CH-16 Advertising Media: Planning and Analysis – Advertising Promotion and Other Aspects of Integrated Marketing Communications : Chapter Notes

ADVERTISING MEDIA: PLANNING AND ANALYSIS Chapter Objectives Describe the major factors used in segmenting target audiences for media planning purposes. Explain the meaning of reach, frequency, gross rating points, target rating points, effective reach, and other media concepts. Discuss the logic of the three-exposure hypothesis and its role in media and vehicle selection. Describe the use of the efficiency index procedure for media selection. Distinguish the differences among three forms of advertising allocation: continuous, pulsed, and flighted schedules. Explain the principle of recency and its implications for allocating advertising expenditures over time. Perform cost-per-thousand calculations. Review the application of media planning software and actual media plans. Chapter Overview The chapter covers the media planning process and the various factors that go into making media-selection decisions. Media are the general communications methods that carry advertising messages (i.e., television, magazines, newspapers, etc.), and vehicles are the specific broadcast programs or print choices in which advertisements are placed (i.e., American Idol, Time, The Wall Street Journal). Media planning is the design of a strategy that shows how investments in advertising time and space will contribute to the achievement of marketing objectives. It consists of four interrelated activities: (1) selecting the target audience, (2) specifying the media objectives, (3) selecting media categories and vehicles, and (4) buying media. Six media objectives are covered extensively in the chapter: (1) reach, (2) frequency, (3) weight, (4) continuity, (5) recency, and (6) cost. Reach represents the percentage of the target audience that is exposed, at least once, during a specified time frame to the vehicles in which the advertising message is inserted. Frequency signifies the number of times, on average, during the media-planning period that members of the target audience are exposed to the media vehicles that carry a brand’s advertising message. Weight refers to advertising volume, and gross rating points (GRPs) reflect the gross weight that a particular advertising schedule has delivered. Target rating points (TRPs) adjust vehicle ratings to reflect just those individuals who match the advertiser’s target audience. The chapter goes into considerable discussion of effective reach and frequency value planning. Continuity involves the matter of how advertising should be allocated during the course of an advertising campaign, and three schedules are discussed: (1) continuous, (2) pulsing, and (3) flighting. The recency planning, or shelf-space model, is covered in depth. Cost per thousand (CPM) is the cost of reaching 1,000 people, and CPM-TM is the cost of reaching 1,000 target market members. Chapter Outline Introduction Although effective messages are essential for successful advertising, messages are of little use unless advertising media are selected that will effectively reach the intended target audience. Some Useful Terminology: Media versus Vehicles Media are the general communication methods that carry advertising messages (i.e., television, magazines, newspapers, etc.). Vehicles are the specific broadcast programs or print choices in which advertisements are placed. Advertisers attempt to select those media and vehicles that are most compatible with the advertised brand in reaching its target audience and conveying the intended message. Messages and Media: A Hand-in-Glove Relation Each must be compatible with the other. Advertising practitioners agree that reaching a specific audience effectively is the most important consideration in selecting advertising media, but it is the most complicated of all marketing communications decisions. Decisions involve determining which general media categories to use, selection of specific vehicles within each medium, how to allocate the available budget, choosing geographical advertising locations, and determining how to distribute the budget over time. Selecting and Buying Media and Vehicles Traditional full-service advertising agencies have historically been responsible for both creating advertising messages for their clients’ brands and planning and buying media time and space. However, a recent and dramatic change has occurred in which clients are “unbundling” media planning from creative services (e.g., General Motors decided to consolidate in a single company its media planning and buying for its many brands, and others, such as Kraft Foods, followed suit.). Traditional full-service agencies have criticized these moves, claiming that creative services and media planning go hand in hand. The Media-Planning Process Media planning is the design of a strategy that shows how investments in advertising time and space will contribute to the achievement of marketing objectives. The challenge is determining how best to allocate the fixed advertising budget for a particular planning period (i.e., a fiscal year or four-week period). Media planning involves coordination of three levels of strategy formulations: Marketing strategy—consisting of target market identification and marketing mix selection and provides the impetus and direction for the choice of both advertising and media strategies; Advertising strategy—involves advertising objectives, budget, and message and media strategies; and Media strategy—evolves from the more general advertising strategy. Figure 16.1 is a model of the media-planning process. The media strategy itself consists of four sets of interrelated activities: Selecting the target audience, Specifying media objectives, Selecting media categories and vehicles, and Buying media. Selecting the Target Audience Successful media strategy first requires that the target audience be clearly pinpointed to avoid wasted exposures. Otherwise some people who are unlikely to buy the product being advertised are exposed to advertisements while prime prospects are missed. Four major types of information are used to segment target audiences for media strategy purposes: (1) behavioral data, (2) geographics, (3) demographics, and (4) lifestyle/psychographics. Specifying Media Objectives The second aspect of media strategy establishes the following six objectives: (1) reach, (2) frequency, (3) weight, (4) continuity, (5) recency, and (6) cost. Reach Reach is the percentage of a target audience that is exposed, at least once, during a specified time frame (usually a four week period) to the vehicles in which our advertising message is inserted. Reach represents the percentage of all target customers who have an opportunity to see or hear the advertiser’s message one or more times during this time period. Other terms used by media planners for describing reach are: 1+, net coverage, and unduplicated audience. There are 13 four-week media-planning periods during a full year. OTS is the acronym for the expression of opportunity to see or hear. Determinants of Reach Factors that can increase the reach of a particular media schedule are: Use of multiple media, Diversity of vehicles within each medium, Diversity of dayparts in the case of radio and TV advertising. Frequency Frequency is the number of times, on average, during the media-planning period that members of the target audience are exposed to the media vehicles that carry a brand’s advertising. Actually represents a media schedule’s average frequency, but media people use the term frequency. The Concept of Frequency Distribution See Table 16.1 for an example of frequency distribution and summary reach and frequency statistics. Frequency distribution represents the percentage of audience members (labeled as “Percentage f” in Table 16.1) who are exposed f times to an ad (where f = 0, 1, 2, 3, or 4). The cumulative frequency column (labeled “Percentage f +”) indicates the percentage of the audience that has been exposed f or more times to a specific vehicle during this time period. The reach of a medium can be ascertained by looking at the cumulative percentage of 1 or more exposures given as a percentage of the target audience. Frequency is the average of the frequency distribution (generally rounded to a single decimal place). The sum of all frequencies is divided by the reach figure. Weight A third objective involved in formulating media plans is determining how much advertising volume (termed weight) is required to accomplish the advertising objectives? There are three weight metrics: gross ratings, target ratings, and effective ratings. What Are Ratings? In the context of advertising, the term “ratings” simply refers to the percentage of an audience that has an opportunity to see an ad placed in that vehicle. Example: Approximately 109.6 million households in the U.S. have television sets. Therefore, a single rating point at this point in time represents 1 percent (1,096,000) of all television households. Gross Rating Points (GRPs) Gross rating points, or GRPs, reflect the gross weight that a particular advertising schedule has delivered. GRPs indicate the total coverage, or duplicated audience, exposed to a particular advertising schedule. GRPs = Reach(R)  Frequency(F) Determining GRPs in Practice In practice, media planners make media purchases by deciding how many GRPs are needed to accomplish established objectives. GRPs are determined (before the fact) by summing the ratings obtained from the individual vehicles included in a prospective media schedule. Target Rating Points (TRPs) Target rating points, or TRPs, adjust vehicle ratings to reflect just those individuals who match the advertiser’s target audience. To get TRP, multiply GRP by the percentage of the total audience that matches the target market. TRPs represent a better indicator of a media schedule’s non-wasted weight: GRPs equal gross weight, some of which is wasted; TRPs equal net weight, none of which is wasted. The Concept of Effective Reach But some have become critical of the GRP/TRP approach because not every exposure is of equal value. The advertising industry has turned away from the exclusive use of “raw” advertising weight toward a concept of media effectiveness. Effective reach is based on the idea that an advertising schedule is effective only if it does not reach members of the target audience too few or too many timer during the media scheduling period. But what constitutes too few or too many exposures? It depends on considerations such as the level of consumer awareness of the brand, its competitive position, the audience’s degree of loyalty to the brand, message creativity and novelty, and the advertising objectives. How Many Exposures Are Needed? Advertising industry thinking on this matter has been heavily influenced by the so-called three-exposure hypothesis, which addresses the minimum number of exposures needed for advertising to be effective. Many have interpreted this hypothesis to mean that media schedules are ineffective when they deliver average frequencies of fewer than three exposures to the vehicle in which the advertising is placed. When using this rule, advertisers often mistake three exposures to an advertising message with three exposures to an advertising vehicle. Vehicle exposure, or opportunity to see an ad (OTS), is not tantamount to advertising exposure. No specific number of exposures is absolutely correct for all advertising situations. Effective Reach Planning in Advertising Practice The range of effective reach can be thought of as 3 to 10 exposures during a planning period. Subjective factors also must be considered when allocating advertising dollars. Table 16.2 compares four media plans involving different combinations of media expenditures from an annual advertising budget. An Alternative Approach: Frequency Value Planning The objective of the efficiency-index procedure is to select the media schedule that generates the most exposure value per GRP. This approach entails the following steps (see Table 16.3): Estimate the exposure value of each level of vehicle exposure, or OTS, that a schedule produces. Exposure utility represents the worth, or value, of each additional opportunity for audience members to see an ad for a brand during the period of an advertising schedule. Each additional exposure contributes decreasing utility. Estimate the frequency distribution of the various media schedules that are under consideration. Computer programs are available for this purpose. Estimate the OTS value at each OTS level. Take the arithmetic product of the Exposure Utility at each OTS level times the Percentage of Target column. Determine the total value across all OTS levels. Sum the individual exposure values. Develop an index of exposure efficiency. Divide each schedule’s total value by the number of GRPs produced by the schedule. Higher index values represent greater efficiency. Continuity Continuity involves the matter of how advertising should be allocated during the course of an advertising campaign. Advertisers have three general alternatives: Continuous Schedule Relatively equal amounts of ad dollars are invested throughout the campaign. Pulsing Some advertising is used during every period of the campaign, but the amount of advertising varies form period to period. Flighting The advertiser varies expenditures throughout the campaign and allocates zero expenditures in some months. Pulsing and flighting are similar in that they both involve differential levels of advertising expenditures throughout the year, but they differ in that some advertising takes place during every period with pulsing but not with flighting. Figure 16.2 illustrates these three models. Recency Planning (a.k.a. The Shelf-Space Model) Some practitioners argue that flighted and pulsed advertising schedules are necessitated by the tremendous increases in media costs. According to this argument, advertisers are forced to advertise only at select times, and there should be sufficient frequency to justify the advertising effort. However, the prudence of this argument has been challenged in recent years, most forcefully by Erwin Ephron, a New York media specialist. The recency principle, or shelf-space model, is built on three interrelated ideas: The Powerful First Exposure Consumers’ first exposure to an ad is the most powerful. Influencing Brand Choice Advertising’s primary role is to influence brand choice, and that advertising does indeed influence choice for the subset of consumers who are in the market for the product category at the time a brand in that category advertises. Optimizing Weekly Reach Achieving a high level of weekly reach for a brand should be emphasized over acquiring heavy frequency. The logic of recency planning can be summarized as follows: The shelf-space model assumes that the role of advertising is not to teach but to influence consumers’ brand selection. To influence brand selection, advertising must reach consumers when they are ready to buy a brand. Out of sight, out of mind is a key advertising principle. Advertising messages are most effective when they are close to the time of purchase, and a single advertising exposure is effective if timed with a selection decision. The cost effectiveness of a single exposure is approximately three times greater than the value of subsequent exposures. Rather than concentrating the advertising budget to purchase multiple exposures only at select times throughout the year, the budget should be allocated to reach more consumers more often. A goal is to reach the highest percentage of the target audience for as many weeks as possible. This goal can be accomplished by (1) using 15-second TV as well as 30-second spot commercials, (2) spreading the budget among cheaper media rather than TV exclusively, and (3) buying cheaper TV programs (i.e., cable, syndicated) rather than exclusively prime-time network programs. Toward Reconciliation: It Depends! No single approach is equally effective for all brands. What works best depends on the specific circumstances facing a brand. Cost Considerations Cost-per-thousand (CPM) criterion is the cost of reaching 1,000 people. The measure can be refined to mean the cost of reaching 1,000 members of the target audience, excluding those people who fall outside the target market. This refined measure is designated CPM-TM. CPM = Cost of ad  Number of total contacts (expressed in thousands). CPM-TM = Cost of ad  Number of target market contacts (expressed in thousands). The term contacts is used here in a general sense to include any type of advertising audience (television viewers, magazine readers, radio listeners, etc.). Illustrative Calculations The chapter includes several illustrative calculations. Use with Caution! These are measures of cost efficiency—not of effectiveness. An efficient media schedule may be efficient but ineffective if it (1) reaches the wrong audience or (2) is inappropriate for the product category and brand advertised. Another limitation is their lack of comparability across different media—various media perform unique roles and are therefore priced differently. CPM statistics can be misused unless vehicles within a particular medium are compared on the same basis. The Necessity of Making Trade-Offs The various media planning objectives—reach, frequency, weight, continuity, and cost—are actually somewhat at odds with one another. Given a fixed budget, the media planner cannot simultaneously optimize all five objectives; trade-offs must be made. Each media planner must decide what is best given the particular circumstances surrounding the advertising decision facing his or her brand. Media-Scheduling Software The combination of media choices and frequency options results in millions of potential choices for actual campaigns. This daunting task is facilitated by the availability of computerized models to assist media planners in selecting media and vehicles. Comprehensive media-scheduling programs allow the user to evaluate all major advertising media categories and subcategories and to find optimum schedules based on selecting multiple vehicles from within a single advertising medium and combining plans across multiple media. The following steps are involved for developing a media schedule: Develop a media database—select the prospective advertising vehicles, specify their ratings, and identify individual vehicle cost. Select the criterion for schedule optimization—optimization alternatives include maximizing reach (1+), effective reach (3+), frequency, and GRPs. Specify constraints—include determining a budget constraint and identifying the maximum number of ad insertions for each vehicle. Seek out the optimum media schedule according to the specified objective function and subject to satisfying the above constraints. Hypothetical illustration: A One-Month Magazine Schedule for the Esuvee Safety Campaign The Esuvee Safety Campagin Database See Table 16.5. Eighteen magazines considered suitable for reaching the target audience. Ratings were determined by dividing each magazine’s audience size by the size of Esuvee’s target market. Costs were designated according to the price charged by each magazine for a one-time placement of a full-page, four-color ad. Maximum insertions were based on each magazine’s publication cycle. The Objective Function and Constraints The program was instructed to maximize reach (1+) without exceeding a budget of $1.5 million in magazine advertising in the introductory month. The remainder of the $9 million budget will be allocated throughout the remainder of 2006. The Optimal Schedule In a matter of seconds, the scheduling algorithm identified the single combination of magazines that would maximize reach for an expenditure of $1.5 million or less. The solution in Table 16.6 is the optimum solution for maximizing reach subject to satisfying the budget constraint. Interpreting the Solution The message/vehicle ratio equals 72.2 percent, which represents the likelihood that consumers who are exposed to the magazine vehicle also will be exposed to the advertising message within it. The next pertinent information to observe in Table 16.6 is the vehicle and message frequency distributions. This optimum schedule yields a vehicle reach of 72.2, which is the maximum level of reach that any combination of the magazines included in the data base could achieve within this budget constraint. This optimum vehicle schedule produces 293.9 GRPs, which are calculated simply by multiplying the ratings for each magazine by the number of ads placed in that magazine. This schedule is estimated to reach the audience an average of 4.1 times (i.e., average frequency). Effective reach (i.e., 3+) is 56.8 percent. The cost-per-thousand (CPM) is $18.32 (see Table 16.6). The cost-per-rating point (CPP) is $4,909. Review of Media Plans Three plans are presented for demonstrative purposes. The Diet Dr Pepper Plan Campaign Target and Objectives Campaign objectives: (1) increase sales by 4 percent and improve growth rate to 1.5 times that of the diet soft-drink category, (2) heighten consumers’ evaluations of the key product benefit and image factors that influence brand choice in this category, and (3) to enhance those key brand-personality dimensions that differentiate Diet Dr. Pepper from other diet drinks (i.e., it is a unique, clever, fun, entertaining, and interesting brand to drink). Creative Strategy The brand positioned on “tasting more like regular Dr Pepper”—research indicated this was key to trial use. 15 second commercials were used rather than usual 30 second commercials—this enabled greater reach, frequency, and GRPs. Media Strategy See Table 16.7. Media plan consisted of (1) placing ads during college and professional football televised games, (2) sponsoring events (i.e., golf and country music TV specials), and (3) continuously advertising during prime time and late-night TV, on syndicated programs, and on cable stations. The media schedule was flighted—ads were placed during approximately two-thirds of the 52 weeks with no advertising during the remaining weeks. Saab 9-5’s Media Plan The 9-5 model represented Saab’s first entry in the luxury category and was designed to compete against well-known high-equity brands. Saab suffered both from a low level of consumer awareness and a poorly defined brand image. Campaign Target and Objectives The introductory campaign was designed to achieve the following objectives: (1) generate excitement for the new 9-5 model line, (2) increase overall awareness for the Saab name, (3) encourage consumers to visit dealers and test-drive the 9-5, and (4) retail 11,000 units in the first year. Creative Strategy Creative executions portrayed Saab as a premium European luxury manufacturer and were designed to have a hint of mystery and wit. Media Strategy See Table 16.8. Television and magazine advertising began in January before the 9-5’s introduction in April. TV ads ran January through February and then again throughout May, and magazine and newspaper advertising continued throughout the year. Olympus Camera Media Plan The camera business has become increasingly competitive and diverse with new players entering the industry on a regular basis. The modern camera industry is now one of sophisticated consumer electronics, and executives at Olympus realized the company would need to implement a marcom program that would change both consumer and retailer perceptions of Olympus—a change from the belief that Olympus is merely a point-and-click camera maker to the perception that it is a major player in designer electronics. Campaign Objectives The first product, Stylus Verve, was a digital camera, and the m:robe was an MP3 player and camera all-in-one. The objective was to develop a media plan that would serve to successfully introduce both products at the same time and to facilitate the shift in marketplace perceptions that Olympus was a maker of designer electronics items and not merely cameras. The Strategy A high-impact, event driven media strategy was developed. The idea was to place the Olympus message in media that generate buzz, longevity, and influence. Two events sponsored were the U.S. Tennis Open and Olympus Fashion Week. Media and Vehicles See Table 16.9. Ads were placed on programs that were high-impact, widely-viewed, and aired only once a year (e.g., World Series, American Music Awards, Macy’s Thanksgiving Day Parade, Super Bowl, etc.) Several four-page gatefold ads were placed in special issues of magazines (e.g., Time’s Person of the Year). Out of home (OOH) and in-theater advertising was used in the top 25 markets. An interactive website was used for the m:robe product, and consumers could upload a picture of their head to the website. Results Unaided awareness of Olympus increased by 23 percent. The m:robe launch raised awareness of Olympus as a player in the digital music category from 0 percent to 5 percent. 20 percent of the respondents to an advertising tracking study indicated that they believe Olympus offers good quality features. Retailer perceptions were also greatly influenced when the Super Bowl media buy was announced, generating press coverage. Chapter Features Is Super Bowl Advertising Worth the Expense? The cost of placing a 30-second commercial on the Super Bowl increased from $400,000 in 1984 to $3.7 million in 2012. Nearly one-third of Americans watch the Super Bowl. But at these prices, is it worth the investment? An alternative media buy proposed is to buy ad time on all network programs airing at the same time on Tuesday evening, buy all network programs airing at the same time on Sunday evening, and purchase a final single spot from the Fox network’s Saturday night programming. This schedule would result in more GRPs and thus should be considered superior. However, there are other advantages to Super Bowl advertising when one considers true impact. Searching for Media Options Around the Globe Suppose you wish to know what news media and advertising outlets may be available in any city in the world? There is an independent site on the Internet, named the Kidon Media-Link (www.kidon.com/media-link) that makes this information available. A Multi-Screen Media World Nielsen research shows that consumers spend an average of over 3 hours and 41 minutes per month watching TV and browsing online simultaneously. Screen convergence is not viewed as cannibalization by many media advertisers and critics. Multi-screen viewing can increase aided awareness scores and post-ad actions. MEASURING AD MESSAGE EFFECTIVENESS Chapter Objectives Explain the rationale and importance of ad message research. Discus the different stages of ad message research. Describe the various research techniques used to measure consumers’ recognition and recall of advertising messages. Illustrate measures of emotional reactions to advertisements. Explain the role of persuasion measurement, including pre- and post- testing of consumer preference. Discuss the meaning and operation of single-source measures of advertising effectiveness. Chapter Overview Although difficult and often expensive, measuring message effectiveness is essential for advertisers to better