Marketing Communications - Chapter 15 pps

Be aware of forward buying and diverting and how these practices emerge from manufacturers’ use of off-invoice allowances.. Be aware of forward buying and diverting and how these practic

Sales Promotion and the Role

1 Understand the nature and purpose of sales

promotions

2 Know the factors that account for the increased

investment in promotions, especially those that are

trade oriented

3 Recognize the tasks that promotions can and cannot

accomplish

4 Appreciate the objectives of trade-oriented

1 Understand the nature and purpose of sales

promotions

2 Know the factors that account for the increased

investment in promotions, especially those that are

5 Comprehend the various forms of trade allowances

and the reasons for their use

6 Be aware of forward buying and diverting and how

these practices emerge from manufacturers’ use of

off-invoice allowances

7 Appreciate the role of everyday low pricing (EDLP)

and pay-for-performance programs as means of

reducing forward buying and diverting

8 Understand nine empirical generalizations about

5 Comprehend the various forms of trade allowances

and the reasons for their use

6 Be aware of forward buying and diverting and how

these practices emerge from manufacturers’ use of

off-invoice allowances

7 Appreciate the role of everyday low pricing (EDLP)

and pay-for-performance programs as means of

reducing forward buying and diverting

8 Understand nine empirical generalizations about

Chapter Objectives (cont’d)

After reading this chapter you should be able to:

Chapter Objectives (cont’d)

After reading this chapter you should be able to:

The Nature of Sales Promotion

• Sales Promotion

 Is any incentive that is additional to the basic

benefits provided by the brand and temporarily

changes its perceived price or value

behavior because it offers buyers superior value

and can make them feel better

about the buying experience

The Nature of Sales Promotion (cont’d)

• Purposes of Sales Promotion

 To induce the trade (wholesalers and

retailers) or consumers to buy a brand

 To encourage the manufacturer’s sales

force to sell a brand aggressively

 To encourage immediate, desired

shopping and purchasing behaviors

from their consumers

 To encourage people to increase their

donations to nonprofits now rather than

Brand-Level Promotion Targets

Figure 15.1

Increased Budgetary Allocations

to Promotions

• Advertising Spending

 Advertising expenditures have declined in recent

years while promotion spending has increased

Push and Pull Strategies

Table 15.1

Developments Underlying the Growth in Promotions

Table 15.2

• Shift in manufacturer versus retailer balance of power

• Increased brand parity and price sensitivity

• Reduced brand loyalty

• Splintered mass market and reduced media

A Consequence of the Increase:

New Accounting Rules

• Financial Accounting Standards Board (FASB) Emerging Issues Task Force

 Regulations EITF 00-14 and 00-25 require that price discount sales promotion—including those directed to retailers and consumers—must be treated as

reductions in sales revenue

 Adherence to the new rules will cut reported net sales for CPG companies by 8.5% on average

Illustration of “Old” and “New” Accounting Procedure

Table 15.3

Tasks That Promotions Can and Cannot Accomplish

Table 15.4

Sales Promotions Can

• 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

Tasks That Promotions Can and Cannot Accomplish (cont’d)

Table 15.4

Sales Promotions Cannot

• Compensate for a poorly trained sales force or for a lack of advertising

• Give the trade or consumers any compelling long-term reason to continue purchasing a brand

• Permanently stop an established brand’s declining sales trend or change

the basic nonacceptance of an undesired product

The Role of Trade Promotions

• Trade Promotions’ Scope and Objectives

1 Introducing new or revised products

2 Increasing distribution of new packages or sizes

3 Building retail inventories

4 Maintaining or increasing manufacturer’s share of shelf space

5 Obtaining displays outside normal shelf locations

6 Reducing excess inventories and increasing turnover

7 Achieving product features in retailers’ advertisements

8 Countering competitive activity

Ingredients for a Successful Trade Promotion Program

Correct Timing

Financial Incentive

Improved Retailer Quick

Minimize Retailer’s Effort and Cost

Illustration of Forward Buying and Diverting

Table 15.5

1 In preparation for a huge promotional event in 2009 surrounding the Cinco de Mayo celebration of Mexican independence on May 5, Beauty Products Inc.—a hypothetical

chains in the Los Angeles area This promotion is a 15 percent off-invoice allowance

on all orders placed for SynActive shampoo (a hypothetical brand) during the week beginning April 3, 2009, and extending through the week beginning April 24, 2009.

2 Assume that FB&D Supermarkets of Los Angeles (a hypothetical chain) orders 15,000 cases of SynActive—many more cases than it typically would sell in its own stores during any four-week period Beauty Products Inc has offered the 15 percent off-

invoice allowance to FB&D Supermarkets with the expectation that FB&D will reduce SynActive’s retail price to consumers by as much as 15 percent during the week of Cinco de Mayo festivities.

3 FB&D sells at the discounted price only 3,000 of the 15,000 cases purchased (The remaining cases include some that are forward bought and some that will be diverted.)

Trade Allowances

• Trade Allowances

 Are used because manufacturers hope to increase

purchases of the manufacturer’s brand by

wholesalers and/or retailers

 Augment consumers’ purchases of the

manufacturers’ brand from retailers

 Foster the expectation that retailers will pass along

their savings to consumers

Trade Allowances (cont’d)

Off-Invoice Allowances

Bill-Back Allowances

Slotting and Deslotting Allowances

Major Forms of Trade Allowances

Major Forms of Trade Allowances

Off-Invoice

Allowances

retailers to deduct a fixed amount from the invoice

Bill-Back

Allowances

manufacturer’s brand in advertisements or for providing special displays

Slotting

Allowances

slot, or location

accepted by retailers—a form of bribery? or legitimate cost of doing business?

Undesirable Consequences of Off-Invoice Allowances: Forward Buying and Diverting

Forward

Buying

over until the manufacturer’s next regularly scheduled deal

on to consumers

discounts

geographical area

resell the excess quantities in other geographical areas

Efforts to Rectify Trade Promotion Problems

Everyday Low Pricing (EDLP)

Performance

Pay-for-Account-Specific Marketing

Reducing the Negative Effects of Trade Allowances

Trade Promotion Activities

Everyday Low Pricing

(EDLP) or Value Pricing

a particular brand day in and day out

EDLP(M) • A form of pricing whereby a manufacturer

charges retailers the same price for a particular brand day in and day out.

Pay-for-Performance

Programs

supported with trade allowances rather than merely buying these brands.

the items that are sold to consumers

Scanning Agents

• Activities that scanning agents profit from:

 Collecting scanner data from retailers

 Verifying the amount of product movement that meets the manufacturer’s promotional requirements and

warrants compensation

 Paying the retailer

 Collecting funds from the manufacturer along with a commission for services rendered

Trade Promotion Activities (cont’d)

Account-Specific

Marketing

(Co-Marketing)

activities that a manufacturer customizes to specific retail accounts—local radio tie-in advertising, loyalty programs

Nine Empirical Generalizations about Promotions

Table 15.6

1 Temporary retail price reductions substantially increase sales.

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.

9 The effects of promoting higher- and lower-quality brands are asymmetric.