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SALES PROMOTION OVERVIEW AND THE ROLE OF TRADE PROMOTIONS Answers to Discussion Questions The term promotional inducement has been suggested as an alternative to sales promotion. Explain why this term is more descriptive than the established one. Answer: The term aptly characterizes what trade allowances, coupons, samples, premiums and the variety of other sales promotion tools attempt to accomplish, which is, namely, to induce trade customers to resell a brand and consumers to make trial and repeat purchases of promoted brands. Describe the factors that have accounted for sales promotion’s rapid growth. Do you expect a continual increase in the use of sales promotion throughout the following decade? Answer: In short, sales promotion has grown because: (1) the balance-of-power shift from manufacturers to retailers, which has resulted in a greater focus on a push strategy rather than a consumer pull strategy, (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. Sales promotion is a proven success. Nevertheless, promotion managers have created a "monster" that is out of control. Wholesalers and retailers force manufacturers to offer continuous trade promotions. Competitive pressures force companies to use coupons and other sales promotion devices although many managers would prefer to reduce their excessive dependence on the use of these devices. Why, in your opinion, is the Internet a good medium for offering sales promotions to consumers? How has social media helped to provide sales promotions to consumers? Answer: While cases can be made either way, the Internet offers targeted marketing capabilities to offer incentives. Perhaps the most pressing argument for the Internet is that it is an active and interactive medium—users seeking product information may be highly involved and motivated, and therefore may be favorable to incentives. Also, if purchasing histories are available in databases, incentive-prone customers may be targeted. Most Internet users will also have printers, so promotions can be printed by the consumer. Sales promotions can be offered via social media as in the case of coupons and sales promoted via Twitter and other networks. Explain in your own words the meaning of push- versus pull-oriented promotional strategies. Using an illustration of a well-known supermarket brand of your choice, explain which elements of this brand’s marcom mix embody push and which embody pull. Answer: They should recognize that push strategies are trade-oriented promotional efforts, whereas pull strategies are consumer-oriented. While it is difficult to know the extent of trade-oriented promotions just from selecting a brand, students should identify advertising efforts for this brand and possibly any couponing, sweepstakes, or other promotions used in promoting this brand to consumers. Assume you are the chief marketing officer for a large, well-known CPG company (e.g., P&G, Unilever, or Johnson & Johnson). What steps might you take to restore a balance of power favoring your company in its relations with retailers? Answer: The important point for students to emphasize in responding to this question is that power is gained and lost in trade relations by building (or failing to build) brand franchises with consumers. A manufacturer’s power increases to the extent that consumers demand the manufacturer’s brand over competitive offerings. This means that manufacturers must invest heavily in image-building advertising and other forms of promotions that enable them to create meaning for their brands and strong brand franchises. Are promotions able to reverse a brand’s temporary sales decline and/or a permanent sales decline? Be specific. Answer: First, sales promotion incentives cannot make up for an inherently inferior or overpriced product. Second, sales promotion cannot permanently stop an established product’s declining sales trend because the trend could be due to poor product performance or the availability of a superior alternative. Promotions alone cannot reverse this trend. Third, sales promotion cannot change the basic nonacceptance of an undesired product because the nonacceptance invariably is due to a product’s failure to satisfy consumers’ needs and wants. Sales promotions can generate trial purchases but not compensate for a product that is inherently unacceptable. Fourth, sales promotion cannot create an image for a brand because an image is something that is nurtured through sustained advertising, favorable word of mouth, and product performance. Sales promotion can support an image, but not create one. In sum, sales promotions can reverse a temporary sales decline if the decline is due to competitive promotions, price dealings, or any factors other than basic trade or consumer nonacceptance. Sales promotion cannot reverse a permanent sales decline. How can a manufacturer’s use of trade- and consumer-oriented promotions generate enthusiasm and stimulate improved performance from the sales force? Answer: Trade- and consumer-oriented sales promotions provide the manufacturer’s sales force with the necessary tools for aggressively and enthusiastically selling to wholesale and retail buyers. In other words, salespeople have an incentive to put special selling emphasis behind a promoted brand; they are, in other words, encouraged to actively sell those brands that are being promoted. A promotion undertaken by a manufacturer also can encourage retail salespeople to devote more attention to the manufacturer’s brands. Generalization 5 in the chapter claimed that higher-market-share brands are less deal elastic. Construct a realistic example to illustrate your understanding of this empirical generalization. Answer: If students are of age, beer examples work well with this question. A price deal on a domestic super-premium (e.g., Sam Adams or another microbrewery) may be enough to get students to trade up to the better brand. However, a price deal on a sub-premium