understand how well their ads are performing and which changes they need to make to improve performance. Message-based research evaluates the effectiveness of advertising messages. Dozens of techniques for measuring advertising effectiveness have evolved over the years. The reason for this diversity is that advertisements perform various functions and multiple methods are needed to test different indicators of advertising effectiveness. GfK MRI’s Starch Ad Readership Studies, Bruzzone tests, and (“Burke”) day-after recall tests are techniques for measuring recognition and recall. Some measures to capture emotions include BBDO’s Emotional Measurement System, facial imaging technology, brain imaging, and self-report items. Physiological measures, such as galvanic skin response and pupil dilation, also are used to assess emotional arousal advertisements activate. The Ipsos ASI Next*TV® method is a videotape, in-home system for measuring consumer reactions to television commercials. The comScore ARS “Share of Choice” method is used to measure preference shifts employing a pre- and post-measurement of consumer preference for a brand before and after they have seen the brand’s advertisement. The impact of advertising on actual purchase behavior is measured with single-source data collection systems (SymphonyIRI Group’s BehaviorScan and Nielsen’s ScanTrack) that obtain optical-scanned purchase data from household panels and then integrate them with television-viewing behavior and other marketing variables. No single technique for measuring advertising effectiveness is ideal, nor is any particular technique appropriate for all occasions. The choice of technique depends on the specific objective an advertising campaign is intended to accomplish. Moreover, multiple measurement methods are usually preferable to single techniques to answer the many questions involved in attempts to assess advertising effectiveness. The final major section presented conclusions about TV commercial effectiveness based on substantial research on advertising persuasiveness, advertising weight, creative copy, and links to meaningful sales gains. Four major conclusions are drawn: (1) ad copy must be distinctive in order to drive sales gains; (2) more advertising weight does not necessarily equate to increased sales; (3) advertising eventually wears out; and (4) if advertising is going to work, it will achieve its positive effect relatively quickly. Chapter Outline Introduction to Advertising Research Figure 17.1 features the National Youth Anti-Drug Media Campaign. The demand for accountability that is prevalent throughout business necessitates that ads be tested before they are placed in media and then again during or after the period in which they have been printed or broadcast. It Is Not Easy or Inexpensive Measuring message effectiveness is a difficult and expensive task. The IMC Focus in this chapter explains the testing of television commercials. What Does Advertising Research Involve? Advertising research is undertaken to test the effectiveness of advertising messages (also called copy research, or copytesting). There are four stages at which ad message research might be conducted: at the copy development stage; at the “rough” stage; at the final production stage, but prior to placing the ad in media; and after the ad has been run in media. Pretesting is performed to eliminate ineffective ads before they are ever run, while posttesting is conducted to determine whether messages have achieved established objectives. Sometimes research is done under natural advertising conditions and other times in simulated or laboratory situations. Measures of advertising effectiveness are as varied as the questions that advertisers and their agencies want answered. Industry Standards for Message Research Much message-based research has not been of the highest caliber. Sometimes it is unclear exactly what the research is attempting to measure, measures often fail to satisfy the basic requirements of sound research, and results have little to say about whether tested ads stand a good chance of being effective. Members of the advertising community prepared a statement called Positioning Advertising Copy Testing (PACT) to encourage higher standards of copytesting performance. The document, which is directed primarily at television advertising but is relevant in all media, contains the following copytesting principles: Principle 1 A good copytesting system needs to provide measurements that are relevant to the advertising objectives. Principle 2 A good copytesting system is one that requires agreement about how the results will be used in advance of each specific test. Principle 3 A good copytesting system provides multiple measurements because single measurements are generally inadequate to assess the totality of an ad’s performance. Principle 4 A good copytesting system is based on a model of human response to communications—the reception of a stimulus, the comprehension of the stimulus, and the response to the stimulus. Principle 5 A good copytesting system allows for consideration of whether the advertising stimulus should be exposed more than once. Principle 6 A good copytesting system recognizes that a more finished piece of copy can be more soundly evaluated; therefore, a good system requires, at minimum, that alternative executions be tested in the same degree of finish. Principle 7 A good copytesting system provides controls to avoid the bias normally found in the exposure context. Principle 8 A good copytesting system is one that takes into account basic considerations of sample definition. Principle 9 A good copytesting system is one than can demonstrate reliability and validity. These principles should be viewed as mandatory if advertising effectiveness is to be tested in a meaningful way. What Do Brand Managers and Ad Agencies Want to Learn From Message Research? Message research is needed to provide diagnostic information about an advertisement’s equity-enhancing and sales-expanding potential for brands and to determine whether finalized advertisements actually accomplished these goals. Two General Forms of Message Research Message research comes in two general forms: qualitative and quantitative. Qualitative Message Research Qualitative research is not based on producing numerical results and statistical analyses. It is concerned with generating insights into and interpretations of those advertising elements that influence people’s responses to ads. It may involve focus groups, ethnographic research, and other qualitative techniques. The Global Focus insert provides an example of qualitative global ad research. The Zaltman Metaphor Elicitation Technique (ZMET) This technique is based on several underlying premises, such as the fact that most human communication involves nonverbal elements, that people’s thoughts and feelings occur nonverbally as images, and that metaphors are the key mechanism for tapping into people’s thoughts and feelings. A metaphor is based on the idea that people understand and experience things in terms of other things (e.g., products characterized as “lemons” suggests a flawed product). By understanding the metaphors people use when thinking about brands, it is possible to apply this insight in developing advertising copy that resonates with people’s brand-relevant thoughts and feelings. Quantitative Message Research This approach to research is concerned with measuring the effects an advertisement may have (pretest research) or has had (posttest research). Many advertisers—especially smaller organizations—do not conduct any advertising research, and the reasons given have to do with insufficient time or funding. Advertising research is crucial in order to measure the effects that ads have so that improvements can be made on a continuous basis. Message research is categorized into four groups of measures: Recognition and recall (brand awareness and brand-related thoughts and feelings), Physiological arousal (unobtrusive indicators of whether ads have emotionally aroused consumers), Persuasion (influence on purchase intentions and behavior), and Sales response (purchases of an advertised brand). Table 17.1 summarizes the general categories and specific measures. Measures of Recognition and Recall Both represent elements of consumers’ memories. Recognition is more superficial than recall. Recognition is merely remembering having seen the ad while recall involves having knowledge of the ad’s message. Starch Ad Readership Studies Starch Ad Readership Studies is a testing service owned by a company named GfK Mediamark Research & Intelligence (MRI). It measures primarily magazine ad effectiveness by examining reader awareness. The studies include about 118,000 ads for over 3,000 issues annually. Sample sizes range from 100 to 150 individuals per issue with most interviews conducted in homes. An eligible reader has glanced through or read some part of an issue prior to an interviewer’s visit, and meets age, sex, and occupation requirements for a particular magazine. Respondents are asked a prescribed set of questions to determine their awareness of various parts of the ad. Respondents are then classified as: Noted: the percentage of issue readers who remember having previously seen the advertisement in the study issue. Associated: the percentage of issue readers who not only noted the ad, but also saw or read some part of the advertisement that clearly indicated the brand or advertiser. Read some: the percentage of issue readers who read any part of the ad’s copy. Read most: the percentage of issue readers who read half or more of the written material in the ad. Starch develops indices for the ad’s noted, associated, read-some, and read-most scores. Two sets of indices are established: (1) a comparison of the ad’s score with the average scores for all ads in the magazine issue called the Issue Index, and (2) a comparison of the ad’s score with ads in the same product category as well as the same size and color classifications (called the Adnorm index). A basic assumption of the Starch procedure is that respondents in fact do remember whether they saw a particular ad in a specific magazine issue, which has led to criticism. Figure 17.2 illustrates a Starch Advertising Research Report. Bruzzone Tests Bruzzone Research Company (BRC) provides advertisers with a test of consumer recognition of television commercials. In the past, Bruzzone used to mail a set of photoboard commercials to a random sample of households and encouraged responses with a nominal monetary incentive. Now the data are collected online by e-mailing 15 commercials to a sample of online users. Respondents first see a series of six key scenes from the commercial along with the corresponding script (anything that identifies the advertiser is removed). They are immediately asked “Do you remember seeing this commercial before?” and can reply “Yes,” “No,” or “Not Sure”). BRC has established norms for particular product categories against which a newly tested commercial can be compared. Bruzzone testing is inexpensive and provides a valid prediction of actual marketplace performance. But tests cannot be implemented until after a finished TV commercial has actually been aired. Figure 17.3 shows the script from an illustrative Bruzzone test. Figure 17.5 illustrates another ARM analysis for a commercial. Day-After Recall Testing Various companies test advertisements to determine whether viewers have been sufficiently influenced to recall having seen the ad in a magazine or on television. Gallup & Robinson and Mapes and Ross examine print media. Day-After Recall Test Burke’s DAR procedure tested commercials that had been aired as part of normal television programming. For each tested commercial, Burke reported findings as (1) claimed-recall scores, which indicate the percentage of respondents who recall seeing the ad, and (2) related-recall scores, which indicated the percentage of respondents who accurately describe specific advertising elements. The Ipsos ASI Next*TV® Method Ipsos is a French company that purchased ASI Market Research. It performs various forms of advertising research is more than 50 countries including the Next*TV method. This method tests both the ability to recall and persuasive nature of television commercials. The Recall Controversy There is considerable controversy has surrounded the use of recall testing. Measures of recall are biased in favor of younger consumers (i.e., recall scores deteriorate with age). There is mounting evidence that the recall scores generated by ads are not predictive of sales performance (i.e., sales levels do not increase with increasing levels of recallability). There is some evidence that DAR testing significantly understates the memorability of commercials that employ emotional or feeling-oriented themes and is biased in favor of rational or thought-oriented commercials. Measurement of Emotional Reactions Advertising researchers have turned to physiological testing devices to measure consumers’ affective reactions to advertisements. BBDO’s Emotional Measurement System This approach to measuring emotional reaction uses photos to reflect different emotions. Figure 17.6 provides illustrative photos similar to the system. From the photos selected by the sample, a perceptual map is constructed. Facial Imaging Technology 3D Facial Imaging Technology has been used in capturing and interpreting emotions as they occur. The technology from nViso uses a web browser and webcam. Figure 17.7 illustrates a facial expression which can be coded with the system. Neuroscience