MARKETING

4. SALES PROMOTIONS2

4.1 DEFINITION AND IMPORTANCE OF SALES PROMOTIONS

The American Marketing Association defines sales promotions as follows: The media and
non-media marketing pressure applied for a predetermined, limited period of time at the
level of consumer, retailer, or wholesaler in order to stimulate trial, increase consumer
demand or improve product availability.

Sales promotion is a marketing technique that is used to entice customers to purchase
a product by offering a reduced price or a greater value. It is always carried out for a
limited period of time to influence consumers positively and increase sales.

The growing importance of promotions as a means of commercial action is because of
a combination of a number of factors, among which we can highlight the following:

- Greater recognition of the importance of promotions by senior managers of the
companies.
- Need for companies to achieve short-term results.
- Abundance of new products, many of which are simple imitations.
- Less effective advertising, because of an overloading of messages, accompanied
by a strong increase in the cost for the companies.
- Increased sensitivity of consumers to offers and reductions in prices, because of
the crisis and inflation.
- Greater demands from retail organizations, which have been increasing their
level of concentration and bargaining power.



2
Technical note prepared by Professor John A. Quelch of the Harvard Business School, under the
supervision of Professor Lluís G. Renart. April 1985

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4.2 WHICH IS BETTER, TO ADVERTISE OR TO OFFER PROMOTIONS?

The first step in deciding on the commercial budget of a product company is to define
the total amount of expenses that the entire marketing package will require, together
with advertising and promotions.

To do this, companies often use the following criteria:

- Arbitrary allocation, by intuitive judgment.
- Setting a percentage of the sales by application.
- Allocation of "available funds" (what we can afford).
- Actions of the competitors.
- And, finally, determining the overall marketing budget on the basis of the
strategic and tactical objectives that are supposed to be achieved during a
specific period.

Once the total amount of marketing expenses has been set, the next step is to break it
down into amounts that should be allocated in:

- Advertising in the media.
- Promotions: Consumer promotions and distribution channel promotions

For all this, it is of vital importance that the Sales Director knows perfectly all the
characteristics that differentiate these three means of action:

- Advertising gives information about the advantages and benefits of the product
and the competition.
- Promotions aimed at distribution are fast and simple means to increase the sales
in wholesalers and retailers in the short term.

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When it comes to promotions for customers we have many variations that have highly
valuable features for advertising, while others lean toward the distribution channel
promotions.

Once the money that is going to be spent on advertising and promotion has been
clarified, it will be necessary to define precisely how to use those funds within each area,
that is, on what type of promotions and on what type of advertising. Which solutions
are best will need to be evaluated.

This process of determination of the marketing budget is summarized schematically in
Figure 1.

Figure 1: Process of setting the marketing budget for a consumer product

Definition of the objectives of the enterprise or division; strategic role of the brand within them

Definition of the objectives of the brand, including the objectives of profitability

Determination of the total amount of the marketing expenses budget (advertising + promotions)

Breakdown of the total budget between advertising budget and promotion budget

Splitting the part intended for promotions into promotions for distribution and consumer promotions

Establishment of the specific plan for each type of promotion (type of promotion, geographical scope,
amount, etc.)

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In general, there will be a tendency towards devoting more funds to advertising

promotions when the commercial circumstances of a specific brand are the following:

- When the price sensitivity is high.
- When brand loyalty is low.
- When the purchase is made on impulse.
- When the consumer perceives a low risk in the act of purchase.
- When information needs are low.
- In the phase of launching a new product, or in the hypermature phase, at the
other end of the product life curve.
- When the market share of the brand is relatively small.
- When the sales curve throughout the year presents major cyclical fluctuations.
- When there is strong competition in that category of products when it comes to
generic products or coverage by retailers' brands


4.3 CONSUMER PROMOTIONS

§ Sample distribution

It is a kind of promotion that entails a fairly high cost, because it requires production of
a lot of product samples. It gives the consumer a chance to try the product by
themselves. It is used mostly in the launches of new products in order to get the brand
in front of the public.

The distribution of samples is usually more appropriate when the following
circumstances occur:




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- When it is a product that people usually buy and it is distributed intensely.