brand will probably not entice many premium drinkers to switch. Instructors can also use this question to show the role of referent prices in consumer buying decisions. Generalization 8 asserted that promotions in one product category affect sales of brands in complementary and competitive categories. Tostitos tortilla chips were used as an example of this generalization. Provide examples of two additional brands and the complementary and competitive product categories that likely would be affected by promotions for your two illustrative brands. Answer: While the brands students can select are limitless, some examples of product categories in which brands can be chosen include steak (complementary product—steak sauce; competitive product—chicken), coffee (complementary product—cream; competitive product—other beverages, such as tea), golf clubs (complementary product—golf balls, shoes, etc; competitive product—other sporting equipment, such as tennis rackets), etc. Assume you are the marketing manager of a company that manufacturers a line of paper products (tissues, napkins, etc.). Your current market share is 7 percent, and you are considering offering retailers an attractive bill-back allowance for giving your brand special display spaces. Comment on this promotion’s chances for success. Answer: It is unlikely that the trade would be very interested in this promotion. Generally speaking, display allowances are effective only for brands that have strong consumer franchises. Not being the case in this situation, the manufacturer of paper products might find some retailers accepting the display allowance but then not participating as promised, i.e., they don’t set up the display or keep it stocked properly. In your own words, explain the practices and problems of forward buying and diverting. Also, describe the advantages and disadvantages of bill-and-hold programs. Answer: Forward buying involves intentionally buying on deal merchandise to be sold beyond the deal period, often at full retail price; diverting involves purchasing abnormally large quantities at the deal price and then selling off, at a small profit margin, the excess quantities through food brokers in other geographical areas. In bill and hold programs, the manufacturer invoices (bills) the retailer as soon as the retailer places a forward-bought order but delays shipping (holds) the order until desired quantities are requested by the retailer. These types of programs help manufacturers smooth out production and shipping schedules by allowing retailers to purchase large amounts at deal prices while delaying shipments until inventory is needed. These programs do not eliminate forward buying, but the negative consequences for the manufacturer are reduced. Assume you are a buyer for a large supermarket chain and that you have been asked to speak to a group of marketing students at a nearby university. During the question-and-answer session following your comments, a student makes the following statement: “My father works for a grocery product manufacturer, and he says that slotting allowances are nothing more than a form of larceny!” How would you defend your company’s practice to this student? Answer: "Yes, you’re right. It appears that slotting allowances are a rip off. However, consider these factors: My supermarket chain receives hundreds of new-product offers every year. We want to stock new products because consumers like new products. But it’s expensive. Every time we stock a new product, we incur costs in the warehouse and in our inventory system. We would go broke if we absorbed all of these costs, so that’s why we require manufacturers to pay for stocking new products. Also, you must realize that in the supermarket industry we work on very narrow profit margins—less than 2 percent. Therefore, we have to make the best return possible on our investments in whatever ethical way we can." Explain why selling private brands often enables large retail chains to pocket trade deals instead of passing their reduced costs along to consumers in the form of lower product prices. Answer: A fraction of every supermarket’s clientele is highly price sensitive. Hence, it is necessary to offer brands in most product categories that are price specials. Large chains are able to do this by carrying private-label merchandise (e.g., Kroger Cost Cutter). By using private brands to satisfy price-conscious consumers, it is not as important that retailers also always have low-priced national brands. Small retailers, on the other hand, do not have their own private brands and must therefore pass along to consumers trade deals on national brands. In your own words, explain why EDLP(M) pricing diminishes forward buying and diverting. Can EDLP(M) be challenging to implement? Answer: Everyday low pricing substantially reduces the manufacturer’s practice of deal pricing. Deal pricing that is offered on a regular or seasonal basis encourages forward buying or bridge purchases as a means of lowering the cost of inventory. Without regular deals, the incentive for forward buying is removed. Regional deal pricing encourages overbuying by wholesalers and retailers who then ship or divert the excess inventory to regions that are not included in the regional deal pricing program. Everyday low prices remove the incentive for diverting. From your perspective, discuss how pay-for-performance programs, or scan-downs, would, if widely implemented, virtually eliminate forward buying and diverting. Answer: In a pay-for-performance program, a manufacturer puts a brand on deal and reduces the price to the retailer only for those items sold by the retailer. The sales volume is verified by scanner data. Pay-for-performance programs eliminate the practice of offering items to the trade at reduced prices, which removes retailers’ incentive to overstock inventory when items are on deal. These programs may also reduce the practice of offering regional deals, which reduces the incentive for diverting. CONSUMER