Sales Promotion Tutorial
In a time when customers are exposed daily to a nearly infinite amount of promotional messages, many marketers are discovering that advertising alone is not enough to move members of a target market to take action, such as convincing them to try a new product. In addition, some marketers are finding that certain characteristics of their target market (e.g., small but geographically dispersed) or characteristics of their product (e.g., highly complex) make advertising a less attractive option.
Still for other marketers, the high cost of advertising may drive many to seek alternative, lower cost promotional techniques to meet their promotion goals. For these marketers, better results may be obtained using other promotional approaches and may lead to directing much of their promotional spending to non-advertising promotions.
In this section of our detailed Principles of Marketing Tutorials, we continue our discussion of promotion decisions by looking at a second promotion mix item: sales promotion. Sales promotions are used widely in many industries and especially by marketers selling to consumers. We will see that the objectives of sales promotion are quite different than advertising and are specifically designed to encourage customer response.
What is Sales Promotion?
Sales promotion describes promotional methods using special short-term techniques to persuade members of a target market to respond or undertake certain activity. As a reward, marketers offer something of value to those responding generally in the form of lower cost of ownership for a purchased product (e.g., lower purchase price, money back) or the inclusion of additional value-added material (e.g., something more for the same price).
Sales promotions are used by a wide range of organizations in both the consumer and business markets, though the frequency and spending levels are much greater for consumer products marketers. Unfortunately, given the number of different methods that can be classified as sales promotion, it is difficult to measure the yearly amount spent on this promotional method, though it is likely on par with what is spent yearly on advertising.
Sales promotions are often confused with advertising. For instance, a television advertisement mentioning a contest that will award winners with a free trip to a Caribbean island may give the contest the appearance of advertising. While the delivery of the marketer’s message through television media is certainly labeled as advertising, what is contained in the message, namely the contest, is considered a sales promotion. The factors that distinguish between the two promotional approaches are:
1. Evidence of Time Constraint – Sales promotions involve a short-term value proposition where an advertisement does not. In general, if there is a limited time period within which action must be taken then it most likely qualifies as a sales promotion. In our contest example, a stated entry deadline would indicate a time constraint.
2. Customer Action Required – Sales promotions require customers to perform some activity in order to be eligible to receive the value proposition. For instance, in our Caribbean trip example, customers may need to complete an online form to make them eligible to be entered in the contest.
The inclusion of BOTH a timing constraint and an activity requirement are hallmarks of sales promotion.
Advantages of Sales Promotion
Sales promotion can prove useful for marketers in several ways. These include:
Helps Create Awareness of New Products – Sales promotion is a highly effective methods for exposing customers and business partners to new products and for moving customers to take an action (e.g., sample a product).
Strengthens Customer Involvement and Loyalty – Sales promotion can be the primary mechanism organizations use to interact with their customers and ultimately build a stronger connection (e.g., offer customer rewards).
Can Be Quick to Develop – Compared to other types of promotion, some sales promotions can be quickly created and made available within a market (e.g., creation and distribution of email coupon).
Used to Support Other Promotions – Sales promotion is often used as a supporting feature of other methods of promotion (e.g., salespeople may give promotional items to give to sales prospects).
Helps Reduce Inventory – Sales promotion can be used to rapidly reduce inventory in situations where product replacement is needed (e.g., products nearing expiration date; clearing inventory to make room for new models).
Disadvantages of Sales Promotion
While the benefits of sales promotion are very attractive to a marketer’s promotional plan, there are downsides to this type of promotion. These include:
May Condition Customers to Wait for Promotion – Repeated use of sales promotion may condition customers to wait until a product promotion is available before making their next purchase resulting in the marketer not maximizing a product’s revenue potential (i.e., customer will not pay full price).
Can Lower Perception of the Brand – The overuse of some sales promotions may condition customers to believe the lower price is the regular price, which may cause them to not believe the product’s quality compares to similar competitors’ products that offer less frequent or no price reductions.
Issues With Promotion Clutter – While in the same way an advertisement competes with other ads for customers’ attention, promotional clutter may also be an issue with sales promotions (e.g., excessive promotion sent by email, postal mail).
Distributors May Not Be Willing to Accept – Some sales promotions targeted to consumers require the assistance of distributors (e.g., retailers), however, not all distributors may accept a consumer sales promotion, especially if the promotion requires the distributor to perform extra work.
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Objectives of Sales Promotion
Sales promotion is a tool used to achieve most of the five major promotional objectives discussed in the Promotion Decisions Tutorial:
Building Product Awareness – Several sales promotion techniques are highly effective in exposing customers to products for the first time and can serve as a key promotional component in the early stages of new product introduction. Additionally, as part of the effort to build product awareness, several sales promotion techniques possess the added advantage of capturing customer information at the time of exposure to the promotion. In this way, sales promotion can act as an effective customer information gathering tool (i.e., sales lead generation), which can then be used as part of follow-up marketing efforts.
