Basic Concepts of Sales Promotion: Ways to Grow Your Business
“Sales promotion can be defined as short term incentives to encourage purchase of a good or service (Kitchen 1999).” A few decades ago, sales promotion was seen as everything that was left over after accounts for advertising, personal selling, and public relations (Burnett, 1993) but since then sales promotion has been growing dramatically and today the amount of money spent on sales promotion is higher than any other element of the communication or promotion mix.
Several factors influence the development of sales promotion with “the first being increased similarities between brands and price sensitivity, coupled with reduced consumer brand loyalties. Without real or significant product differentiation, consumers have become more reliant on price or price-related incentives (coupons, penny-off deals, refunds, giveaways and competitions). A second factor contributing to the development of sales promotion is the fractionalization of markets, coupled with rising media costs. A third factor has been the concentration on brand management organizational structures that lends itself to short-term sales response rather than long-term growth. A fourth and final factor illustrating the development of sales promotion has been consumer responsiveness. Many consumers participate on a regular basis in some form of sales promotion (Kitchen, 1999)."
Types of Sales Promotions
In order to understand how effective sales promotion is in influencing consumer purchase decisions, one has to take a closer look at marketing and consumer behavior theories**.** This article will focus on critically analyzing the relevant concepts and theories relating to sales promotion and the consumer purchase decision. The selected path will cover a wide range of topics, from the broader concepts of marketing communications mix to the more specific concepts of sales promotions and the consumer purchasing process.
Promotion: Burnett (1993) defines promotion as the marketing function concerned with persuasively communicating to target audience the components of the marketing program in order to facilitate exchange between the marketer and the consumer and to help satisfy the objectives of both.
Sales promotion is a part of the communication or the promotion mix. Sales promotion can be defined as short-term incentives to encourage purchase of a good or service (Kitchen 1999). Sales promotion consists of marketing activities that add to the basic value of the product or service for a limited time and directly stimulate consumer purchasing (for example, coupons and product sampling), stimulate the distributors to carry the product and/or promote the product (for example, trade deals and spiffs), or stimulate the effort of the sales force (for example, contests and meetings) (Burnett 1993).
The differences between sales promotion and the other components of the promotion mix are important in understanding both the basic role of sales promotion and how to use it effectively.
Sales promotions can broadly be classified into three categories depending on the initiator and the target of the promotion.
- Consumer Promotions (premiums, gifts, prizes, competitions, etc.)
- Trade Promotions (Special terms, point-of-sale materials, etc.)
- Sales Force Promotions (Incentive and motivation schemes, etc.)
Consumer Sales Promotions: Clow and Baack (2002) define consumer sales promotions as the incentives aimed at the firm’s customers. These customers are the end users of the product and do not resell to another business. The various types of consumer sales promotions are as follows:
- Contests and Sweepstakes
- Refunds and Rebates
- Bonus Packs
Coupons: A coupon is a price reduction offer to a consumer. It may be a percentage off the retail price such as 25 percent or 40 percent, or an absolute amount.
Premiums: Premiums are prizes, gifts, or other special offers that consumers receive when purchasing products. When a company offers a premium, the consumer pays full price for the product or service, in contrast to coupons, which are price reductions.
Contests and Sweepstakes: Contests normally require the participant to perform some type of activity. The winner is selected based on who performs best or provides the most correct answers. Often, contests require the participants to make a purchase to enter, whereas no purchase can be required to enter a sweepstakes. Consumers may enter as many times as they wish. It is permissible for firms to restrict customers to one entry per visit to the store or some other location. The chances of winning sweepstakes are on a probability factor.
Types of Sales Promotions (Continued)
Refunds and Rebates: Refunds and rebates are cash returns offered to consumers following the purchase of a product. Consumers pay full price for the product but can mail in some type of proof of purchase, and then the manufacturer refunds a portion of the purchase price. A refund is a cash return on what are called “soft goods” such as food or clothing. Rebates are cash returns on “hard goods”, which are major ticket items such as automobiles.
