Reasons for Increase in “Sales Promotion”

Sales promotion is the process of persuading a potential customer to buy the product. Sales promotion is designed to be used as a short-term tactic to boost sales – it is rarely suitable as a method of building long-term customer loyalty. Some sales promotions are aimed at consumers.

(1) The Growing Power of Retailers

One reason for the increase in sales promotion is the power shift in the marketplace from manufacturers to retailers. For many years, manufacturers of national brands had the power and influence; retailers were just passive distributors of their products. Consumer-product manufacturers created consumer demand for their brands by using heavy advertising and some consumer-oriented promotions, such as samples, coupons, and premiums, and exerted pressure on retailers to carry the products. Retailers did very little research and sales analysis; they relied on manufacturers for information regarding the sales performance of individual brands.

In recent years, with the advent of optical checkout scanners and sophisticated in-store computer systems, retailers gained access to data concerning how quickly products turn over which sales promotions are working, and which products make money. Retailers use this information to analyze sales of manufacturers’ products and then demand discounts and other promotional support from manufacturers of lagging brands. Companies that fail to comply with retailers’ demands for more trade support often have their shelf space reduced or even their product dropped.

Another factor that has increased the power of retailers is the consolidation of the grocery store industry, which has resulted in larger chains with greater buying power and clout. These large chains have become accustomed to trade promotions and can pressure manufacturers to provide deals, discounts, and allowances. Consolidation has also given large retailers more money for advancing already strong private label initiatives, and sales promotion is the next step in the marketing evolution of private label brands. Private label brands in various packaged-goods categories such as foods, drugs, and health and beauty care products are giving national brands more competition for retail shelf space and increasing their own marketing, including the use of traditional sales promotion tools. Well-marketed private label products are forcing national brand leaders, as well as second-tier brands, to develop more innovative promotional programs and to be more price-competitive.

(2) Declining Brand Loyalty

Consumers have become lesser brand loyal and are purchasing more on the basis of price, value, and convenience. Some consumers are always willing to buy their preferred brand at full price without any type of promotional offer. However, many consumers are loyal coupon users and/or are conditioned to look for deals when they shop. They may switch back and forth among a set of brands they view as essentially equal. These brands are all perceived as being satisfactory and interchangeable, and consumers purchase whatever brand is on special or for which they have a coupon.

(3) Increased Promotional Sensitivity

Marketers are making greater use of sales promotion in their marketing programs because consumers respond favorably to the incentives it provides. Coupons were particularly popular among consumers, as 24 percent of the sales volume involved the use of a coupon.

An obvious reason for consumers’ increased sensitivity to sales promotion offers is that they save money. Another reason is that many purchase decisions are made at the point of purchase by consumers who are increasingly time-sensitive and facing too many choices. Some studies have found that up to 70 percent of purchase decisions are made in the store, where people are very likely to respond to promotional deals. Buying a brand that is on special or being displayed can simplify the decision-making process and solve the problem of over-choice.

(4) Brand Proliferation

A major aspect of many firms’ marketing strategies over the past decade has been the development of new products. Consumer-product companies are launching nearly 30,000 new products each year (Marketing Intelligence Service). The market has become saturated with new brands, which often lack any significant advantages that can be used as the basis of an advertising campaign. Thus, companies increasingly depend on sales promotion to encourage consumers to try these brands.

Promotions are also important in getting retailers to allocate some of their precious shelf space to new brands. The competition for shelf space for new products in stores is enormous. Supermarkets carry an average of 30,000. Retailers favor new brands with strong sales promotion support that will bring in more customers and boost their sales and profits. Many retailers require special discounts or allowances from manufacturers just to handle a new product (slotting fees or allowances).

(5) Fragmentation of the Consumer Market

As the consumer market becomes more fragmented and traditional mass-media-based advertising less effective, marketers are turning to more segmented, highly targeted approaches. Many companies are tailoring their promotional efforts to specific regional markets. Sales promotion tools have become one of the primary vehicles for doing this, through programs tied into local flavor, themes, or events.