- When consumers perceive a level of social or economic risk involved in buying
the product.
- When you are almost certain that customers will talk about that product with
others after trying it (word of mouth advertising).
- When the main characteristics of the product are sensory and it is better to try
it than to see the advert. This is common when it comes to colognes, shampoos,
moisturizing masks for hair, makeup, air fresheners, etc.

The sample size should be around 50% of what would be used in a normal purchase
cycle. Some samples, such as bath gels or shampoos, can be given away in smaller
samples for a single use (10%), so as to avoid economic losses and give the customer an
opportunity to use the product.

In the sample distribution system, one or more of the following forms are typically used:

- Distribution of samples from door to door, leaving them in the mailboxes or
handing them out directly if someone is at home.
- Direct mail.
- The influence of the ads, the customer calls the company directly to ask for a
sample.
- Thanking tasters or demonstrators located in stores or at the points of sale.
- By buying a product as it may include a free sample.

▪ Discounted price or giving more for the same price

It is a way to promote new products which consists of making discounts on the purchase
of a unit or buying two or three units and paying for only one or two. These offers tend
to catch customers’ attention and incite them to buy the product. Companies resort to
this method when it is necessary to respond to an action of the competition.

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The downside is that sometimes this does not put the product in the best light, because
people may think "this product is very bad; that is why it is so cheap," or "it is about to
expire or break down, so they reduced the price". It tends to be almost exclusively
bought by regular customers of that brand, but not by new ones. That is why we should
take into account the kind of promotions and offers that we want to make, always
considering the opinion of customers and their reactions, planning every detail and
observing the positive and negative points of the offer or discount applied.

§ Coupon distribution

Coupons are a series of vouchers that give the customer a discount rate at the time of
purchase and within a limited time frame. Coupons enable a brand to acquire leadership
and publicity in the market, get people to buy the product, and also attract new
customers and stimulate competition in the rest of the market. Discount coupons, for
example, as a gift for customers encourage customer loyalty.
Coupons can be delivered to consumers using different means of distribution:

- Delivering coupons directly to homes, in areas where there are many people, at
points of sale, in stores, etc.
- Including coupons in newspapers or magazines.
- Putting them inside certain packaging.
- Including them in ads of retailers, they can be only used in their respective stores.

To choose the most appropriate means of distribution, it is necessary to take into
account:

- The desired goals of distributing the coupons.
- Speed of evolution of each medium.
- The degree of control that the company wants to have.
- Time, from the moment the idea is created to its distribution to customers.

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Finally, to set the face value of the coupon we should take some factors into
consideration:

- Many customers ignore and do not bother to use coupons with low or minimum
value.
- The margin of the product and the importance of action (planned cost, results
expected, etc.) within the marketing strategy of the company.
- Whether the coupon can be effective by itself or if it needs other actions at the
same time as a form of reinforcement, for example advertising coupons,
promotions, etc. However, this can raise the cost and perhaps be unprofitable.
Thus, the company should weigh the pros and cons and look for the benefits for
the customers and also for it.

§ Cash refund

Refunds are seen as stimulation for the product, because they are included in the price.
They will incite the following:
- Repeat shopping
- Purchased quantities
- Frequent purchases
- Home storage of certain products

§ Gifts

They say that one of the ways to strengthen a relationship is through gift giving. It is now
catching on with brands as a way to connect with consumers. Gifts are certain products
offered free of charge for the purchase of one or several specific products. We can
distinguish between instant gifts and gifts "for later", said colloquially, because there is
no definite way of listing them.

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Instant gifts come directly with the product that the customer has purchased and are
used to stimulate impulse buying. And the second type of gift are the ones usually
delivered after a certain time, for example, after the second purchase of a particular
product, after reaching a certain amount, after the end of the promotional campaign,
etc.

Among the gifts “for later”, we can distinguish:

- The gifts sent by mail. They are free, customers get them by sending a certain
number of proofs of purchase or receipts: usually some part of the package,
capsules, etc.
- Self-liquidating premiums (the income generated covers the cost of the
promotion) In this case, the company offers a gift for sending a number of proofs
of purchase, accompanied by a designated monetary value.
- Continuity gifts. The consumer receives coupons or vouchers of certain value in
points that can be exchanged for the objects described in a catalogue.