and Brain Imaging Brain imaging applies knowledge from the field of neuroscience using functional Magnetic Resonance Imaging equipment detects changes in blood oxygenation and flow that occur in response to neural activity. Much work remains before advertising researchers can be confident that the results provide reliable and valid tests of consumers’ emotional reactions to advertisements. Self-Report Measurement Consumers’ emotional reactions in response to advertisements are measured by asking them to self-report their feelings. Both verbal and visual self-reports are used for this purpose. Respondents might be asked to indicate their degree of agreement or disagreement with a statement such as: “This ad gave me a warm feeling.” Physiological Testing Physiological testing devices measure any of several autonomic responses such as nerves and ganglia that furnish blood vessels, the heart, smooth muscles, and glands as a response to advertising. Physiological functions to indicate the actual, unbiased amount of arousal resulting from advertisements. Such responses include facial expressions, sweating, and heart rate. The Galvanometer The galvanometer (a.k.a. the psychogalvanometer) is a device for measuring galvanic skin response, or GSR. (Galvanic refers to electricity produced by a chemical reaction.) Elements in an advertisement causes a consumer’s sweat glands to open in varying degrees depending on the intensity of the arousal, and researchers are able to measure both the degree and frequency with which an ad activates emotional responses. The Pupillometer Pupillometric tests in advertising are conducted by measuring respondents’ pupil dilation as they view a television commercial or focus on a print ad. Greater dilation is used to indicate positive reaction; smaller dilation indicates a negative reaction. There has been evidence since the late 1960s to suggest that pupillary responses are correlated with people’s arousal to stimuli and perhaps even with their likes and dislikes. Eye Tracking Eye tracking asks views to look at an ad during which a sensor aims an infrared light at the eye, tracking the movement of the ad to determine the exact spot in the ad the viewer is focused on. Measures of Persuasion Measures of persuasion are used when an advertiser’s objective is to influence consumers’ attitudes toward and preference for the advertised brand. The Ipsos ASI Next*TV® Method See Previous discussion. The comScore ARS Share of Choice Method The comScore ARS is one of the most active message-testing research suppliers in the world. The company tests selling propositions, completed television commercials, and other marcom messages. Commercials are tested in varying stages of completion (i.e., rough cuts to finished form). Brand preferences are obtained before and after exposure to the programs by having subjects give preferences of products they would like to win in a drawing. The measure is the percent of respondents choosing the test product over competition after exposure to the TV material (using the same drawing example) (the postmeasure) minus the percent choosing the test product before exposure (the premeasure). Scores are predictive of actual sales performance when commercials are aired. Predictive Validity of Share of Choice Scores Table 17.2 shows the Share of Choice Scores and In-Market Results for an example test. Measures of Sales Response (Single-Source Systems) Single-source systems (SSS) have evolved to measure the effects of advertising on sales and have become possible with the advent of three technological developments: electronic television meters, optical laser scanning of universal product codes (UPC symbols), and split-cable technology. Single-source systems gather purchase data from panels of households using optical scanning equipment and merge it with household demographic characteristics and with information about causal marketing variables, such as advertisements, that influence household purchases. ACNielsen’s ScanTrack ScanTrack collects purchase data by having its thousands of panel households use handheld scanners to record purchases of every bar-coded product purchased. Panels members also use their scanners to enter any coupons used and to record all store deals and in-store features that influenced their purchasing decisions. Panel members transmit data to Nielsen every week by calling a toll-free number and holding up the scanner to the phone, which records the data via a series of electronic beeps. SymphonyIRI Group’s BehaviorScan BehaviorScan includes households in five markets around the U.S. In each market, 3,000 households are recruited to participate, and 1,000 are installed with electronic television meters to monitor television viewing. The single-source data consists of (1) household demographic information, (2) household purchase behavior, and (3) exposure to new TV commercials that are tested under real-world, or in-market, test conditions. Weight versus Copy Tests Two types of tests are offered by splitting households into test and control groups: weight tests and copy tests. A weight test transmits the identical commercial to both groups, but the number of gross rating points (GRPs), or weight, is varied between the groups. A copy test holds the amount of weight constant but varies commercial content. The Testing Procedure These are the basic steps: Select two target markets in which to conduct the test, Stock the manufacturer’s brand in all grocery stores and perhaps drug stores in these markets, Selectively broadcast a new commercial for the brand using split-cable television so half the panel members are exposed to the new commercial or to PSAsm Record electronically (via optical scanners) grocery purchases made by all panel members, and Compare the purchase behavior of the two groups. Some Major Conclusions about Television Advertising Four major conclusions can be drawn. Conclusion 1—All Commercials Are Not Created Equal: Ad Copy Must Be Distinctive First, ad copy must be distinctive in commercials. Figure 17.8 illustrates a commercial with a strong selling proposition. Evidence from Frito-Lay’s Copy Tests Evidence from Frito-Lay’s copy tests are provided. Table 17.3 shows the BehaviorScan tests of advertising effectiveness from 23 Frito-Lay brands. Conclusion 2—More Is Not Necessarily Better: Weight Is Not Enough Second, ad weight without persuasiveness is insufficient. Table 17.4 shows the relations among advertising weight, share of choice scores, and sales. Campbell Soup Company Findings Figure 17.10 shows the role of sales-effective advertising for Campbell Soup. The Relationship between Media Weight and Creative Content Further research on 47 commercials has been done in determining under what conditions advertising weight does or does not increase a brand’s sales. An important finding was that increased advertising weight led to significant increases in sales for consumers exposed to greater amounts of advertising weight only for commercials using affectively based cues. Conclusion 3—All Good Things Must End: Advertising Eventually Wears Out Third, the selling power of advertising wears out over time. Conclusion 4—Do Not Be Stubborn: Advertising Works Quickly or Not at All Fourth, advertising works quickly if it works. Chapter Features Lessons in Ad Copy Testing and Tracking: The National Youth Anti-Drug Media Campaign There are four stages in advertising research: (1) copy development, (2) rough stage, (3) copy testing, and (4) tracking. One of the best examples is the National Youth Anti-Drug Media Campaign (see Figure 17.1). The insight shares the results from the four stages of advertising research. Overall, this campaign reveals that it is important to plan carefully before launch, use control groups for tracking and copy testing, screen for affected target markets, and consider all touchpoints. Testing TV Commercials in Prefinished Form As described in Chapter 10, the creative brief is a document copywriters work from to develop a solution that will serve the interests of the client, representing an informal pact between client and advertising agency. Working from the creative brief, copywriters and other agency personnel develop two or more suitable creative executions, and it is practical and cost-efficient to test these concepts in a prefinished form. There are five prefinished forms: Storyboards—a static series of key visual frames and the corresponding script of the audio that is usually tested in focus group settings. Animatics—film or videotape of a sequence of drawings with simultaneous playing of audio to represent a proposed commercial. Photomatics—a sequence of photographs filmed or videotaped and accompanied with audio to represent a proposed commercial. Ripomatics (also called steal-o-matics)—footage is taken from existing commercials and spliced together to represent the proposed commercial. Liveamatics—a prefinished version that entails filming or videotaping live talent to represent the proposed commercial. Jack Daniels Old No. 7 and Global Ad Research Brown-Forman decided to expand internationally with its famous Jack Daniels Old No. 7 brand. To do so, they conducted focus groups and hands-on tasting research to determine the right approach for selling American whiskey in various cultures around the world. Based on the research, Jack Daniels stayed true to its roots while communicating its image in different ways in different countries. SALES PROMOTION OVERVIEW AND THE ROLE OF TRADE PROMOTIONS Chapter Objectives Understand the nature and purposes of sales promotions. Know the factors that account for the increased investment in sales promotion, especially those that are trade oriented. Recognize the tasks that promotions can and cannot accomplish. Appreciate the objectives of trade-oriented promotions and the factors critical to building a successful trade promotion program. Explain the various forms of trade allowances and the reasons for their use. Be aware of forward buying and diverting and how these practices emerge from manufacturer 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. Understand nine empirical generalizations about promotions. Chapter Overview The objective of this chapter is to provide an introduction to sales promotion’s role in the overall marcom function and to discuss trade-oriented promotions. The terms sales promotions and promotions are used interchangeably. Promotion targets include the sales force, the trade, and consumers. Expenditures on promotions have increase at the expense of advertising expenditures. Push and pull promotional activities are reviewed. Push involves a forward thrust of effort whereby manufacturers direct personal selling, trade advertising, and trade-oriented promotions to wholesales and retailers. Pull entails a backward tug from consumers to retailers, and results from advertising and consumer promotions. The reasons for the increased allocations to promotions are: (1) balance-of-power shift from manufacturers to retailers, (2) increased brand parity and price sensitivity, (3) reduced brand loyalty, (4) splintering of the mass market and reduced media effectiveness, (5) short-term orientation and corporate reward structures, and (6) consumers respond favorably to sales promotions. Promotions can accomplish many things, such as stimulating the sales force, invigorating sales of a mature brand, neutralize competitive advertising and sales promotion, etc. However, it cannot compensate for a poorly trained sales force or for a lack of advertising, give buyers any compelling long-term reason to continue purchasing a brand, or permanently stop an established brand’s declining sales trend or change the basic nonacceptance of an undesired product. The role of trade promotions is discussed, and considerable emphasis is placed on trade allowances. The major forms of trade allowances are off-invoice allowances, bill-back allowances, and slotting allowances. Off-invoice allowances are deals offered periodically to the trade that permit retailers to deduct a fixed amount from the invoice, which has resulted in some undesirable actions such as forward buying and diversion. Bill-back allowances are given to retailers for featuring a manufacturer’s brand in ads or for providing special displays. Slotting allowances are the fees manufacturers pay retailers for access to the slot, or location, in the retail system. Forward buying and diversion are problems for manufacturers, and several remedies are discussed: (1) efficient consumer response, (2) category management, (3) everyday low pricing (manufacturer), (4) pay-for-performance programs, and (5) account-specific marketing. Finally, nine generalizations about promotions are discussed: (1) temporary retail price reductions increase sales, but only in the short-term, (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, (4) retailers pass through less than 100 percent of trade deals, (5) higher market share brands are less deal elastic, (6) advertised promotions can result in increased store traffic, (7) feature advertising and displays operate synergistically to influence sales of discounted brands, (8) promotions in one product category affect sales of brands in complementary and competitive categories, and (9) the effects of promoting higher- and lower-quality brands are asymmetric. Chapter Outline Introduction The objective of this chapter and the two that follow is to provide a thorough introduction to sales promotion. This chapter focuses on trade-oriented promotions. The Nature of Sales Promotion Sales promotion, or simply promotion, refers to all promotional