Types of Sales Promotion Tutorial
In the Sales Promotion Tutorial, we saw that promotions can be classified into a three main areas:
In this tutorial, we look more deeply into each of these classifications by examining the different types of promotions that fall into each. As we will see much of what is covered is very familiar to even those who are new to marketing as it involves promotional methods consumers are exposed to nearly every day. For marketers, it is important to understand the value each type of sales promotion holds for helping them meet their promotional objectives.
Consumer Sales Promotions
Consumer sales promotions encompass a variety of short-term promotional techniques designed to induce customers to respond in some way. The most popular consumer sales promotions are directly associated with product purchasing. These promotions are intended to enhance the value of a product purchase by either reducing the overall cost of the product (i.e., get same product but for less money) or by adding more benefit to the regular purchase price (i.e., get more for the money).
While tying a promotion to an immediate purchase is a major use of consumer sales promotion, it is not the only one. As we noted above, promotion techniques can be used to achieve other objectives such as building brand loyalty or creating product awareness. Consequently, a marketer’s promotional toolbox contains a large variety of consumer promotions.
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Types of Consumer Sales Promotions
Next we discuss 14 types of consumer sales promotions:
Most consumers are quite familiar with this form of sales promotion, which offers purchasers price savings or other incentives when the coupon is redeemed at the time of purchase. Coupons are short-term in nature since most (but not all) carry an expiration date after which the value may not be received. Also, coupons require consumer involvement in order for value to be realized. In most cases, involvement consists of the consumer making an effort to obtain the coupon (e.g., access coupon on smartphone app) and then presenting it (e.g., scan electronic coupon) at the time of purchase.
Coupons are used widely by marketers across many retail industries and reach consumers in a number of different delivery formats including:
Free-Standing Inserts (FSI) – Here coupon placement occurs loosely (i.e., inserted) within media, such as newspapers and direct mail, and may require the customer to remove the coupon from surrounding material (e.g., clip from newspaper) in order to use.
Merchant Printed – A delivery method that is common in many food stores is to present coupons to a customer at the conclusion of a purchase. These coupons, which are often printed either at the bottom of the customer’s receipt or produced as a separate printout, are intended to be used for a future purchase and not for the current purchase which triggered the printing.
Customer Generated – Coupons falling within this format require the customer undertake efforts to produce the coupon. An example would be coupons customers print from a manufacturer’s website or email. Another option, and one that is growing rapidly, is for customers to select and load digital coupons via apps on mobile devices. These coupons generally appear along with a barcode image that is then scanned by an electronic reader.
Coupon Codes – The internet is also seeing the emergence of new non-printable coupons redeemable during online purchases. These electronic coupons are redeemed when the customer enters a designated coupon code during the purchase process.
Customer Loyalty Coupons – Retailers with loyalty programs often permit customers to add coupons to their accounts. These coupons may be manually “clipped” by customers from the retailer’s website, app or email, or coupons may be automatically added to a customer’s account based on their purchase history. Coupons in a customer’s account can then be redeemed when she/he enters loyalty program information during the purchasing process (e.g., displays app loyalty card image to checkout card reader).
Cross-Product – This involves the placement of coupons within or on other products. For example, a sports drink marketer may imprint a coupon for its product on the package of a high-energy snack. Also, this delivery approach is used when two marketers have struck a cross-promotion arrangement, where each agrees to undertake certain marketing activity for the other.
Product Display – Some coupons are nearly impossible for customers to miss as they are located in close proximity to the product. In some instances, coupons may be contained within a coupon dispenser fastened to the shelf holding the product while in other cases coupons may be attached to a special point-of-purchase display where customers can remove them (e.g., tear off) and use at the checkout counter.
Rebates, like coupons, offer value to purchasers typically by lowering the customer’s final cost for acquiring the product. While rebates share some similarities with coupons, they differ in several keys aspects. First, rebates are generally handed or offered (e.g., accessible on the internet) to customers after a purchase is made and cannot be used to obtain immediate savings in the way coupons are used. (So called “instant rebates,” where customers receive price reductions at the time of purchase, have elements of both coupons and rebates, but for our purposes we will classify these as coupons due to the timing of the reward to the customer.)
Second, rebates often request the purchaser to submit personal data in order to obtain the rebate. For instance, customer identification, including name, address, phone and email contact information, is generally required to obtain a rebate. Also, the marketer may ask those seeking a rebate to provide additional data, such as indicating the reason for making the purchase.
Third, unlike coupons that always offer value when used in a purchase (assuming it is accepted by the retailer), receiving the value of a rebate only occurs if the customer takes action after the purchase. Marketers know that not all customers will respond to a rebate they have received. Some will misplace or forget to submit the rebate while others may submit after a required deadline. Marketers factor in the non-redemption rate as they attempt to calculate the cost of the rebate promotion.
