What is Sales Promotion?
Sales promotion consists of short-term incentives to encourage purchase or sales of a product or service. While advertising gives reasons to buy a product or service, sales promotion offers immediate buying reasons. We often notice sales promotion activities. Sales promotion has a lot of promotion tools. These aim at stimulating earlier or stronger market response. Sales promotion includes consumer promotion, trade promotion, and sales force promotion.
Sales promotion examples are; Samsung giving 30% off for last-gen mobile phones, Dell selling XPS-laptops for 20% of holidays.
Consumer promotion is designed to stimulate consumer purchasing, including samples, coupons, rebates, prices-off, premiums, patronage rewards, displays, and contests.
Trade promotion is designed to gain reseller support and improve reseller selling efforts, including discounts, allowances, free goods, cooperative advertising, push money, conventions, and trade shows.
Salesforce promotion is designed to motivate the sales force and make sales force selling efforts more effective, including bonuses, contests, and sales rallies.
Growth of Sales Promotion
Sales promotion tools are being increasingly used by various organizations, including manufacturers, distributors, retailers, trade associations, and nonprofit institutions. The recent swift growth of sales promotion can be attributed to several factors.
- First, product managers are facing increasing pressures within the company to increase their current sales. The top management has recognized promotion as an effective sales tool.
- Second, competition is increasing, and competitors with less differentiated brands are spending more on promotion. The consumers are also becoming more deal-oriented.
- Third, advertising’s efficacy has gone down due to increasing costs, media clutter, and legal restraints.
- Finally, retailers and other middlemen are demanding more rewards from manufacturers.
The increasing use of sales promotion has resulted in promotion clutter, similar to advertising clutter. Consumers are becoming increasingly immune to promotional tools.
However, manufacturers now are looking for ways such as offering larger coupon values or creating more dramatic point-of-purchase displays.
Purpose of Sales Promotion
Different sales promotion tools are used to accomplish different objectives.
For example, a free sample encourages consumer trials; a free management consultancy service strengthens wholesalers’ relationships. Sales promotion tools are used to attract new triers, reward loyal customers, and increase occasional users’ repurchase rates.
New triers are of three types; (1) nonusers of the product category, (2) loyal users of another brand, and (3) users who frequently switch brands. In most cases, sales promotions attract the users who frequently switch brands because nonusers and users of other brands are less likely to respond to a promotion.
In markets where brands are similar, sales promotions usually produce a short-run increase in sales but do not increase the market share.
However, sales promotions can influence market shares more permanently in markets where brands differ greatly. Many marketers consider sales promotion to break down brand loyalty and advertising as a tool for creating brand loyalty.
This leads the marketers to prioritize sales promotion and advertising while preparing the total promotion budget. If sales promotion is given priority over advertising, the marketer runs the risk of losing consumer brand loyalty.
Excessive sales promotion may create an impression that the brand is a cheap one in the consumers’ minds. Most marketing specialists maintain that sales promotion activities do not result in long-term consumer preference and loyalty, as does advertising.
Rather, promotion generally brings only short-term sales that can not be sustained. Heavy use of sales promotion is also blamed for decreased brand loyalty, increased consumer price sensitivity, emphasis on short-run marketing planning, and erosion of brand-quality image.
However, some marketers ignore these demerits of sales promotion.
Instead, they maintain that sales promotion provides many important benefits to both the producers and consumers. Sales promotions enable producers to adjust to short-term supply and demand changes and differences in customer segments.
Sales promotions allow consumers to try new products. They help emerge varied retail outlets, such as the everyday low-price store or the promotional-pricing store, which gives consumers a wider choice.
Finally, exposures to sales promotions increase the price awareness of the consumers.
For getting the best results, sales promotions are generally used in conjunction with advertising and personal selling.
Consumer promotions strengthen advertising when they are done simultaneously. Trade and sales force promotions complement the firm’s personal selling activities.
For effective use of sales promotion, a company should keep in mind certain important things. It must set objectives, select the right tools, develop the best program, pretest and implement it, and evaluate the results.
Setting Sales-Promotion Objectives
Sales promotion aims at accomplishing various objectives. Consumer promotions may be used to increase short-term sales or to help build long-term market share.
Objectives of consumer promotions are;
- to induce consumers to try a new product,
- to pull consumers away from competitors’, products,
- to encourage continuous buying of a mature product, and
- to hold and reward loyal customers.