activities excluding the ones we’ve discussed thus far) that stimulates short-term behavioral responses from consumers, the trade, and/or the company’s sales force. Sales promotion can refer to any incentive used by manufacturers, retailers, and not-for-profits that serves to change a brand’s perceived price or value temporarily. Manufacturers use promotions to induce the trade (wholesalers, retailers, or other channel members) and/or consumers to buy a brand. Promotion Targets There are three groups targeted by sales promotional efforts. These are shown in Figure 18.1. They are manufacturer sales forces, retailers, and consumers. Increased Budgetary Allocations to Promotions Advertising spending as a percentage of total marketing communications expenditures has declined in recent years, while sales promotion spending has steadily increased. Factors Accounting for the Shift Push involves a forward thrust of effort whereby a manufacturer directs personal selling, trade advertising, and trade-oriented promotions to wholesalers and retailers. Pull entails a backward tug from consumers to retailers as a result of advertising and consumer promotion efforts the encourage consumers to prefer, at least in the short term, the manufacturer’s brand versus competitive offerings. Push and pull strategies occur simultaneously—the issue is not which strategy to use, but rather which to emphasize. Table 18.1 illustrates the differences between push and pull. Table 18.2 shows the developments underlying the growth in promotions. Balance-of-Power Shift to Retailers Until the 1980s, national manufacturers were more powerful than retailers because (1) they created consumer pull by virtue of heavy network television advertising, and (2) retailers depended on manufacturers for product research information. The balance of power began to shift when (1) network television dipped in effectiveness as an advertising medium, and (2) retailers had near immediate access to sales information through the use of optical scanners. Increased Brand Parity and Price Sensitivity As product categories have matured, most new offerings represent only slight changes from existing products. With fewer distinct product differences, consumers have grown reliant on price and price incentives as ways of differentiating parity brands. Firms have turned to sales promotion as a means of achieving temporary advantages over competitors. Reduced Brand Loyalty Consumers have become less brand loyal—increased similarity among brands facilitates switching. Marketers have trained consumers to expect at least one brand in a product category to be on deal, which refers to any form of sales promotion that delivers a price reduction to consumers. Splintering of the Mass Market and Reduced Media Effectiveness As consumer lifestyles have diversified and advertising media have narrowed in their appeal, mass-media advertising’s efficiency has weakened. Simultaneous increases in ad clutter and escalating media costs have occurred. These combined forces have influenced many brand managers to devote proportionately larger budgets to promotions at the expense of advertising. Short-Term Orientation and Corporate Reward Structures The reward structure in firms organized along brand manager lines emphasizes short-term sales responses rather than slow, long-term growth, and sales promotion is incomparable when it comes to generating quick sales response. Consumer Responsiveness Consumers respond favorably to money-saving opportunities and value-adding promotions. All promotion techniques provide consumers with rewards that encourage certain forms of behavior desired by brand managers. These rewards, or benefits, are both utilitarian and hedonic. Utilitarian, or functional, benefits are monetary savings (e.g., when using coupons), reduced search and decision costs (e.g., just buy the one with the coupon), and improved product quality, because price reductions allow consumers to buy superior brands. Hedonic, nonfunctional benefits include a sense of being a wise shopper when taking advantage of sales promotions, a need for stimulation and variety (e.g., trying brands one might not otherwise purchase), and entertainment value (e.g., participating in a contest or sweepstakes). A Consequence of the Increase: A Shift in Accounting Rules The organization responsible for establishing accounting standards in the United States—the Financial Accounting Standards Board (FASB)—reexamined how sales promotion expenditures should be handled on income statements. Historically they were treated in exactly the same fashion as advertising expenditures, namely, as current expenses that were deducted from top-line revenue. A unit of FASB called the Emerging Issues Task Force proposed new accounting regulations (EITF 00-14 and 00-25) that went into effect in 2001. These rules require that those sales promotions used as a form of price discount (e.g., off-invoice and slotting allowances directed to retailers and couponing expenditures and loyalty programs direct at consumers) must now be treated as reductions in sales revenue. Purpose of the regulation was to place all firms on equal footing in how they account for price-oriented sales promotions. The difference between the “old” and “new” procedures is in the amount recorded for the top-line revenue and has no impact on the bottom line figure. The significance of the change better reflects “true” levels of sales revenue because the old system treated the discount as revenue, which inflated the actual revenue and mislead financial analysts, stockholders, and others. Table 18.3 presents simplified income statements to illustrate the effect of this accounting change. What Are Sales Promotions’ Capabilities and Limitations? Table 18.4 summarizes what promotions can and cannot do. What Sales Promotions Can Accomplish Stimulate Sales Force Enthusiasm for a New, Improved, or Mature Product Invigorate Sales of a Mature Brand Facilitate the Introduction of New Products to the Trade Increase On- and Off-Shelf Merchandising Space Neutralize Competitive Advertising and Sales Promotions Obtain Trial Purchases from Consumers Hold Current Users by Encouraging Repeat Purchases Increase Product Usage by Loading Consumers Preempt Competition by Loading Consumers Reinforce Advertising What Promotions Cannot Accomplish Inability to Compensate for a Poorly Trained Sales Force or for a Lack of Advertising Inability to Give the Trade or Consumers Any Compelling Long-Term Reason to Continue Purchasing a Brand Inability to Permanently Stop an Established Brand’s Declining Sales Trend or Change the Basic Nonacceptance of an Undesired Product Problems with an Excessive Emphasis on Sales Promotion There are three major problems with emphasizing sales promotions too much. First it can diminish the brand’s image. Second, it can diminish brand loyalty. Third, it can reduce consumption. The Role of Trade Promotions Trade Promotions’ Scope and Objectives A manufacturer’s objectives for using trade-oriented sales promotions are to: Introduce new or revised products. Increase distribution of new packages or sizes. Build retail inventories. Maintain or increase the manufacturer’s share of shelf space. Obtain displays outside normal shelf locations. Reduce excess inventories and increase turnover. Achieve product features in retailers’ advertisements. Counter competitive activity. Sell as much as possible to the final consumer. Ingredients for a Successful Trade Promotion Program Several ingredients are necessary for a successful program including: Financial Incentive Correct Timing Trade promotions are appropriately timed when they are (1) tied in with a seasonal event during a time of growing sales, (2) paired with a consumer-orient sales promotion, or (3) used strategically to offset competitive promotional activity. Minimal Retailer’s Effort and Cost Quick Results Improve Retailer Performance Trade Allowances Trade allowances, or trade deals, are used by manufacturers, in theory, to reward wholesalers and retailers for performing activities in support of the manufacturer’s brand. By offering trade allowances, the manufacturer hopes to (1) increase sales to wholesalers and retailers, and (2) augment consumer purchases from retailers (if channel members pass on discounts). Manufacturers generally view trade promotion spending as a fair to poor value as they feel discounts are often taken by retailers rather than passed on to consumers. Major Forms of Trade Allowances Off-Invoice Allowances The most frequently used form of trade allowances. They represent a manufacturer’s temporary price reduction to the trade on a particular brand. These allowances are deals offered periodically to the trade that permit wholesalers and retailers to deduct a fixed amount from the invoice—merely by placing an order during the period which the manufacturer is “dealing” a brand. Manufacturers offer them with the expectation that retailers will buy more and pass the savings on to consumers, but retailers are typically not contractually bound to pass along discounted prices to consumers. Manufacturers estimate that retailers pass through to consumers only about one-half of trade funds that they provide to them. Bill-Back Allowances Retailers receive allowances for featuring the manufacturer’s brand in advertisements (bill-back ad allowances) or displays (bill-back display allowances). The retailer does not deduct these allowances directly from the invoice by virtue of ordering products but rather must earn the allowances by performing designated advertising or display services on behalf of the manufacturer’s brand. The retailer effectively bills (i.e., charges) the manufacturer for the services rendered. Slotting Allowances Slotting allowances are the fees manufacturers pay retailers for access to the slot, or location, that the retailer must make available in its distribution center to accommodate the manufacturer’s new brand. Retailers demand this fee of manufacturers supposedly to compensate them for added costs incurred when taking a new brand into distribution and placing it on the shelf. Large companies can afford to pay slotting allowances, but smaller manufacturers are placed at a competitive disadvantage. The Special Case of Exit Fees (Deslotting Allowances) – some retail chains charge manufacturers a fee for having unsuccessful brands removed from their distribution centers. Exit fees are contractual agreements, entered into when a new product is introduced, that stipulate the average volume of weekly product movement during a specified period that must be achieved for the manufacturer’s brand to be permitted to remain in the chain’s distribution center. Undesirable Consequences of Off-Invoice Allowances: Forward Buying and Diverting Retailers often take advantage of trade allowances without passing the savings along to the consumer. Large chains promote and sell their own private brands to satisfy the needs of price-sensitive consumers and, therefore, prefer to sell the national brands at their normal prices. A second problem is that trade allowances often induce retailers to stockpile products in order to take advantage of temporary price reductions. Forward buying and diverting are two interrelated practices. Table 18.5 illustrates forward buying and diverting. Forward Buying Also called bridge buying. During deal periods, generally available every four weeks of each business quarter, retailers buy larger quantities than needed for normal inventory and warehouse the excess volume. Retailers often purchase enough product on one deal to carry them over until the next regularly scheduled deal. The deals are typically not passed to consumers. Diverting Diverting occurs when a manufacturer restricts a deal to a limited geographical area rather than making it available nationally. Retailers buy abnormally large quantities at the deal price and then sell off, at a small profit margin, the excess quantities through food brokers in other geographical areas. Don’t Blame Retailers Retail buyers are simply taking advantage of an opportunity that is provided by manufacturers offering attractive trade deals. Efforts to Rectify Trade Allowance Problems Trade allowances spawn inefficiencies, create billions of added dollars in distribution costs, are often economically unprofitable for manufacturers, and perhaps inflate prices to consumers, for those reasons a variety of efforts have been undertaken to alter way business is conducted, especially in the grocery industry. Everyday Low Pricing (EDLP) In an attempt to break the practice of forward buying and diverting, P&G introduced everyday low prices (EDLP) or value pricing. EDLP(M) (as practiced by a manufacturer as opposed to a retailer) is a form of pricing whereby a manufacturer charges the same price for a particular brand day in and day out. Because no off-invoice allowances are offered, there is no incentive to engage in forward buying or diverting. How Has P&G Fared? P&G’s experience with EDLP(M) or value pricing over a six year period was that while market share declined an average of 18 percent, net prices increased, ad expenditures increased, and trade deals and coupon spending declined, resulting in increased profitability. What Have Other Manufacturers Done? Less powerful manufacturers have found it difficult to convert to a pure system of everyday low pricing. Three major reasons why many retailers resist manufacturers’ EDLP pricing initiatives. They have established a distribution infrastructure (e.g., storage capability) necessary to practice forward buying. There is some evidence that manufacturers