such as quantity discounts, are targeted toward channel members. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 11-* Figure 11.1 Simplified Channel and Promotional Structure Sales promotion is most closely related to price, but is also part of an integrated marketing communications strategy which can serve as an incentive to ultimate consumers or distribution channel members. To see how promotions interact with channels of distribution, Figure 11.1 shows a simplified channel structure in which the manufacturer sells to a channel (here a retailer), which in turn sells to the final customer (the consumer). In this situation, promotion falls into three categories: 1. Customer promotion (pull marketing activities). 2. Promotion to the channels, or trade promotion (push marketing activities) 3. Channel-originated promotion, or retailer promotion. Consumer goods firms that make heavy use of promotion are shifting funds away from media advertising. In 2008, only 32% of funds were directed towards media advertising, with the remaining 68% was directed towards sales promotion. This almost 2:1 ratio of promotion to advertising reflects the short-term sales volume focus that has pervaded the industry for years. B2B firms also spend considerable amounts of money on sales promotion activities. there is considerable debate about the effectiveness and efficiency of sales promotions. For example, Procter & Gamble is attempting to reduce its use of coupons because of their inefficiency (about 1 percent are redeemed) and costs of printing, distribution, and processing. Similarly, H. Many companies complain about the problems of sales promotion but find it difficult to stop using it because customers have become used to the incentives. Long term studies of the effects of promotions show that consumers become more sensitive to price and promotions and less responsive to brand-building activities such as advertising. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 11-* Table 11.2, Part A Types of Consumer Promotions Table 11.2, Part A shows the various types of consumer sales promotions. These sales promotion techniques are discussed in more detail on the following slides. Sales Promotion Price-oriented promotions Couponing is the dominant form of activity. Redemption is low. Price-oriented promotions. Couponing is the dominant form of activity. Over $201 billion of coupons were distributed in 2007, yet only 1% were redeemed (overall). It is worth mentioning that redemption rates between the various forms of coupons are not equal. For example “instant” (peelable) coupon found on product packages often boast redemption rates as high 30%. 94% of US households reported using coupons targeted towards supermarkets, which in part accounts for their widespread usage, though many believe that the high percentage is associated with the economic recession. Still, the majority of coupon usage comes from a small percentage of households – 81% of items purchased with manufacturers coupons came from just 19% of households in a 6-month period in 2009. Table 11.4 provides additional coupon information on the next slide. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 11-* Table 11.4 Where Coupons are Distributed As shown in Table 11.4, coupons are delivered to households in a variety of ways including mail, in newspaper and magazine advertisements, in the stores at the point-of-purchase, on or in the packages, at the checkout counter, and electronically via the Internet. However, the largest distribution channel for coupons is free-standing inserts (FSIs), which accounted for 88% of all coupons delivered in 2008. A popular way to deliver FSIs is inside of the Sunday newspapers. New coupon distribution methods are being developed based on new technologies, such as via text messages. One application is to deliver a bar code which can be scanned at point-of-purchase. Why do marketers use coupons so heavily? There are two main reasons. First, coupons are an effective way to target discounts and other incentives to households that are particularly sensitive to price. By combining a computer database of purchase histories with a direct-mail program, marketers can target price-sensitive households. Second, coupons are flexible in that they can achieve different kinds of goals. Some are simply discounts off regular price. Some discounts apply to larger sizes than the consumer normally buys. Some focus on product trial and repeat. E-coupons have become more popular. Websites such as More details about the many ways consumers obtain and use coupons are shown in Table 11.5. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 11-* Marketing Research Methods of Coupon Distribution Free-standing inserts ROP newspaper Sunday supplements Magazine Direct mail On-package Instantly redeemable In-package Cross-ruff Retailer coupons Coupon machines From the top portion of Table 11.5: Media distributed coupons: Free-standing insert. A leaflet of coupons for various products that can be inserted into a (usually Sunday) newspaper. Run-of-press (ROP) newspaper. Coupons that appear on the actual pages of newspapers rather than being inserted as a separate page or section. Often these coupons appear in an advertisement for a brand (these are called in-ad coupons). Sunday supplements. Coupons that appear on the pages of a newspaper Sunday supplement magazine such as Parade and Family Weekly. Magazine. Coupons that appear in magazines other than Sunday supplements, such as Good Housekeeping. The coupons can be actually on a page, or attached using special tip-in or pop-up cards. Direct mail: Coupons are mailed directly to consumers using the U.S. Postal Service. One mailing usually includes several coupons from various manufacturers, although much more expensive solo mailings are possible. Package delivered coupons: On-package. The coupon appears on the outside of the package and can be used for a subsequent purchase. Instantly redeemable. The coupon is on the outside of the package can be removed easily and used on the current purchase. In-package. The coupon is inside the package and can be used for a subsequent purchase. Cross-ruff. The coupon is for another brand, manufactured by the same or a different firm. The coupon itself can be in- or on-package. Retailer distributed coupons: Retailer coupons. Coupons distributed by the retailer rather than the manufacturer. The coupons can be distributed by ROP newspaper, included in “Best Food Day” circulars