§ Contests and lottery

In competitions consumers are asked to solve a riddle, answer a question or
demonstrate some skill and the winner gets a prize. In lotteries, the prizes are
distributed by chance, for example, via a random drawing.

4.3.1 HOW TO DESIGN A CONSUMER PROMOTION?

When designing a consumer promotion, the Sales Director needs to focus on at least six
elements:

- The relevance of the promotion within the range of the company's products. The
same product can be sent in one or more sizes by single or several brands of one
company.

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- For whom it is intended, whether for everyone or a certain part of the market.
- The cost for the company and the value for customers.
- The conditions of the promotion, that is to say, the requirements that the
customer needs to meet to benefit from the promotion.
- The way the promotion reaches customers.
- The time, deciding when the promotion will be launched or what time of year is
appropriate.


4.4 PROMOTIONS INTENDED FOR THE MEMBERS OF THE DISTRIBUTION
CHANNELS

When the company carries out a promotion aimed at a distribution channel, it usually
offers an economic incentive for some time, so that channels, in some way, change their
behaviour. For instance:

- They buy more.
- They anticipate the purchases that they have planned to make.
- They display the product in a relevant and attractive way in the shop or at the
point of sale (website, supermarket, boutique, etc.).
- They add the product in the retailer's advertising.
- Others.

As a general rule, the objective of the promotion is to achieve a greater number of short-
term sales and increase the market participation. You can group the promotions
intended for a distribution channel into four groups, which we will list and define below:

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▪ Rate or volume discounts

The company offers a discount for each product purchased within a certain period of
time. They are included in the purchase invoice.

Other types of discounts:

- Additional free amounts when making a purchase with a certain minimum
purchase.
- Discount on shipping by truck. The manufacturer shares with the buyer his
savings in the cost of transport.
- Annual discounts by volume, or by progressive escalation.

▪ Discounts for in-store and point-of-sale display system and advertising collaboration

This type of discount is usually offered as a complement to the rate and volume
discounts.

▪ Other economic or financial concessions

They are offered to compensate consumers for the execution of some faulty actions or
to prevent a loss due to the actions of manufacturers. The most common ones are the
following:

- Special bonuses for boxes that retailers have already stored at the time of the
promotion.
- Bonuses in exchange for making certain purchases or buying goods ahead of
time.
- Discounts given or granted when the wholesaler or retailer pays cash or before
the usual or agreed time.
- Discount for the collection of products in the warehouse of the company.

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- Discounts due to technical problems, breakdowns, damage, etc.

▪ Special concessions for introducing a new reference in the retailer’s usual collection

Due to little or no space on the shelves, the retailer or wholesaler does not usually buy
new products, especially if he already owns them or has the same but, in another
flavour, colour, shape, etc. They may also suspect that some products will not have a
high turnover.

Because of this, the retailer or wholesaler usually asks the company of the product for a
special discount in exchange for acquiring this product. This discount can be used once,
so that the retailer will rethink the purchase of new products and include it in his
references.

4.5 PROMOTIONAL PARTNERSHIP OR CO-BRANDING

Co-branding partnership between at least two different brands of goods or services.

We can differentiate several types of promotional partnerships:

- Internal or external, depending on whether there are two brands of the same
company or different companies.
- Horizontal or vertical. The horizontal cooperation refers to products within the
same level of the manufacturing and distribution chain. A case in point is the
advertising collaboration of Coca Cola with Bacardi rum. And the vertical one is
when those who cooperate are located at different levels within the same
channel of distribution, for instance, the cooperation between an automobile
manufacturer and its dealer network or points of sale.
- One-time or continuous cooperation.


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Needless to say, the main advantage of promotional partnership is the possibility of
sharing the costs of the promotional activity. However, it is important to have in mind
some of its drawbacks as well.

Let us consider the main ones:

- Differences in the importance and image of the brands involved in the
promotion. This is especially true in the horizontal/external case because it is
difficult to assess which brand has invested more in promotion. There are always
assumptions that one is more committed than the other, or that one brand helps
more than the other.

In the case of products with very different images, cooperation is not
recommended. The person responsible for the brand needs to assess very
objectively the image of the other brand to ensure that the alleged savings in the
cost of promotional activities is not a loss for their brand and a benefit for the
other. They have to coexist and cooperate in perfect harmony.

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