benefit more from EDLP(M) than do retailers who pay EDLP(M) rather than high-low prices. EDLP(M) takes some of the excitement out of the retailing because the retailer charges the same price to consumers day after day, which precludes retailers from advertising attractive price savings. Pay-for-Performance Programs Pay-for-performance is a form of trade allowance that rewards retailers for performing the primary function that justifies a manufacturer’s offering a trade allowance—namely, selling increased quantities of the manufacturer’s brand to consumers. Rewarding Selling Rather Than Buying One form of pay-for-performance programs is called scanner-verified trade promotions or scan-downs because the retail sales volume is recorded with optical scanners. A Win-Win-Win Situation Scanner-verified programs provide an incentive to the retailer only for the items sold at discount to consumers during the agreed-upon time period. Manufacturers do not pay for allowances where no benefit is received. Consumers receive reduced prices. Scanning agents, companies such as ACNielsen and SymphonyIRI, perform the following functions: collecting scanner data from retailers, verifying the amount of product movement, paying the retailer, and collecting funds and commission for services from the manufacturer. Customizing Promotions: Account-Specific Marketing Account-specific marketing, also called co-marketing, is a descriptive term that characterizes promotional and advertising activity that a manufacturer customizes to specific retail accounts. Some Examples Examples are provided in the chapter. Generalizations about Promotions Researchers have vigorously studied the functioning and effectiveness of sales promotions, and nine empirical generalizations are noteworthy (see Table 18.6). Generalization 1: Temporary retail price reductions substantially increase sales—but only in the short-term Generalization 2: The greater the frequency of deals, the lower the height of the deal spike Generalization 3: The frequency of deals changes the consumer’s reference price Generalization 4: Retailers pass through less than 100 percent of trade deals Generalization 5: Higher-market-share brands are less deal elastic Generalization 6: Advertised promotions can result in increased store traffic Generalization 7: Feature advertising and displays operate synergistically to influence sales of discounted brands Generalization 8: Promotions in one product category affect sales of brands in complementary and competitive categories Generalization 9: The effects of promoting higher- and lower-quality brands are asymmetric Chapter Features It’s a Matter of Power—Nike Versus Foot Locker The role of sales promotions, especially trade-oriented promotions, is largely a function of the relative power between manufacturers and retailers. In the marketplace, power involves the ability of one channel member to command or control another. A major power clash between two industry giants—Nike, a manufacturer, and Foot Locker, a retailer—occurred when the CEO of Foot Locker became infuriated at Nike’s rigid terms of sale that were imposed on Foot Locker. Due to its power, Nike requires retailers to buy all types of Nike shoes, not just particular models, and permits retailers a much lower markup on their shoes in comparison with those permitted by other athletic footwear makers. An angry Foot Locker CEO announced it would cut Nike orders, and Nike responded by slashing its planned shipments to Foot Locker by 40 percent and withheld its most highly demanded shoes from being sold in Foot Locker stores. One power trumped by another! Baseball Promotions: The Good, The Bad, and The Ugly Baseball provides many examples of successful and less than successful promotions. Los Angeles Dodgers baseball organization developed a sales promotion to encourage fans to sit in the “Cheap seats” and, to pay relatively high prices for this “privilege.” To fill the 3,000 or so seats in the right-field pavilion that often sat empty, even when admission to these seats was a bargain, ($6 to $8), fans in this section were given the opportunity to eat as much food as desired at no cost. This all-you-can-eat incentive is similar to that used on cruise ships and in casinos. The incentive is working—more fans are choosing seats in the right-field pavilion, at $20 or more per seat! These fans consume on average 2.5 hot dogs, 1 bag of peanuts or popcorn, and 1 plate of nachos per game. (Drinks are self serve.) A bad promotion example is that run by MLB and True Value Hardware. Souvenir baseballs were given away but fans threw them on the field. The ugly promotional example is that of Cleveland’s Municipal Stadium. The promotion went awry with fans throwing things and running on field. Supermarket Slotting Fees Migrate to China Slotting fees have emerged in many countries. The slotting fees charged by Carrefour China received wide coverage in the Chinese media. In 2011, the Chinese government released a plan for alleviating the problem of slotting fees. It affects primarily large stores. It requires that any promotional fees be clearly stipulated in the original agreement and that non-compliant charges are forbidden. There is also a plan for executing enforcement. CONSUMER SALES PROMOTION: SAMPLING AND COUPONING Chapter Objectives Appreciate the objectives and classification of consumer-oriented sales promotions. Recognize that many forms of promotions perform different objectives for marketers. Know the role of sampling, the forms of sampling, and the trends in sampling practice. Be aware of the role of couponing, the types of coupons, and the developments in couponing practice. Understand the coupon redemption process and misredemption. Appreciate the role of promotion agencies. Chapter Overview This chapter introduces the many consumer-oriented sales promotions and covers sampling and couponing in detail. Consumer promotions can serve to gain the trade’s support, inspire the sales force, and motivate consumers to commit a trial purchase or to purchase with greater frequency and perhaps in larger quantities. The general categories of consumer promotions are: (1) generating trial purchases, (2) encouraging repeat purchases, and (3) reinforcing brand images. All promotion techniques provide consumers with rewards (i.e., utilitarian/hedonic; immediate/delayed) that encourage certain forms of desired behavior. Sampling includes any method used to deliver an actual- or trial-sized product to consumers and is the premier sales promotion device for generating trial usage. Sampling distribution methods include: (1) direct mail, (2) newspapers and magazines, (3) door-to-door sampling, (4) on- or in-pack sampling, (5) high-traffic locations and events, (6) sampling at unique venues, (7) in-store sampling, and (8) Internet sampling. Major sampling practices include targeting sample recipients, creative distribution methods, and estimating return on investment. Sampling should be used: (1) when the brand is demonstrably superior to or has distinct relative advantages over other brands, (2) when the product concept is so innovative that it is difficult to communication by advertising alone, and (3) budgets can afford to generate consumer trial quickly. Several problems associated with sampling are discussed. A coupon is a promotional device that rewards consumers for purchasing the coupon-offering brand by providing either cents-off savings or free merchandise. Coupons are distributed through freestanding inserts (FSIs) in Sunday newspapers, handouts at stores and other locations, magazine and newspapers, inside or on product packages, direct mail, and via the Internet. In addition to the face value of the coupon, other costs include: (1) distribution, (2) retailers’ handling fee, (3) misredemption, (4) internal preparation and processing costs, and (5) redemption costs. The major forms of coupons discussed are: (1) point-of-purchase coupons (instantly redeemable, shelf-delivered, and scanner-delivered coupons), (2) mail-and media-delivered coupons, (3) in- and on-pack coupons, and (4) online coupons. The redemption and misredemption processes are described. Finally, the role of promotion agencies is discussed briefly. In addition to traditional promotion agencies, there is a new generation of agencies that emphasize online promotions. Chapter Outline Introduction This chapter introduces the many consumer-oriented sales promotions. Sampling and couponing receive primary attention in this chapter, and the remaining forms are covered in subsequent chapters. Why Use Consumer Promotions? A brand manager’s objective is to get the brand adequately placed in as many retail outlets as possible, to ensure that the brand moves off the shelves with frequency sufficient to keep retailers satisfied with its performance, and to achieve the company’s profit objectives. Promotions are used because they accomplish goals that advertising by itself cannot. Consumers oftentimes need to be induced to buy now rather than later, to buy your brand rather than a competitor’s, to buy more rather than less, and to buy more frequently. Whereas advertising makes consumers aware of your brand and promotes a positive image, promotions serve to consummate the transaction. Brand Management Objectives and Consumer Rewards Brand Management Objectives The overarching objective of consumer-oriented promotes it to promote increased sales. Related to this are several sales influencing objectives: Gaining trade support for increased brand inventorying and providing superior display space. Reducing brand inventory when inventories are excessive. Providing the sales force with increased motivation to gain better brand exposure. Protecting firm’s customer base from competitive inroads. Introducing new brands to the trade and to consumers. Entering new markets with established brands. Promoting trial purchases among consumers who have never tried our brand or achieving retrial from those who have not purchased our brand for an extended period. Rewarding present customers for continuing purchases. Encouraging repeat purchasing of our brand and reinforcing brand loyalty. Enhancing our brand’s image. Increasing advertising readership. Facilitating the process of continuously expanding the list of names and addresses in our database. Three main categories of consumer behavior objectives: (1) generating trial purchases; (2) encouraging repeat purchases; and (3) reinforcing brand images. Consumer Rewards All promotion techniques provide consumers with rewards (benefits, incentives, or inducements). These rewards are both utilitarian and functional: (1) monetary savings (e.g., using coupons), (2) reduced search and decision costs (e.g., buy the one with the promotional offer and do not think about other alternatives), and (3) improved quality made possible by a price reduction that allows consumers to buy superior brands. Hedonic benefits include: (1) accomplishing a sense of being a wise shopper, (2) achieving a need for stimulation and variety, and (3) obtaining entertainment value (i.e., participating in sweepstakes or contests). Classification of Promotion Methods Consumer reward type must be considered simultaneously with marketing objectives. Table 19.1 presents a six-cell typology that classifies each technique under the specific objective it is designed to accomplish (i.e., generating trial, encouraging repeat purchases, and reinforcing brand image) and the two forms of consumer rewards (i.e., immediate and delayed). Sampling Most practitioners agree that sampling is the premier sales-promotion device for generating trial usage—possibly a necessity for truly new products. Sampling includes any method used to deliver an actual- or trial-sized product to consumers. Sampling distribution methods include: Direct mail—samples are mailed directly to targeted households. Newspapers and magazines—samples are included in magazines and newspapers. Door to door by special distribution crews—allows for considerable targeting and possesses various advantages such as lower cost and short lead times. On- or in-pack sampling—uses the package of another product to serve as the sample carrier. High-traffic locations and events—shopping centers, movie theaters, airports, or special events offer forums for sample distribution. Sampling at unique venues—choose unique locations appropriate for people at a certain stage of life, referred to as life’s “change points” (e.g., college freshmen, marriage offices). In-store sampling—demonstrators provide product samples in grocery stores and other retail outlets for trial while consumers are shopping. This is the most frequent form of sampling. Online sampling—distributing samples online (e.g., StartSampling). Major Sampling Practices Targeting Sampling Recipients Sampling services that specialize in precision distribution have emerged in recent years. Using Creative Distribution Methods Numerous creative ideas are being applied in an effort to get sample merchandise into the hands of targeted consumers (e.g., giving samples to consumers stuck in traffic, sporting events, races, and outdoor shows). Figure 19.1 illustrates how Charmin used sampling via a fleet of tractor trailers. Estimating Return on Investment Return on investment (ROI) is a tool that can be used to assess whether an investment in a sampling program is cost justified. Table 19.2 lists steps for applying an ROI analysis to a sampling investment. When Should Sampling Be Used? The following are ideal circumstances for the use of sampling new or improved products: The new or improved brand is either