SALES PROMOTION: SAMPLING AND COUPONING Answers to Discussion Questions Why are immediate (versus delayed) rewards more effective in inducing the consumer behaviors desired by a brand marketer? Use a specific, concrete illustration from your own experience to support your answer. Answer: Based on the fundamental notion that most people are hedonistic and desire immediate gratification—especially when mundane, trivial considerations are involved (such as sales promotions)—promotional inducements that provide an immediate reward stand a better chance of success than those that require the consumer to wait to receive the reward. One of the major trends in product sampling is selective sampling of targeted groups. Assume you work for a company that has just developed a new candy bar substitute that tastes almost as good as a regular candy bar but has far fewer calories. Marketing research has identified the target market as economically upscale consumers, aged primarily 25 to 54, who reside in suburban and urban areas. Explain specifically how you might selectively sample your new product to approximately two million such consumers. Answer: The most economical means would be to select zip-code areas that satisfy pre-established income requirements and then to mail samples to all households in these areas. Undoubtedly, there will be some wastage in sampling because older and younger people than the target group would receive free samples. This should pose no problem, however, since no market is ever restricted to the pre-established age range that simply serves as a rough guideline to the intended market. Other sampling opportunities would be social, professional and shopping related areas. Upscale health clubs, country clubs and specialty shopping malls would all be potential sampling opportunities. Compare and contrast sampling and media-delivered coupons in terms of objectives, consumer impact, and overall roles in marketing communications strategies. Answer: Sampling’s objective is to provide consumers with an immediate reward and therefore create subsequent trial purchases. Media- and mail-delivered coupons also attempt to create trial purchases, but the reward offered to consumers is delayed. It is for this reason that sampling is the most effective sales promotion technique for generating trial purchases. At the same time, sampling is considerably more expensive than couponing. A packaged goods company plans to introduce a new bath soap that differs from competitive soaps by virtue of a distinct new fragrance. Should sampling be used to introduce the product? Answer: There are three ideal circumstances when sampling should be used: (1) when a new or improved brand is either demonstrably superior to other brands or when it has distinct relative advantages over other products it is intended to replace; (2) when the product concept is so innovative it is difficult to communicate by advertising alone; and (3) when promotional budgets can afford to generate consumer trial quickly. It would seem that a soap that is different from competitive items merely by virtue of possessing a unique fragrance would not have to depend on sampling to create consumer trial. Creative advertising should be able to engender sufficient consumer interest in trying the new soap. Sampling would work faster in generating widespread trial purchases, but sampling is not essential in this situation. Ultimately, the value of quick sales would have to be evaluated against the large expenses that would be incurred if sampling were undertaken. A manufacturer of golf balls introduced a new brand that supposedly delivered greater distance than competitively priced balls. However, in accordance with restrictions established by the governing body that regulates balls and other golfing equipment and accessories, this new ball when struck by a driver travels on average only a couple of yards further than competitive brands. The manufacturer identified a list of two million golfers and mailed a single golf ball to each. In view of what you have learned about sampling in this chapter, comment on the advisability of this sampling program. Answer: The manufacturer has made the following potential errors in the promotion. First, the two million golfers were not targeted by any product benefit. There is no way to tell if the added few yards will appeal to them, or in the terms of the chapter, demonstrate the product’s distinct relative advantages. Second, apparently no overt positioning efforts were made to help players make comparisons to competitive offerings. Third, advertising may be more effective given that potential prospects should be knowledgeable about golf and product advantages and many targeted media exist for golfers (e.g., POS in pro shops, golfing magazines and cable TV channels). However, the mailer will enable quick trial of the product. Present your personal views concerning the number of coupons distributed annually in the United States. Is widespread couponing in the best interest of consumers? Answer: The number of coupons distributed annually in the United States reflects a significant aspect of consumer behavior and marketing strategies. From a consumer perspective, widespread couponing can offer several benefits: 1. Cost Savings: Coupons enable consumers to save money on their purchases, allowing them to stretch their budgets further and afford products they may not have purchased at full price. 2. Access to Discounts: Coupons provide consumers with access to discounts and special offers, making products more affordable and accessible, particularly for lower-income households. 3. Trial of New Products: Coupons often encourage consumers to try new products or brands by reducing the financial risk associated with experimentation. This can lead to greater product discovery and satisfaction. 