Finally, compared to coupons, rebates tend to be used as a value enhancement in higher priced products. For instance, rebates are a popular promotion for automobiles and appliances, where large amounts of money may be returned to the customer.
3. Trade-In Promotions
Trade-in promotions allow consumers to obtain lower prices by exchanging something the customer possess, such as an older product that the new purchase will replace. While the idea of gaining price breaks for trading in another product is most frequently seen with automobile sales, such promotions are used in other industries, such as smartphones, where the customer’s exchanged product can be resold by the marketer in order to extract value.
4. Promotional Pricing
One of the most powerful sales promotion techniques is the short-term price reduction or, as known in some areas, “on sale” pricing. Lowering a product’s selling price can have an immediate impact on demand, though marketers must exercise caution since the frequent use of this technique can lead customers to anticipate the reduction and, consequently, withhold purchase until the price reduction occurs again.
As we will see in the Setting Price: Part 2 Tutorial, promotional pricing is also considered within the framework of price setting. More on of this promotional method is provided in that discussion.
5. Loyalty Programs
Promotions offering customers a reward, such as price discounts and free products, for frequent purchasing or other activity are called loyalty programs. These promotions have been around for many years but expanded in popularity when introduced in the airline industry as part of frequent-filer programs. Today loyalty programs (also known as rewards programs) are used by marketers in nearly all retail markets. In many of these markets, these may be known as club card programs since members often must display a verification card or loyalty program app as evidence of enrollment in the program.
Many loyalty programs have become ingrained as part of the value offered by a marketer. That is, a retailer or marketing organization may offer loyalty programs as general business practice. Under this condition loyalty program does not qualify as a sales promotion since it does not fit the requirement of offering a short-term value (i.e., it is always offered). However, even within a loyalty program that is part of a general business practice, a sales promotion can be offered, such as special short-term offer that lowers the number of points needed to acquire a free product.
6. Experiential Marketing Events
While the idea of getting people to try something before they buy it is far from being new, the use of so-called experiential marketing methods, designed to immerse potential customers in a product prior to making a commitment, have increased. Unlike old-style product giveaways, experiential marketing is as much about the environment and the interaction as it is about the products being sampled. One of the most common experiential marketing approaches is to attract a large number of people to a specific location, where products are then consumed as part of a social event. To do this, brands may engage an experiential marketing specialist to coordinate one or many events held on the same day.
7. Samples and Free Trials
Enticing members of a target market to try a product is often easy when the trial comes at little or no cost to the customer. The use of samples and free trials may be the oldest of all sales promotion techniques dating back to when society advanced from a culture of self-subsistence to a culture of trade.
Sampling and free trials give customers the opportunity to experience products, often in small quantities or for a short duration, without purchasing the product. Today, these methods are used in almost all industries and are especially useful for getting customers to try a product for the first time.
8. Free Product
Some promotional methods offer free products but with the condition that a purchase be made. The free product may be in the form of additional quantities of the same purchased product (e.g., buy one, get one free) or specialty packages (e.g., value pack) that offer more quantity for the same price as regular packaging.
Another form of sales promotion involving free merchandise is premium or “give-away” items. Premiums differ from samples and free product in that these often do not consist of the actual product, though there is often some connection. For example, a cellphone manufacturer may offer access to free downloadable ringtones for those purchasing a cellphone.
Consumers are often attracted to promotions where the potential benefit obtained is unusually high. Under these promotions, only a few lucky consumers receive the value offered in the promotion. Two types of promotions that offer high value are contests and sweepstakes.
Contests are special promotions awarding value to winners based on skills they demonstrate compared to others. For instance, a baking company may offer free vacations to winners of a baking contest. Contest award winners are often determined by a panel of judges.
Sweepstakes or drawings are not skill based, but rather based on luck. Winners are determined by random selection. In some situations, the chances of winning may be higher for those who make a purchase if entry into the sweepstakes occurs automatically when a purchase is made. But in most cases, anyone is free to enter without the requirement to make a purchase.
A subset of both contests and sweepstakes are games, which come in a variety of formats, such as scratch-off cards and collection of game pieces. Unlike contests and sweepstakes, which may not require purchase, to participate in a game customers may be required to make a purchase. In the United States and other countries, where eligibility is based on purchase, games may be subjected to rigid legal controls and may actually fall under that category of lotteries, which are tightly controlled.
13. Product Demonstrations
Many products benefit from customers being shown how products are used through a demonstration. Whether the demonstration is experienced in-person or via video form, such as a YouTube video, this promotional technique can produce highly effective results. Unfortunately, demonstrations are often expensive to arrange. Costs involved in delivering demonstrations include paying the expense of the demonstrator, which can be high if the demonstrator is well-known (e.g., nationally known chef), setup costs, and payment for the space where the demonstration is given.