demonstrably superior to other brands or has distinct relative advantages over brands that it is intended to replace. The product concept is so innovative that it is difficult to communicate by advertising alone. Promotional budgets can afford to generate consumer trial quickly. Sampling Problems There are several problems with the use of sampling: Sampling is expensive. Mass mailings can be mishandled by the postal service or other distributors. Samples distributed door to door or in high-traffic locations may suffer from wasted distribution and not reach the hands of the best potential customers. In- or on-package sampling excludes consumers who do not buy the carrying brand. In-store sampling often fails to reach sufficient numbers of consumers to justify its expense. Samples may be misused by consumers (i.e., used incorrectly or for the wrong purpose). Samples distributed by mail may suffer from pilferage. Couponing A coupon is a promotional device that rewards consumers for purchasing the coupon-offering brand by providing either cents-off savings or free merchandise. Coupons are delivered through a variety of modes—newspapers, magazines, free-standing inserts, direct mail, in or on packages, online, and at point-of-purchase by package, shelf, and electronic delivery devices. Figure 19.2 is an illustration of a coupon offer. Couponing Background Approximately 305 billion coupons are distributed annually in the U.S. Nearly all CPG marketers issue coupons, but it is not restricted to packaged goods. Coupon Distribution Methods Freestanding insert (FSIs) in Sunday newspapers are the preferred distribution method. Other media for coupon distribution are handouts at stores and other locations, magazine and newspaper distribution, inside or on product packages, direct mail, and via the Internet. Cooperative coupon programs, another major trend in coupon distribution, are programs in which a service (i.e., Valassis Inserts and SmartSource) distributes coupons for a single company’s multiple brands or brands from multiple companies. Coupon Cost Critics contend that coupons are wasteful and may actually increase prices of consumer goods. The face value is the amount paid to the consumer when the coupon is redeemed at a retail-checkout along with a purchase of the brand for which the coupon is offered. Table 19.3 illustrates that the actual cost of a redeemed coupon with a face value of $1.00 is $1.64. In addition to the face value, costs include: (1) distribution and postage charges, (2) a handling fee that is paid to retailers (usually 8 cents), (3) a misredemption charge resulting from fraudulent redemptions, (4) internal preparation and processing costs, and (5) redemption costs. Coupons are extensively used because marketers have been unable to devise more effective and economical methods for accomplishing the trial-generating objectives that coupons accomplish. Is Couponing Profitable? There is evidence that those households most likely to redeem coupons are also the most likely to buy the brand in the first place. Most consumers revert to their pre-coupon brand choice immediately after redeeming a competitive brand’s coupon. Despite the increase of costs, reduction of per-unit profit margin, and the fact that most coupons are used by current brand users, competitive dynamics force companies to continue offering coupons to prevent consumers from switching to other brands that do offer coupons or other promotional deals. Table 19.4 reveals coupon redemption rates by distribution method. Point-of-Purchase Couponing Instantly Redeemable Coupons These IRCs are peelable from the package and are designed to be removed by the consumer and redeemed at checkout along with a purchase of the couponed brand. Ironically, higher-valued coupons may attract primarily current brand users who know the brand’s actual price and realize the deal, whereas potential switchers from other brands may be discouraged by a higher-valued coupon if to them it signals a high price. Shelf-Delivered Coupons Shelf-delivered coupon devices are attached to the shelf alongside coupon-sponsoring brands. Scanner-Delivered Coupons The system, provided by Catalina Marketing Network, delivers coupons based on the products and brands a shopper has purchased. Once the optical scanner records that the shopper has purchased a competitor’s brand, a coupon from the participating manufacturer is dispensed. Mobile Phone Coupons Apps allow shoppers to use smartphones to scan groceries and locate coupons. Mail- and Media-Delivered Coupons These coupon delivery modes initiate trial purchase behavior by offering consumers delayed rewards. Mail-Delivered Coupons Typically used to introduce new or improved products. Mailings can be directed at a broad cross section or targeted to specific geodemographic segments. FSIs and Other Media-Delivered Coupons FSIs have many advantages including cost, ability to act as a reminder, and the ability to act as an advertising informant. Coupons are also distributed in magazines and as part of the regular newspaper pages. In- and On-Pack Coupons In- and on-pack coupons are included either inside a product’s package or as a part of a package’s exterior. These coupons cannot be removed until it is in the shopper’s home to be redeemed on a subsequent purchase occasion. They provide consumers with a delayed reward that is designed more for encouraging repeat than trial purchases. Crossruffing is the promotion of a coupon for one brand by another brand and is designed to create trial purchase or to stimulate purchase of products that are not staple items. Package coupons have bounce-back value—an initial purchase (the bounce) may stimulate another purchase (the bounce back). The advantages of in- and on-pack coupons are: (1) virtually no distribution costs, and (2) much higher redemption rates because coupons target brand users. Limitations include: (1) delayed value to consumers (2) nonusers of the carrying brand are not reached, and (3) do not leverage trade interest due to the delayed nature of the offer. Online and Social Group Couponing Online couponing is growing in popularity as is group coupons like those offered by Groupon and Living Social. The Coupon Redemption Process and Misredemption Coupon misredemption is a problem. To understand the process view the graphic presented in Figure 19.3. The Process The process begins with a manufacturer distributing coupons to consumers via methods described previously. Consumers present coupons to a checkout clerk, who subtracts each coupon’s face value from the shopper’s total purchase cost. For the shopper to legitimately be entitled to the coupon discount, certain conditions and restrictions must be met: the shopper must buy the merchandise specified on the coupon in the size, brand, and quantity directed, only one coupon can be redeemed per item, cash may not be given for the coupon, and coupons must be redeemed before the expiration date. Retailers redeem the coupons to obtain reimbursement from the manufacturer. Retailers typically hire a clearinghouse to sort and redeem the coupons. Clearinghouses, acting on behalf of a number of retail clients, consolidate coupons before forwarding them and maintain controls by ensuring the merchandise was sold. Clearinghouses forward coupons to redemption centers, which serve as agents of the coupon-issuing manufacturers. Redemption centers pay off on all properly redeemed coupons. The retailer is reimbursed for the amount of the face value paid to the consumer and for payment of a handling charge (e.g., 8 cents per coupon). Here’s where the problem lies—an unscrupulous person could make a profit of $1.08 from a coupon with a face value of $1. The Consequences Estimates of the misredemption rate have ranged from a low of 15 percent to a high of 40 percent. The Participants Misredemption occurs at every level of the redemption process: Consumers present coupons that have expired, coupons for items not purchased, or coupons for a smaller-sized product than that specified on the coupon. Clerks take coupons to the store and exchange them for cash without making a purchase. Store management may boost profits by submitting extra coupons in addition to those redeemed legitimately. Shady clearinghouses combine illegally purchased coupons with real ones and certify that the batch is legitimate. The Role of Promotion Agencies These agencies work with brand managers in formulating promotion strategies and implementing tactical programs. The Rise of the Online Promotion Agency There is a new generation of promotion agencies that emphasizes online promotions as the Internet has become an increasingly important venue for conducting promotions. Chapter Features Groupon: A New Model for Couponing Groupon launched in November 2008. It offered deals of the day via its website. Now Groupon serves hundreds of markets in the U.S. and abroad. When a certain number of consumers sign up for an offer, the offer tips and becomes available to all. If the required number of coupons are not sold, the deal does not make. Groupon keeps part of the cost of the coupon. Groupons have been popular but the tactic is not necessarily positive for retailers. Successful deals could overwhelm small businesses. The deals attract bargain-hunters who are unlikely to be repeat visitors. Smart Sampling Machines Tell Kids to Scram iSample vending machines can detect facial age with a special camera to determine whether the person is an adult or child. This helps to ensure automatic dispensers of products aimed exclusively at adults are only tried by adults. Introducing Oreos to China Kraft Foods’ Oreo cookies are one of the most popular dessert items in America. Though Oreos are available in many countries, sales in China never achieved the volume in the United States. Chinese consumers are not big cookie eaters and Oreos were too sweet and too expensive for them. Kraft chose to reformulate Oreos to be less sweet and less expensive. The new Chinese Oreo is a chocolate-covered wafer filled with vanilla and chocolate cream. In addition to advertising, Kraft recruited and trained 300 college students as Oreo brand ambassadors who rode the streets of Beijing on bicycles and gave Oreo samples to more than 300,000 consumers. CONSUMER SALES PROMOTION: PREMIUMS AND OTHER PROMOTIONS Chapter Objectives Understand the role of premiums, the types of premiums, and the developments in premium practice. Recognize the role of price-off promotions and bonus packages. Be aware of the role of rebates and refund offers. Know the differences between sweepstakes, contests, and games, and the reasons for using each form of promotion. Understand the role of continuity promotions. Appreciate the growth of retailer-driven promotions. Evaluate the potential effectiveness of sales promotion ideas, and appraise the effectiveness of completed promotional programs. Chapter Overview The chapter covers the remaining consumer-oriented sales promotions techniques of premiums, price-off promotions, bonus packs, games, rebates and refunds, continuity programs, sweepstakes and contests, and overlay and tie-in promotions. Retailer promotions also are discussed. Techniques for evaluating sales promotion ideas and programs are provided. Premiums are articles of merchandise or services offered as a form of gift by manufacturers to induce action on the part of the sales force, trade representatives, or consumers. Price-off promotions entail a reduction in a brand’s regular price. Bonus packs are extra quantities of a product that a company gives to consumers at the regular price. Games provide consumers an instant reward and serve to encourage repeat purchasing from existing brand users. A rebate/refund refers to the practice in which manufacturers give cash discounts or reimbursements to consumers who submit proofs of purchase. These often are called phantom discounts because they stimulate consumer purchases, but most consumers do not undertake the effort to mail in rebate forms. In a sweepstakes, winners are determined purely on the basis of chance, and proofs of purchase cannot be required as a condition of entry. In a contest, the participant must act according to the rule of the contest and may or may not be required to submit proofs of purchase. Continuity programs also are referred to as “loyalty” or “point” programs and usually reward consumers’ repeat purchasing of a particular brand. An overlay, or combination, program is the simultaneous use of two or more sales promotion techniques. The simultaneous promotion of multiple brands in a single promotional effort is called a tie-in, or group, promotion. Finally, evaluating promotion ideas and completed programs are discussed. A procedure for evaluating promotion ideas includes three steps: (1) identify the objectives, (2) achieve agreement, and (3) evaluation system. Post mortem analysis includes five “E” dimensions: (1) expense, (2) efficiency, (3) execution ease, (4) equity enhancement, and (5) effectiveness. The individual evaluations can be combined into a single score by using a straightforward model that weights each of the five factors in importance and then summates the products of each factor’s score by its weight. Chapter Outline Introduction This chapter discusses major forms of consumer-oriented promotions other than sampling and couponing. Table 20.1 categorizes the major consumer-oriented promotions (this is the same table as shown in Table 19.1). Premiums Premiums are articles of merchandise or services offered as a form of gift by manufacturers to induce action on the part of the sales force, trade