4. Incentive for Loyalty: Coupons can incentivize repeat purchases and brand loyalty by rewarding customers with discounts or rewards for their continued patronage. However, the widespread distribution of coupons also has some potential drawbacks: 1. Environmental Impact: The production and distribution of paper coupons can contribute to environmental waste, particularly if coupons are discarded without being redeemed. 2. Brand Dilution: Overuse of coupons can diminish the perceived value of a brand and erode brand equity if consumers come to expect discounts as the norm rather than as occasional promotions. 3. Impact on Profit Margins: Offering frequent discounts through coupons can reduce profit margins for retailers and manufacturers, potentially impacting their ability to invest in product innovation or quality improvement. 4. Consumer Behavior: Excessive couponing may encourage consumers to make impulsive or unnecessary purchases simply because of the perceived savings, leading to overconsumption or financial strain in the long run. Ultimately, whether widespread couponing is in the best interest of consumers depends on individual preferences, financial situations, and shopping habits. While coupons can provide tangible benefits in terms of cost savings and access to discounts, consumers should also be mindful of their overall spending patterns and consider whether their purchases align with their needs and priorities. Additionally, businesses should carefully balance the use of coupons as a marketing tool to attract and retain customers while ensuring long-term profitability and brand integrity. Rather than offering discounts in the form of coupons, why don’t brand managers simply reduce the prices of their brands? Answer: Price-offs temporarily reduce the price of a brand without a coupon, and the FTC has several regulations regarding their use, one of which limits the number of price-offs a brand can use per year. Thus, coupons are used in place of this technique. Also, consumers receive rewards (primarily utilitarian) when using coupons, and these rewards may be more effective and efficient in generating trial or repeat purchases than a lower, everyday price. As noted above, everyone experiences a price reduction when prices are reduced, but only those consumers redeeming coupons experience a price reduction. Using Table 19.3 as a rough guide, calculate the full cost per redeemed coupon given the following facts: (1) face value = 75 cents; (2) 20 million coupons distributed at $7 per thousand; (3) redemption rate = 3 percent; (4) handling cost = 8 cents; and (5) misredemption rate = 5 percent. Answer:
a) Distribution costs $140,000
b) Redemption rate (3%) Redeemed coupons: 600,000
c) Redemption costs (600,000 @ $.75) $450,000
d) Handling costs (600,000 @ $.08) $48,000
e) Total program costs (a+c+d) $638,000
f) Cost per redeemed coupon ($638,000/600,000) $1.06
g) Actual product sold on redemption (5% misredemption) Coupons: 570,000
h) Actual cost per redeemed coupon ($638,000/570,000) $1.12
Go through a Sunday newspaper and select three FSIs. Analyze each in terms of what you think are the marketer’s objectives in using this particular promotion. Do not restrict your chosen FSIs to just those offering coupons. Answer: While students’ examples will vary, they should indicate an understanding of the three general categories of objectives for using consumer promotions: (1) generating trial purchases, (2) encouraging repeat purchases, and (3) reinforcing brand images. Table 19.1 provides a typology of these objectives and consumer needs and indicates the specific promotion technique appropriate for a given situation. I can provide an analysis of three types of Free Standing Inserts (FSIs) that marketers might use and their potential objectives: 1. Product Sampling FSI: Objective: The marketer's objective in using a product sampling FSI is to introduce consumers to a new product or encourage trial of an existing product. By including a sample of the product within the FSI, the marketer aims to create awareness, generate interest, and ultimately drive purchase among consumers who may be hesitant to buy without trying first. Analysis: This type of FSI is particularly effective for products where sensory experience or product performance is critical to consumer decision-making, such as food, beverages, and personal care items. The inclusion of a sample incentivizes consumers to try the product risk-free, potentially leading to future purchases if they enjoy the experience. 2. Informational FSI: Objective: The marketer's objective in using an informational FSI is to educate consumers about a product, service, or promotion. These FSIs typically include detailed product descriptions, benefits, features, usage instructions, and promotional offers to inform and persuade consumers to make a purchase. Analysis: Informational FSIs are effective for products that require explanation or demonstration to convey their value proposition effectively. For example, complex or technical products like electronics or appliances may benefit from detailed information to help consumers understand their functionality and benefits. Additionally, informational FSIs can be used to highlight special promotions, discounts, or limited-time offers to drive immediate action from consumers. 