14. Personal Appearances
An in-person or personal appearance by someone of interest to the target market, such as an author, sports figure or celebrity, is another form of sales promotion capable of generating customer traffic to a physical location. However, as with demonstrations, personal appearance promotion can be costly since the marketer normally must pay a fee and possibly travel expenses for the person to appear.
Trade Sales Promotions
As noted in the Promotion Decisions Tutorial, certain promotions can help “push” a product through the channel by encouraging channel members to purchase and promote the product to their customers. For instance, a trade promotion aimed at retailers may encourage retailers to instruct their employees to promote a marketer’s brand over competitors’ offerings. With thousands of products competing for limited shelf space, spending on trade promotion is nearly equal that spent on consumer promotions.
Types of Trade Sales Promotions
Many sales promotions aimed at building relationships with channel partners follow similar designs as those directed to consumers including, promotional pricing, contests, and free product. In addition to these, several other promotional approaches are specifically designed to appeal to trade partners. These approaches include:
1. Point-of-Purchase Displays
Point-of-purchase (POP) displays are specially designed materials intended for placement in retail stores. These displays allow products to be prominently presented, often in high customer traffic areas (e.g., near front entrance), and thereby increase the probability the product will standout. POP displays come in many styles, though the most popular are ones allowing a product to stand alone, such as in the middle of a store aisle or sit at the end of an aisle (i.e., end-cap) where it will be exposed to heavy customer traffic.
For channel partners, POP displays can result in significant sales increases compared to sales levels in a normal shelf position. Also, many marketers will lower the per-unit cost of products in the POP display as an incentive for retailers to agree to include the display in their stores.
2. Advertising Support Programs
In addition to offering promotional support in the form of physical displays, marketers can attract channel members’ interest by offering financial assistance in the form of advertising money. These funds are often directed to retailers, who then include the company’s products in their advertising. In certain cases, the marketer will offer to pay the entire cost of advertising, but more often the marketer offers partial support known as co-op advertising funds.
3. Short-Term Trade Allowances
This promotion offers channel partners price breaks or other incentives for agreeing to stock the product. In most cases, the allowance is not only given as encouragement to purchase the product but also as an inducement to promote the product in other ways. For instance, it may be used for: obtaining more attractive shelf space; securing a high-traffic store location; highlighting the product in company-produced advertising, website or app (e.g., featured product); or agreeing to have the retailer’s sales personnel “talk-up” the product to customers.
Allowances can be in the form of price reductions, also called off-invoice promotion, where the price is lowered based on the quantity purchased, and buy-back guarantees, where a manufacturer agrees to accept fully refunded returns for product that does not sell within a certain period of time.
4. Sales Incentives or Push Money
Since sales promotions are intended to stimulate activity that leads to meeting promotional objectives, it makes sense that these can also apply to those in a channel member’s organization who also affect sales. Primarily, marketers may offer sales promotions to their resellers’ sales force and customer service staff as incentives to help sell more of the marketer’s product. Sometimes called push money, these promotions typically offer employees cash or prizes, such as trips, for those that meet sales requirements.
5. Trade Shows
Trade shows are organized events that bring industry buyers and sellers together in one central location. In most cases this is a physical environment (e.g., convention center), though virtual trade shows are also presented over the internet. While the cost of participating in trade shows is often quite high, marketers are attracted to this promotional method since it offers the opportunity to reach a large number of potential buyers in one convenient setting. At these events, most sellers attempt to capture the attention of buyers by setting up a display area to present their product offerings and meet with potential customers. These displays can range from a single table covering a small area to erecting specially built display booths that dominate the trade show floor.
6. Promotional Products
Among the most widely used methods of trade sales promotions is the promotional product; products labeled with the brand or organization name that serve as reminders of the actual product. For instance, companies often hand out free calendars, coffee cups, and pens that contain the product logo. A yearly listing of the top promotional products can be found at the Promotional Products Association International website.
Business-to-Business Sales Promotions
The use of sales promotion is not limited to consumer products marketing. In business-to-business markets, sales promotions are also used as a means of moving customers to action. However, the promotional choices available to the B-to-B marketer are not as extensive as those found in the consumer or trade markets. For example, most B-to-B marketers do not use coupons as a vehicle for sales promotion with the exception of companies that sell to both consumer and business customers (e.g., products sold through office supply retailers). Rather, the techniques more likely to be utilized include:
Of the promotions listed, trade shows are the mostly widely used sales promotion within the business-to-business market. Trade shows, also called trade fairs, are especially critical for firms looking to expand into global markets. In many global markets, especially in Europe, trade fairs have a long history of being one of the most cost-effective ways to promote products.