representatives, or consumers. Premiums are a versatile promotional tool, possessing the ability to generate trial, encourage repeat purchasing, and reinforce brand images. Free-with-Purchase Premiums Free-with-purchase premiums (also called free-gift-with-purchase premiums) are provided both by marketers of durable goods and CPG brands. They are a delayed reward to consumers that is primarily designed to generate trial purchases. Mail-In and Online Offers Mail-in offer is a premium in which consumers receive a free item from the sponsoring manufacturer in return for submitting a required number of proofs of purchase. These offers are delayed rewards designed to generate trial. Figure 20.1 shows an illustration of a mail-in premium. In-, On-, and Near-Pack Premiums In- and on-pack premiums offer a premium item inside or attached to a package or make the package itself the premium item. In general, in- and on-pack premiums offer consumers immediate value and encourage increased product consumption. Near-pack premiums provide the retail trade with specially displayed premium pieces that retailers then give to consumers who purchase the promoted product. These premiums are less expensive (additional packaging is not required), and can build sales volume in stores that put up displays and participate fully. The Special Case of “Buy X, Get 1 Free” Offers One of the most frequent promotions CPG companies use is the “Buy X, Get 1 Free” offer. For manufacturers, this type of premium serves the purpose primarily of rewarding a brand’s loyal customers or encouraging trial from purchasers of competitive brands. Self-Liquidating Offers Self-liquidating offers (known as SLOs) are named for the fact that the consumer mails in a stipulated number of proofs of purchase along with sufficient money to cover the manufacturer’s purchasing, handling, and mailing costs of the premium item. From the manufacturer’s perspective the item is cost-free or, in other words, self-liquidating. What Makes a Good Premium Offer? Good premium offers meet the requirements for good marcom strategic objectives; they match the brand’s positioning strategy, the specific objective for the promotions, the target market’s consumption interests, and stay within budget. Price-Offs Price-off promotions (also called cents-off or price packs) entail a reduction (typically ranging from 10 to 25 percent) in a brand’s regular price. They are effective when the marketer’s objectives are to: reward present brand users, get consumers to purchase larger quantities of a brand, establish a repeat purchase pattern after an initial trial, ensure that promotional dollars reach consumers, obtain off-shelf display space when such allowances are offered to retailers, and/or provide the sales force with an incentive to obtain retailer support. Although they perform multiple objectives, they are classified as primarily representing a form of immediate reward for consumers to encourage repeat purchasing. Price-offs cannot reverse a downward sales trend, produce a significant number of new users, or attract as many trial users as samples, coupons, or premium packs. Retailers often dislike price-offs because they create inventory and pricing problems, particularly when a store has a brand in inventory at both the price-off and regular prices. Federal Trade Commission Price-Off Regulations The Federal Trade Commission controls price-off labeling with the following regulations: Price-off labels may only be used on brands already in distribution with established retail prices. There is a limit of three price-off label promotions per year per brand size. There must be a hiatus period of a least 30 days between price-off label promotions on any given brand size. No more than 50 percent of the brand’s volume over a 12-month period may be generated from price-off label promotions. The manufacturer must provide materials to announce the price-off label offer. The dealer is required to show the regular shelf price in addition to the new price reflecting the price-off label savings. Bonus Packs Bonus packs are extra quantities of a product that a company gives to consumers at the regular price. They provide consumers with an immediate reward and primarily serve a repeat purchasing objective. Bonus packs are good for loading current users as a defensive tactic against aggressive competitors. Games Games represent a growing form of promotion that is being increasingly used in lieu of sweepstakes and contest. Games provide consumers an instant reward and serve primarily to encourage repeat purchasing from exiting brand users. Avoiding Snafus There have been a number of celebrated snafus in the conduct of promotional games. The chapter presents several examples. Refunds and Rebates A refund refers to the practice in which manufacturers give cash discounts or reimbursements to consumers who submit proofs of purchase. A rebate refers to a cash reimbursement for purchasing a durable good. They provide an alternative to the use of coupons and stimulate increased consumer purchasing. Rebates offer consumers delayed value because they must wait to receive reimbursement. These promotions achieve consumer-holding objectives by encouraging consumers to make multiple purchases (in the case of CPG items) or by rewarding previous users with a cash discount for again purchasing the manufacturer’s brand. Figure 20.2 illustrates a rebate offer. Phantom Discounts Rebates can be thought of as a form of phantom discount because they stimulate consumer purchases of rebated items, but many consumers never bother to redeem them. Rebate Fraud Rebate fraud may be committed by manufacturers, retailers, and consumers. Sweepstakes and Contests Sweepstakes In a sweepstakes winners are determined purely on the basis of chance—proofs of purchase cannot be required as a condition of entry. Figures 20.3 and 20.4 illustrate sweepstakes offers. Contests In a contest the consumer must act according to the rules of the contest and may or may not be required to submit proofs of purchase. Figure 20.5 illustrates contest offers. Online Sweeps and Contests Most companies now direct consumers to register online to participate in a sweepstakes or contest (games as well). They appeal to consumers and also further the interest of brands by creating awareness, building consumer interaction with the brand, and enabling the expansion of a brand’s opt-in e-mail database. Continuity Promotions Continuity promotions reward consumers’ repeat purchasing of brands by awarding points that lead to free or reduced-priced merchandise. They are also referred to as “loyalty” or “point” programs. Examples of continuity programs are frequent-flier programs and frequent-guest programs. They reward consumers for purchasing a particular brand repeatedly. Overlay and Tie-In Promotions Overlay (also called a tie-in, or group, promotion) is the simultaneous use of two or more sales promotion techniques. Tie-in is the promotion of multiple brands from the same or different companies. Overlay and tie-ins often are used together. Overlay Programs A combination of promotion tools—such as the use of a coupon offer with another promotional device—increases the likelihood that consumers will attend a promotional message and process the promotion offer. Overlay programs also equip the sales force with a strong sales program and provides the trade with an attractive incentive to purchase in larger quantities (in anticipation of enhanced consumer response) and to increase display activity. Figure 20.6 illustrates an overlay program. Tie-In Promotions Growing numbers of companies use tie-ins to generate increased sales, to stimulate trade and consumer interest, and to gain optimal use of their promotional budgets. Two or more brands from the same company (intracompany tie-ins) or from different companies (intercompany tie-ins) are involved. Figure 20.7 illustrates a tie-in promotion. Implementation Problems Promotion lead time (i.e., the amount of time required to plan and execute a promotion) is lengthened because two or more entities have to coordinate their separate promotional schedules. Creative conflicts and convoluted messages may result from each partner trying to receive primary attention for its product/service. Retailer Promotions Retailers also design promotions for their present and prospective customers. These promotions are designed for increasing store traffic, offering shoppers attractive price discounts or other deals, and building customer loyalty. Retail Coupons Some grocery retailers hold special “coupon days” when they redeem manufacturer coupons at double or even triple their face value. Retailers typically limit their double- or triple-discount offers to manufacturer coupons having face values of 50 cents or less. Frequent-Shopper Programs Frequent-shopper cards entitle shoppers to discounts on select items purchased on any particular shopping occasion. Consumers submit their frequent-shopper cards to clerks at checkout, who scan the card number and deduct savings from the shopper’s bill when discounted items are scanned. These programs provide retailers with valuable databases containing information on shopper demographics and purchase habits. Special Price Deals Many retailers use a variety of creative ways of reducing prices on a temporary basis. Samples, Premiums, and Games Retailers are sampling their own store/private label products. Stores also offer premiums to encourage purchases of select items. Evaluating Sales Promotion Ideas The combination of numerous alternatives and diverse objectives leads to a staggering array of possibilities. A Procedure for Evaluating Promotion Ideas Step 1: Identify the Objectives Step 2: Achieve Agreement Step 3: Evaluate the Idea The following five-point evaluation system can be used to rate alternative promotion idea: Is the idea a good one?—every idea should be evaluated against the promotion’s objectives. Will the promotion idea appeal to the target market?—the target market represents the benchmark against which all proposals should be judged. Is the idea unique, or is the competition doing something similar?—creativity is every bit as important to the success of promotions as it is with advertising. Is the promotion presented clearly so that the intended market will notice, comprehend, and respond positively to the promotion?—start with one fundamental premise: Most consumers are unwilling to spend much time and effort figuring how a promotion works. Is the proposed idea cost-effective?—requires an evaluation of whether or not the proposed promotion will achieve the intended objectives at an affordable cost. Postmortem Analysis It would be useful to also have a way of evaluating a promotional program after it has been implemented. The following characteristics by which to judge a completed promotional program are suggested: Expense Efficiency Execution Ease Equity Enhancement Effectiveness Combining the Individual Factors Combine the five “E” dimensions above into a single score with a summation notation weighing each of the five factors in importance and then summate the products of each factor’s score by its weight (see Table 20.2). Chapter Features Whopper Sacrifice: Is an Online Premium Worth 10 Friends? Burger King’s Whopper Sacrifice was developed by Crispin, Porter + Bogusky. To earn a whopper, participants had to defriend 10 Facebook friends to get the coupon. The app generated 25,000 coupons. The app was disabled by Facebook after a week. The promotion was perceived as a success based on the number of coupons generated and the viral distribution of the message. Barq’s Root Beer, Elvis, and Russian Knickknacks Barq’s Root Beer is a regional soft drink brand that was founded in New Orleans. In the early 1990s, Barq’s decided to promote the brand in commemoration of the 15th anniversary of Elvis Presley’s death by purchasing one of Elvis’s old Cadillac automobiles, cutting it up into thousands of pieces, and offering each piece to a different consumer as part of a mail-in premium program. Unfortunately, the $1 million licensing fee was too much for Barq’s, so the marketing VP had to scramble to find a replacement. Around this time, the Soviet government collapsed, so the premium became Soviet knick-knacks that the marketing VP was able to purchase for $70,000, some through the Soviet Mafia. The promotion was successful: sales increased 30 percent, and the mail-in premium promotion won the industry’s top award. A Super-Successful Self-Liquidating Premium Promotion To enhance their image and encourage retailers to provide display space, Nabisco used autographed baseball trading cards as a self-liquidating premium offer, or SLO. Interested consumers were required to mail in two proofs of purchases of any of several Nabisco brands along with $5 and they could pick an autographed card from a list of Hall of Fame baseball players. Consumers received cards that are now worth over six times the $5 cost. Nabisco paid the Hall of Fame baseball players $2 for each signed card for 90,000 cards per player, paying $220,000 per player. Participants received a certificate of authenticity, which adds more value to the cards. Nabisco was able to self-liquidate the cost of the promotion and to pay for the expense of distributing FSI coupons to prospective purchasers of Nabisco brands. The promotion also generated two months of special display space in retail stores. Instructor Manual for Advertising Promotion and Other Aspects of Integrated Marketing Communications Craig J. Andrews, Terence A. Shimp 9781111580216, 9788131528242, 9781133191421, 9781337282659