3. Brand Awareness FSI: Objective: The marketer's objective in using a brand awareness FSI is to build and reinforce brand awareness and identity among consumers. These FSIs typically feature eye-catching visuals, brand logos, slogans, and messaging to create a memorable and impactful impression on consumers. Analysis: Brand awareness FSIs are effective for established brands looking to maintain top-of-mind awareness and differentiate themselves from competitors. They can be used to showcase the brand's unique selling propositions, values, and personality to resonate with target consumers. By consistently featuring the brand prominently in FSIs, marketers aim to strengthen brand recognition and loyalty over time. In summary, FSIs serve various objectives depending on the marketer's goals and the nature of the product or service being promoted. Whether it's driving trial, providing information, or building brand awareness, FSIs can be an effective marketing tool to reach and engage consumers through print media channels like newspapers. Assume you are the brand manager of Mountain State Bottled Water. This new brand competes in a product category with several well-known brands. Your marketing communications objective is to generate trial purchases among predominantly younger and better-educated consumers. Propose a promotion that would accomplish this objective. Assume that your promotion is purely experimental and that it will be undertaken in a small city of only 250,000 people. Also assume that (1) you cannot afford product sampling, (2) you will not advertise the promotion, and (3) your budget for this experimental promotion is $5,000. What would you do? Answer: The two main consumer-oriented promotions discussed in this chapter are sampling and couponing. Sampling should not be considered because of the first assumption, so that leaves couponing as an option. However, a budget of $5,000 is not nearly adequate to use the tradition methods of distributing coupons. However, online couponing is inexpensive and could possibly be an alternative. Describe your recent experience with either group coupons (e.g., Groupon, Living Social) or mobile phone coupons. Have these technological changes helped spark your interest in couponing? The brands or services purchased? Discuss any problems experienced with the new methods. Answer: Students may express having tried more brands because of the coupons. Some may have experienced issues with expiration dates and other problems. I can provide a general perspective on group coupons and mobile phone coupons based on trends and feedback. Group coupons platforms like Groupon and Living Social have revolutionized the way consumers access discounts and special deals. While I haven't used these platforms personally, I've observed that they offer a wide range of discounted products, services, and experiences, from dining and entertainment to travel and wellness services. One advantage of group coupons is their convenience and accessibility through mobile apps. Users can easily browse and purchase deals on their smartphones, making it convenient to redeem offers while on the go. Additionally, the variety of deals available can spark interest in trying new products or services that one might not have considered otherwise. Similarly, mobile phone coupons, which are digital coupons that can be accessed and redeemed directly from a smartphone, offer convenience and flexibility. I've noticed that many retailers and brands now offer mobile coupons as part of their marketing strategies, allowing consumers to save money and access discounts with just a few taps on their phone. These technological changes have certainly made couponing more appealing and accessible to a broader audience. However, there can be some challenges or problems associated with these methods: 1. Limited Availability: Some users may find that the deals offered on group coupon platforms are limited to specific locations or time periods, limiting their applicability. 2. Expiration Dates: Coupons often come with expiration dates, and users may forget to redeem them before they expire, leading to missed savings opportunities. 3. Fine Print: Users should carefully read the terms and conditions of coupons to ensure they understand any restrictions or limitations, such as blackout dates or minimum purchase requirements. 4. Overbuying: The lure of discounts may tempt users to purchase more than they need or can realistically use, leading to overspending or wasted purchases. Overall, while group coupons and mobile phone coupons offer compelling benefits and opportunities for savings, users should exercise caution and mindfulness to ensure they maximize the value of these offers without falling into common pitfalls. A concluding section of this chapter indicated that promotion agencies have become an increasingly important resource for brand managers in planning and executing promotional programs. One could argue that the fees brand managers pay for the services of promotion agencies might better be spent elsewhere—for example, on increased advertising levels. Present arguments both in favor of and in opposition to hiring promotion agencies. Answer: Pro: Poorly managed promotions can have serious downsides. First, along with the cost of implementing the promotion, the rebates or price concessions also come right off the bottom line. Therefore promotions have financial risk. Second, the price/quality relationship can be altered by a promotion’s deal size and duration resulting in potential harm to the brand’s image. Third, poorly managed promotions can damage trade and channel relationships by causing inventory problems (overstocks for low-demand promotions or out-of-stocks for high demand promotions), and customer problems (e.g., anger at retailer for a manufacturer’s promotional mistakes). Fourth, successful promotions require targeting appropriate consumers and if potential consumers either are not made aware of the promotion or misunderstand the promotion, then the brand may be damaged. Finally, just as ad agencies can bring creative expertise to creating advertising messages, promotional agencies can bring creativity to promotions beyond price reductions in areas such as the choice of rewards, timing of rewards, and the actions required by customers to obtain rewards. Con: The majority of promotions are trade promotions, and most businesses should have a good idea of how to encourage channel members and also have a relatively small number to deal with. This should be particularly true with firms having large sales forces that are out in the field with customers. Solution Manual for Advertising Promotion and Other Aspects of Integrated Marketing Communications Craig J. Andrews, Terence A. Shimp 9781111580216, 9788131528242, 9781133191421, 9781337282659
