The Promotional Mix Consumer and Trade Promotions

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The Promotional MixConsumer and Trade Promotions

• Week 9
• Fall 2007

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Agenda

• Midterm
• The Promotional Mix
• Choosing the right promotional mix
• Sales Promotions
• Consumer promotions
• Trade Promotions
• Why too much Sales Promotions?

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The Promotion Mix Chapter 12
Advertising
Sales Promotion
Elements of the Promotion Mix
DM/Personal Selling
Public Relations
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The Promotional Mix Advertising

• Advertising
• Advertising is paid, ongoing non personal
  communication from a mass media source.
• Awareness and information for new products
• Persuasion
• Reminder. Keep the brand visible and
  top-of-mind (Sapolito and Ivory)

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The Promotional Mix Sales Promotion

• Consumer Promotions
• Short-term inducements to consumers
• Coupons, rebates, sweepstakes
• Very closely integrated with advertising
• Often used to generate trial among non-users
• Trade Promotions
• Short -term inducements to retailers and
  wholesalers to buy and stock more of the brand

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The Promotional Mix

• Personal Selling Is face-to-face selling by a
  company sales rep to the customer
• Important for complex industrial products or for
  consumer durable. Can actually demonstrate the
  product.
• Has high per customer contact cost
• Publicity Unpaid editorial communication about
  your product in the mass media
• Charitable activity by firmsRonald McDonald
• Credibility advantage (eg., WSJ or BW editorial
  coverage)
• nike_wsj_editorial

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Advertising vs. Sales PromotionsPush vs. Pull

• What is Push versus Pull strategies?
• Good strategy involves Integration
• Pull (Advertising/consumer promotions) versus
  Push (trade promotions) working together in an
  integrated fashion.

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Selecting the Promotional Mix (Advertising or
Promotions)

• Push or Pull
• Size of the budget
• Stage in the products life cycle
• Buyer readiness stage

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Buyer Readiness States
Awareness
Preference
Purchase
Impact of a 1) coupon, 2) personal selling 3) TV
ad 4) free samples
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Why Sales PromotionsFour Rationales

• Inventory cost shifting
• Consumers may have lower inventory costs than
  retailers or manufacturers. (GM zero percent
  financing)
• Consumer Heterogeneity in Loyalty Brand Loyal
  vs. Switchers
• In-store Price discount promotions to consumers.
• Price Discrimination (Coupon promotions)
• Competitive Rationale
• Promotions are essential to respond to
  competition
• Prisoners dilemma

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Consumer Promotions Couponing

• Why coupons
• People who are willing to pay more tend to have a
  higher personal time cost and are therefore less
  likely to clip coupons
• Price discrimination. Consumers self-select.
• Disadvantage is non-redemption costs
• in 1995, companies spent 8 Bn on distributing
  251 Bn coupons of which 3.6 Bn were redeemed at a
  total value of around 4.0 Bn.

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Consumer Promotions In-store Price Deals

• Function of these promotions to reduce subsidy to
  the loyals while competing for switchers
• Helps manufacturers and retailers to attract
  brand switchers.
• But problem is that it also offers discount to
  brand loyal consumers who would have bought
  regardless.
• In order to achieve this function, these types of
  price promotions should not follow predictable
  patterns
• Advantage is that it easier to implement. No
  non-redemption costs or coupon distribution
  costs.

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In-store versus Out of store promotions

• In store price deals versus home delivered
  promotions (coupons in Saturday newspaper)
• Would a retailer prefer the manufacturer to offer
  in-store price deals or home-delivered coupons?
• Store traffic and inter-retailer competition
  consideration.
• Why do we see in-store price promotions?

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Other Consumer Promotions

• Consumer sampling
• Useful for generating trial for a new product
• Sweepstakes generates excitement

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Trade Promotions

• Slotting allowance. Lump-sum payment paid to
  retailers to get shelf-space
• Helps compete for retailer shelf-space
• Existing products slotting allowance is a charge
  for renting retail space.
• New products it gives retailers insurance
  against possible failure.
• Can help retailers to separate good new products
• Helps manufacturer to signal the quality
• Quantity discounts
• Quantity discounts that are linked to the
  quantity lifted by the retailer.
• Used as a competitive tool to reduce retailers
  investment in the competitors product.
• Used to increase retailer stocking during the
  peak selling season.

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Trade Promotions

• Advertising and display allowance.
• Helps compete for retailers in-store
  merchandising effort
• Retail incentives that are linked to specific
  actions by the retailer.

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Why Too Much Sales Promotion?

• 47 trade promos, 28 on consumer promos and only
  25 on media advertising. Why?
• Cost effectiveness of network television
  advertising declining
• Cable TV resulted in decline in national network
• Less daytime TV watching, greater proportion of
  dual working member households.
• 0.8 growth in U.S. population and consumers in
  the 1990s more deal-prone ? fight for market
  share.
• Brand proliferation (19000 new products each
  year) ? fight for market share

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Competitive RationalePrisoners Dilemma in Sales
Promotion

• Consumer price sensitivity increasing due to
  promotions.
• Why do firms promote so much?

Coke
(In 00 millions of dollars)
Promote
Do not Promote
Do not Promote
(7, 12)
(10, 10)
Pepsi
(12, 7)
(8, 8)
Promote
What would you do?
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Analysis Framework
Segmentation
Positioning (Vintage)
Company Analysis
Competitor
Analysis
Consumer Orientation
Competitive Advantage
Marketing Strategy
Consumer Behavior (TiVo)
Branding and Product Strategy
Steinway
Product
Optical Distortion
Pricing Process
Price
Pricing Strategies Virgin
Promotional Mix
Promotion
Place
Market