Objectives of trade promotions may be;
- encouraging retailers to carry new items and more inventory,
- inducing them to advertise the product and give it more shelf space, and
- encouraging them to buy ahead.
Salesforce promotion objectives are;
- securing more salesforce support for current or new products an
- inspiring salespeople to sign up for new accounts.
Generally, sales promotions should aim at consumer relationship building. Instead of generating only short-term sales volume or temporary brand switching, they should reinforce the product’s position and build long-term consumer relationships.
For example, in France, Nestle’s set up roadside centers, where travelers can stop to feed and change their babies. Nestle’s hostesses provide free disposable diapers at each center, changing tables, high chairs, and free samples of Nestle’s baby food.
Each summer, 64 hostesses welcome 120,000 baby visits and dispense 6,000,000 samples of baby food. This ongoing promotion provides real value to parents and an ideal opportunity to build relationships with customers.
Nestle’s hostesses are in direct contact with mothers in a unique, brand-related relationship at key meal-time moments. Nestle also provides a toll-free phone number for free baby- nutrition counseling.
Even well-planned price promotions may contribute to building customer relationships. Finally, if carefully planned and used, every sales-promotion tool can go a long way in building consumer relationships.
Selecting Sales-Promotion Tools
Sellers can use many tools for accomplishing sales-promotion objectives. The following discussion will make us familiar with the main consumer and trade promotion tools.
Consumer Promotion Tools
The main consumer-promotion tools are samples, coupons, cash refunds, price packs, premiums, advertising specialties, patronage rewards, point-of-purchase displays and demonstrations, contests, and games.
- Samples are offers to consumers of a trial amount of a product. Sampling is the most effective way to introduce a new product. Although, in some cases, sampling may be expensive.
- Coupons are certificates that give buyers a saving when they purchase specified products. Coupons can stimulate sales of a mature brand or promote early trial of a new brand.
- Cash refund offers (rebates) are offers to refund part of the purchase price of a product to consumers who send a “proof of purchase” to the manufacturer.
- Price packs are reduced prices that are marked by the producer directly on the label or package. Price packs are very effective in stimulating short-term sales.
- Premiums are goods offered either free or at low cost as an incentive to buy a product.
- Advertising specialties are useful articles imprinted with an advertiser’s name, gives as gifts to consumers.
- Patronage rewards are cash or other awards for the regular use of a certain company’s products or services.
- Point-of-purchase (POR) promotions are displays and demonstrations at the point of purchase or sale.
- Contests and games are promotional events that give consumers the chance to win something-such as cash, trips, or goods-by luck or through extra effort.
The manufacturers use several trade-promotion tools.
Consumer-promotion tools such as contests, premiums, displays can also be used as trade-promotion tools. The manufacturer may also offer a straight discount on price on purchases during a stated period of time. The offer induces dealers to buy in quantity or to carry a new item.
Dealers can utilize the discount for immediate profit, advertising, or price reductions to their customers.
Manufacturers may also offer an allowance, which is promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer’s products somehow.
An advertising allowance compensates retailers for advertising the product. In contrast, with a display discount and allowance, manufacturers may offer free goods, push money, and specialty advertising items to intermediaries and sales force.
Companies use business promotions to generate business leads, stimulate purchases, reward customers, and motivate salespeople.
Many of the consumer or trade-promotion tools are used for business promotion. Two major business promotion tools are conventions and trade shows and sales contests.
Throughout the world, many companies and trade associations arrange conventions and trade shows for promoting their products. Companies selling industrial goods exhibit their producers at the trade show.
Participants in the trade show receive many benefits, such as finding new sales leads, contacting customers, introducing new products, meeting new customers, selling more to present customers, and educating customers with publications and audio-visual materials.
Companies can reach many prospects through trade shows who could not be reached through their sales forces.
Marketers may spend a substantial portion of their promotion budgets on trade shows.
They face several decisions. Including which trade shows to participate in, how much to spend on each trade show, how to build dramatic exhibits that attract attention, and how to follow up on sales leads effectively.
Companies also use sales contests as a business promotion tool.
A sales contest is organized to motivate salespeople or various intermediaries to increase their sales performance over a given period.
Sales contests are also called “incentive programs,” which recognize and motivate good company performers who may be awarded trips, cash prizes, or other gifts.
Some companies have a system of awarding points based on performance, which the receiver can utilize for various prizes.
Sales contests are most productive when linked with measurable and achievable sales objectives, such as finding new accounts, reviving old accounts, or increasing account profitability.