Creating Interest – Marketers find that sales promotions are very effective in creating interest in a product. In fact, creating interest is often considered the most important use of sales promotion. In the retail industry, an appealing sales promotions can significantly increase customer traffic to retail outlets. Digital marketers can use similar approaches to bolstering customer traffic to websites and to using mobile shopping apps. Another important way to create interest is to move customers to experience a product. Several sales promotion techniques offer the opportunity for customers to try products for free or at low cost.
Providing Information – Generally, sales promotions are designed to move customers to some action and are rarely simply informational in nature. However, some sales promotions do offer customers access to product information. For instance, a promotion may allow customers to try a fee-based online service for free for several days. This free access may include receiving product information via email.
Stimulating Demand – Next to creating interest, the most important use of sales promotion is to build demand by convincing customers to make a purchase. Special promotions, especially those lowering the cost of ownership to the customer (e.g., price reduction), are often employed to stimulate sales.
Reinforcing the Brand – Once customers have made a purchase, sales promotion can be used to both encourage additional purchasing and to reward for purchase loyalty. Many companies, including airlines and retail stores, reward good or “preferred” customers with special promotions, such as notification of “exclusive deals” sent by email or surprise price reductions mentioned when the customer is at the in-store checkout counter.
Classification of Sales Promotion
Sales promotion can be classified based on the primary target audience to whom the promotion is directed. These include:
Consumer Market Directed – Possibly the most well-known methods of sales promotion are those intended to appeal to the final consumer. Consumers are exposed to sales promotions nearly everyday, and as discussed later, many buyers are conditioned to look for sales promotions prior to making purchase decisions.
Trade Market Directed – Marketers use sales promotions to target a variety of customers, including partners within their channel of distribution. Resellers, who are often referred to as trade partners, are targets for the majority of such spending. Trade promotions are initially used to entice channel members to carry a marketer’s products and, once products are stocked, marketers utilize promotions to strengthen the channel relationship.
Business-to-Business Market Directed – A smaller subset of sales promotion is targeted to the business-to-business (B-to-B) market. While these promotions may not carry the glamour associated with consumer or trade promotions, B-to-B promotions are used in many industries.
An extensive discussion of different types of promotions for each classification can be found in our Types of Sales Promotion Tutorial.
Trends in Sales Promotion
Marketers who employ sales promotion as a key component in their promotional strategy should be aware of how the climate for these types of promotion is changing. Key areas to watch include:
1. Customer Expectations
Marketers who employ sales promotion as a key component in their promotional strategy should be aware of how the climate for these types of promotions is changing. For instance, the onslaught of sales promotion activity over the last several decades has eroded the value of the short-term requirement to act on sales promotions. Many customers are conditioned to expect a promotion at the time of purchase otherwise they may withhold or even alter their purchase if a promotion is not present. For instance, food shoppers are inundated on a weekly basis with such a wide variety of sales promotions that their loyalty to certain products has been replaced by their loyalty to current value items (i.e., products with a sales promotion). For marketers the challenge is to balance the advantages short-term promotions offer versus the potential to erode loyalty to the product.
2. Communication and Delivery
For many years consumers typically became aware of sales promotions in passive ways. That is, most customers obtained promotions not through an active search but by being a recipient of a marketer’s promotion activity (e.g., received coupons in the mail). Now the internet and mobile technologies are changing how customers obtain certain promotions. In addition to websites and apps offering access to coupons, there are community forum sites and social media outlets where customers can get details about how to obtain sales promotion. Monitoring these sites may offer marketers insight into customers’ attitudes about certain promotions and may even suggest ideas for future sales promotions.
Traditionally, sales promotions have been delivered to customers via mail, in-person, or within print media. However, digital technologies present marketers with a number of new delivery options. For example, the combination of mobile devices and GPS technology permits marketers to target promotions to a customer’s physical location. This allows retailers and other businesses to issue sales promotions, such as sending electronic coupons to a customer’s mobile device when they are near the location where the coupon can be used.
3. Sales Promotion Tracking
As we discussed in our coverage of advertising, tracking customer’s response to marketers’ promotional activity is critical for measuring success of an advertisement. In sales promotion, tracking is also used. For instance, grocery retailers, whose customers are in possession of loyalty cards, have the ability to match customer sales data to coupon use. This information can then be sold to coupon marketers who may use the information to get a better picture of the buying patterns of those responding to the coupon. This may include using the information to generate instant coupons at the checkout counter.
4. Clutter and Need for Creativity
As previously noted, sales promotion shares similar problems with advertising when it comes to promotional clutter (see Disadvantages of Sales Promotion discussion above). The rise of clutter in sales promotion is expected to become more problematic as more marketers increase their sales promotion spending. To stand out, marketers must find creative ways, including new types of sales promotions, that will separate their promotions from those of their competitors.