Sampling: Sampling is actual delivery of a product to consumers for their use or consumption. Normally, samples are provided free of charge. Often a coupon or price-off incentive then is used to persuade the consumer to make a purchase of a larger version of the product, such as a full-size package.
Sampling can be of various types:
- In-store distribution
- Direct sampling
- Response sampling
- Cross-ruff sampling
- Media sampling
- Professional sampling
- Selective sampling
Bonus packs: When an additional or extra number of items is placed in a special product package, it is called a bonus pack.
Price-offs: A price-off is a temporary reduction in the price of a product to the consumer (Clow and Baack, 2002).
Objectives of Sales Promotion
According to Smith and Taylor (2003), some typical sales promotion goals might be as follows:
- Increase sales (although it may only be a temporary increase because customers can simply stock up with the goods or temporarily switch brands while the promotion is running)
- Develop new sales leads
- Move excess stock
- Block a competitor
- Match a competitor
- Build a database
- Generate Publicity
Sales Promotion Capabilities
- Invigorate Sales of a Mature Brand: Sales promotions cannot reverse the sales decline for an undesirable product or brand. However, sales promotions can invigorate sales of a mature product that requires a shot in the arm.
- Neutralize Competitive Advertising and Sales Promotions: Sales promotions can be used to offset competitors’ advertising and sales-promotion efforts.
- Obtain Trial Purchases from Consumers: Marketers depend on free sample, coupons, and other sales promotions to encourage trial purchases of new products. Many consumers would never try new products or previously untried established brands without these promotional inducements.
- Hold Current Users by Encouraging Repeat Purchases: Strategic use of certain forms of sales can encourage repetitive purchasing, helping reduce brand switching by consumers.
- Increase Product Usage by Loading Consumers: Consumers tend to use more of certain products (e.g., snack foods and soft drinks) when they have more of them available in their homes.
- Preempt Competition by Loading Consumers: When consumers are loaded with one company’s brand, they are temporarily out of marketplace for competitive brands. Hence, one brand’s sales promotion serves to preempt sales of competitive brands.
- Reinforce Advertising: An advertising campaign can be strengthened greatly by a well coordinated sales promotion effort (Shimp, 1997).
Sales promotions involve high costs and, hence, companies are always looking for ways to reduce the cost of promotions but still maintain the effectiveness of the promotional activities being carried out. This is where companies use joint promotions. Smith and Taylor (2003) state that joint promotions or cross promotions offer economical routes to target the same customers with relevant offers.
Shimp (1997) defines integrated marketing communications as the process of developing and implementing various forms of persuasive communication programs with customers and prospects over time.
Many methods are available to entice consumers to take the final step and make a purchase. Advertising creates interest and excitement and can be used to offer the deal that brings the consumer into the store. At the same time marketers use other tactics like consumer promotions in conjunction with advertising programs to generate sales (Clow and Baack 2002).
Since more and more companies are using sales promotions in order to win consumers, it is highly essential for companies to develop integrated promotion strategies, i.e. integrating sales promotion with other marketing communication tools like advertising, point-of-sale, etc to increase the visibility and the impact of the campaign.
Smith and Taylor (2003) state that media-supported promotions do better than ones that are not supported.
- Kitchen, Philip J., (1999), Marketing Communications: Principles and Practice, International Thomson Business Press.
- Burnett, J. J. (1993), Promotion Management, Houghton Mifflin Company.
- Clow, Kenneth E., Donald Baack (2002), Integrated Advertising, Promotion and Marketing Communication, Prentice Hall.
- Smith P., R. Smith, J. Taylor (2003), Marketing Communications: An Integrated Approach, 3rd Edition, Kogan Page Limited.
- Shimp, T. A. (1997), Advertising, Promotion, and Supplemetal Aspects of Integrated Marketing Communications, 4th Edition, The Dryden Press.
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This post is part of the series: Sales Promotion and Customer Minds
Are you looking for new ways to promote your products and reach out to new customers? In this series, we take a look at sales promotion techniques and their influence on buyers.