Sales Promotion Overview and the Role of Trade Promotion - PowerPoint Presentation

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Sales Promotion Overview and the Role of Trade PromotionSlide2

Chapter Objectives

After reading this chapter you should be able to

:

Understand the nature and purpose of sales promotions.Know the factors that account for the increased investment in promotions, especially those that are trade oriented.Recognize the tasks that promotions can and cannot accomplish.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)

Explain the various forms of trade allowances and the reasons for their use.

Be aware of forward buying and diverting and how these practices emerge from manufacturers’ use of off-invoice allowances.

Appreciate the role of everyday low pricing (EDLP) and pay-for-performance programs as means of reducing forward buying and diverting.Understand nine empirical generalizations about promotions.3Slide4

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

Samples

CouponsPrice-offsIn/on pack premiumsSelf-liquidating premiumsBonus packsPOP materialsContests

Sweepstakes

Games

Trade

Buying allowances

Push money

Merchandise allowances

Advertising allowances

Display allowances

Specialty advertising

Trade shows

Sales Force

Sales contestsBonusesMeetingsSales aidesTraining materialsPOP 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, ILSlide8

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 expensesUnder the “new” rules, price-discounting promotions are appropriately treated as direct reductions from revenue rather than as indirect expense reductionsThis 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 tradeIncrease on- and off-shelf merchandising spaceNeutralize competitive advertising and sales promotionsObtain trial purchases from consumersHold current users by encouraging repeat purchasesIncrease 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 long-term reason to continue purchasing a brand

Permanently stop an established brand’s declining sales trend or change the basic nonacceptance of an undesired product14Slide15

Invigorating Sales of a Mature Brand

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Problems with an Excessive Emphasis on Sales Promotion

It can:

Damage image of product

Diminish brand loyaltyReduce consumption

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Specific Decisions to Be Made in All Sales Promotion Programs

Size of the incentive

(e.g., 15-20% savings)

Conditions for participationDistribution vehicleDuration 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 sizesBuilding retail inventoriesMaintaining or increasing the manufacturer’s share of shelf spaceObtaining displays outside normal shelf locationsReducing excess inventories and increasing turnoverAchieving 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 timingMinimize retailer’s effort/costQuick resultsImprove retailer performance19Slide20

Examples of Trade Promotion Types

Trade Allowances

Off-invoice allowances

Bill-back allowancesSlotting allowances and exit feesCooperative advertising and vendor support programs

Trade contests and trade incentives

POP materials

Training programs

Specialty advertising

Trade shows

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Major Forms of Trade 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

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 problems:

Deal savings not passed on to consumers

Retailer and distributor costs increaseManufacturers have higher production costs

Diverting

One possible solution: billing for the deal and holding inventory/producing when needed

Forward Buying

Buying

larger quantities than needed due to deals

.

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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:

Undermines regional marketing efforts

Products intended for foreign markets are diverted back into domestic markets

Product quality can suffer due to delays

Product tampering can be more difficult to trace due to diverting

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Major Forms of Trade 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

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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.Slide28

Category Management

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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 focusSlide29

Five Stages of Category Management

(SKUs, Planograms)

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Other Efforts to Try t

o Rectify Trade Allowance Problems

Everyday Low Pricing (EDLP)

Pay-for-Performance ProgramsAccount-Specific Marketing30Slide31

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.

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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.Slide32

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.”

Agreed upon period for mfg. offer of deal price

($1.79) to retailer (vs. regular price of $1.99)

Retailer's scanning verifies 5,680 units sold at $1.79

Mfg. reimburses retailer for:

Reduced margin .20 @ 5680 units =

$

1,136

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 here to stay

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Cooperative Advertising

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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)Slide35

Cooperative Advertising

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Five Common Elements

Specified time period

Accrual

Payment share

Performance guidelines

Billing for reimbursementSlide36

Cooperative Advertising

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Trade Contests, Incentives and Push Money

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Specialty Advertising

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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 messageSlide39

Nine Empirical Generalizations about Promotions

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