A number of marketers are also using sales promotion techniques to target ethnic markets. Marketers are also shifting more of their promotional efforts to direct marketing, which often includes some form of sales promotion incentive. Many marketers use information they get from premium offers, trackable coupons, rebates, and sweepstakes.

The African-American market has become very important to many marketers as this segment accounts for two-thirds of the money spent by minorities in the United States and commands an estimated $572 billion in purchasing power. African-Americans represent about 13 percent (36.4 million) of the U.S. population, and nearly half belong to the middle class. ¹

(6) Short-Term Focus

Many business people believe the increase in sales promotion is motivated by marketing plans and reward systems geared to short-term performance and the immediate generation of sales volume. Some think the packaged-goods brand management system has contributed to marketers’ increased dependence on sales promotion. Brand managers use sales promotions routinely, not only to introduce new products or defend against the competition but also to meet quarterly or yearly sales and market share goals. The sales force, too, may have short-term quotas or goals to meet and may also receive requests from retailers and wholesalers for promotions. Thus, reps may pressure marketing or brand managers to use promotions to help them move the products into the retailers’ stores.

Many managers view consumer and trade promotions as the most dependable way to generate short-term sales, particularly when they are price-related. The reliance on sales promotion is particularly high in mature and slow-growth markets, where it is difficult to stimulate consumer demand through advertising. This has led to concern that managers have become too dependent on the quick sales fix that can result from a promotion and that the brand franchise may be eroded by too many deals.

(7) Increased Accountability

In addition to pressuring their marketing or brand managers and sales force to produce short-term results, many companies are demanding to know what they are getting for their promotional expenditures. Results from sales promotion programs are generally easier to measure than those from advertising. Many companies are demanding measurable, accountable ways to relate promotional expenditures to sales and profitability. For example, Kraft Foods uses computerized sales information from checkout scanners in determining compensation for marketing personnel. Part of the pay managers receive depends on the sales a promotion generates relative to its costs.

Managers who are being held accountable to produce results often use price discounts or coupons, since they produce a quick and easily measured jump in sales. It takes longer for an ad campaign to show some impact and the effects are more difficult to measure. Marketers are also feeling pressure from the trade as powerful retailers demand sales performance from their brands. Real-time data available from computerized checkout scanners make it possible for retailers to monitor promotions and track the results they generate on a daily basis.

(8) Competition

Another factor that led to the increase in sales promotion is manufacturers’ reliance on trade and consumer promotions to gain or maintain competitive advantage. The markets for many products are mature and stagnant, and it is increasingly difficult to boost sales through advertising. Exciting, breakthrough creative ideas are difficult to come by, and consumers’ attention to mass-media advertising continues to decline. Rather than allocating large amounts of money to run dull ads, many marketers have turned to sales promotion.

Many companies are tailoring their trade promotions to key retail accounts and developing strategic alliances with retailers that include both trade and consumer promotional programs. A major development in recent years is account-specific marketing (co-marketing), whereby a manufacturer collaborates with an individual retailer to create a customized promotion that accomplishes mutual objectives.

Estimates are that marketers will soon be spending more than half of their promotion budgets on account-specific marketing. A number of companies are developing promotional programs for major retail accounts such as supermarket chains, mass merchandisers, and convenience stores.

Retailers may use a promotional deal with one company as leverage to seek an equal or better deal with its competitors. Consumer and trade promotions are easily matched by competitors, and many marketers find themselves in a promotional trap where they must continue using promotions or be at a competitive disadvantage.

(9) Clutter

A promotional offer in an ad can break through the clutter that is prevalent in most media today. A premium offer may help attract consumers’ attention to an ad, as will a contest or sweepstakes. Some studies have shown that readership scores are higher for print ads with coupons than for ads without them. However, more recent studies by Starch INRA Hooper suggest that magazine ads with coupons do not generate higher readership. A recent study found that promotional messages are very prevalent in both magazine and newspaper ads, particularly the latter. Sweepstakes, games, and contests were prevalent in magazine ads, while coupons and sales offers were used the most in newspaper advertising.

\ [¹Sources: Matthew Kinsman,”Equal Opportunities,” Promo, February 2002, pp. 14-16; Lafayette Jones,”A Sign of the Times,” Promo, February 2002, pp. 16-17.]