2007 thomson south-western sales promotion overview and the role of trade promotions chapter...
TRANSCRIPT
2007 Thomson South-Western
Sales Promotion Overview and the Role of
Trade Promotions
Chapter Seventeen
Chapter Seventeen Objectives
• 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.
Chapter Seventeen Objectives
• Appreciate the objectives of trade-oriented promotions and the factors critical to building a successful trade promotion program.
• Comprehend the various forms of trade allowances and the reasons for their usage.
Chapter Seventeen Objectives
• Be aware of forward buying and diverting and how they are created by 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.
Chapter Seventeen Objectives
• Recognize the concept and practice known as efficient consumer response (ECR).
• Appreciate the practice of category management.
• Understand nine empirical generalizations about promotions.
Introduction to Sales Promotion
What Exactly is Sales Promotion?
Any incentive used by manufacturers to induce the trade and/or consumers to buy a brand and encourage sales force to aggressively sell it.
Introduction to Sales Promotion
What Exactly is Sales Promotion?
The incentive is additional to the basic benefits provided by the brand and temporarily changes its perceived price or value
Introduction to Sales Promotion
Promotion Targets
All three groups – the sales force, retailers and consumers – are targets of sales promotional
efforts
Increased Budgetary Allocations to Promotions
•Advertising spending as a percentage of total marketing communications expenditures has declined in recent years.
•Promotional spending, however, has steadily increased.
Factors Accounting for the Shift
Pull Strategy
Using Consumeradvertising to pull
product through thechannel of distribution
Push Strategy
Using Consumeradvertising to pushproduct through the
channel of distribution
Illustration of “Old” and “New” Accounting Procedures
Sales Promotions – Can:• Stimulate sales force• Invigorate mature brand sales• Facilitate introduction of new products• Increase merchandising space• Neutralize competitive ads• Obtain trail purchases• Hold current users• Increase product usage• Preempt competition• Reinforce advertising
Sales Promotions - Can’t:
• Compensate for lack of training and advertising
• Give a long-term reason for repeat purchases of the brand
• Permanently stop an established brand’s declining sales or basic non-acceptance
The Role of Trade Promotion• Introduce new or revised products• Increase distribution of new packages or sizes• Build retail inventories• Maintain/Increase manufacturer’s shelf space• Obtain displays outside shelf locations• Reduce excess inventory• Achieve product features in retailer’s ads• Counter competitive activity• Sell as much as possible to final consumers
Trade Promotion
Key Ingredients to Success
• Financial incentive
• Correct timing
• Minimize retailer’s effort/cost
• Quick results
• Improve retailer performance
Trade Allowances
Trade Allowances
Used by manufacturers to reward
wholesalers and retailers for
performing activities in support of the
manufacturer’s brand
Trade Allowances
By using trade allowances, manufacturers hope to:
Increase purchases of the manufacturer’s brand by wholesalers and/or retailers.
Augment consumers’ purchases of the manufacturers’ brand from retailers.
Expectation that retailers will pass along their savings to consumers.
Major Forms of Trade Allowances
• Most frequently used form• Deals offered periodically to trade that permit
wholesalers and retailers to deduct a fixed amount from the invoice
• Retailers do not necessarily pass along to consumers the discounts
Off-invoice allowances
Bill-back allowances
Slotting allowances
Major Forms of Trade Allowances
• Retailers receive allowances for featuring the manufacturer’s brand in advertisements or for providing special displays
Slotting allowances
Bill-back allowances
Off-invoice allowances
Major Forms of Trade Allowances
• The fees manufacturers pay retailers for access to the slot, or location
• Typically paid by a manufacturer to get its new brand accepted by retailers
Off-Invoice allowances
Bill-back allowances
Slotting allowances
Exit fees
If a brand does not meet a stipulated sales amount, the chain will issue a deslotting charge, or exit fee to cover handling costs for removing the item from the distribution center.
Forward Buying and Diverting
• Retailers purchase enough products on deal to carry them over until the manufacturer’s next regularly scheduled deal
• Retailers’ savings from forward buying often are not passed on to consumers
• Leads to increased distribution costs• Manufacturers experience reduced margins due
to price discounts
Forward Buying Diverting
Forward Buying and Diverting
• Occurs when a manufacturer restricts a deal to a limited geographical area
• Retailers buy large quantities at the deal price and then resell the excess quantities in other geographical areas
• Product quality potentially suffers due to delays and serious problem could result from product tampering
Forward Buying Diverting
Efforts to Rectify Trade Promotion Problems
Efficient Consumer Response (ECR)
Category Management
Everyday Low Pricing (EDLP)
Pay-for-Performance Programs
Account-Specific Marketing
Generalizations About Promotions
1. Temporary retail price reductions substantially
increase sales
1. Temporary retail price reductions substantially
increase sales
2. The greater the frequency of deals, the lower the height of the
deal spike
2. The greater the frequency of deals, the lower the height of the
deal spike
3. The frequency of deals changes the
consumer’s reference price
3. The frequency of deals changes the
consumer’s reference price
4. Retailers pass-through less than 100% of
trade deals
4. Retailers pass-through less than 100% of
trade deals
5. Higher market share brands are less deal elastic
5. Higher market share brands are less deal elastic
Generalizations About Promotions
7. Feature advertising and displays operate synergistically to influence sales of discounted brands
7. Feature advertising and displays operate synergistically to influence sales of discounted brands
6. Advertised promotions can result in increased
store traffic
6. Advertised promotions can result in increased
store traffic
8. Promotions in one product category affect sales of complementary
and competitive products
8. Promotions in one product category affect sales of complementary
and competitive products
9. The effects of promoting higher-and lower-quality brands are asymmetric
9. The effects of promoting higher-and lower-quality brands are asymmetric