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A marketing report: Does excessive sales promotion result in dilution of brand equity? Group 4 Amandeep Singh Gandhi Chetna Kirtan Acharya Murthy BBTGS Ravish Malik Sirish CP Vivek Singh Contents What is sales promotion? Why is it required? Decisions involved in sales promotion Types of sales promotion Sales promotion to be used at different stages of the product lifecycle Direct and interactive marketing A special case: Intrusive sales promotion Conclusion What is Sales Promotion? Sales promotion is an incentive given to the consumer to buy the company’s products or services.
Although some sales promotions can be continuous (frequent flier miles), most of such programs are short-term. They are usually used to cash in on a particular season or festival. Sales promotions sometimes can be a better choice compared to advertising when the customer base is small and geographically distributed. Marketers have found that in the information world where the customers are continuously bombarded with nearly infinite amount of messages, advertising alone is not enough. To meet their sales they must use additional promotional methods in addition to advertising.
Also, the high cost of advertising may cause marketers to seek alternative, lower cost promotional techniques to meet their goals. This role is fulfilled by sales promotion. In this report, we will talk about the importance of sales promotions and the different types of sales promotions. We will explore the various options available to us other than sales promotion. Different types of sales promotions are most effective depending on the stage of the product life cycle. We will thus look at the options which the marketer should follow to get maximum benefit out of the promotion campaign.
Before reaching a definite answer, we will also need to look at some of the possible negative effects of sales promotion. By exploring all these areas, we feel that we will be able to answer the question as to whether excessive sales promotion can dilute the brand equity. Why is sales promotion required? Sales promotion is important due to many reasons. It fulfils many important objectives. Sales promotions often attract brand switchers, who are primarily looking for a lower price, an add-on value, or free trials before buying a new brand.
Moreover sales promotions benefit both the manufacturers and consumers. Some of the service firms also use promotions to attract new customers and establish loyalty. The major objectives of sales promotion can be specified as follows:- Building Product Awareness ??? Whenever a new product is introduced in the market, customers need to be made aware of the product as soon as possible and in as many numbers as possible. Many sales promotion techniques are highly effective in exposing customers to products for the first time.
During such promotional campaigns, an effort can also be made to capture customer information which can be used in the future to contact customers. Creating interest – Sales promotion can be used as a tool to create interest about the product in the minds of consumers. For example in Mumbai, between Bandra and Mahim, there is a small stretch of space where many sales promotions campaigns have taken place. These include huge floats and sets which make the customer curious. Once they had a big air-filled balloon in the shape of a 7-Up can. Another instance was when they built a mock up set of the show Kaun Banega Crorepati.
This creates a memorable impression in the minds of the customers and attracts them towards the product or the service. Likewise, in the retail industry an appealing sales promotion can significantly increase customer traffic to retail outlets. Here, creating interest is nothing but giving the consumer first experience of the product. To do this marketers sometimes tend to give commodities for free, during the initial period. Giving a shampoo packet with the daily newspaper can be considered as a sales promotion intended to create interest about the shampoo.
Providing information – Some of the sales promotions can be intended to provide the necessary information to the consumers. For example, providing details about the various travel packages available by travel sites like MakeMyTrip. com or TravelGuru. com through email to the people is nothing but sales promotions. The additional information about various mutual funds, various insurance policies given by the companies through any form of media can be considered as a sales promotion. This is where the companies need to draw a line.
As the article says, the company needs to inform the customer to the intangible benefits of buying a certain policy, not just the monetary savings he will make by using the policy. Stimulating Demand – Apart from building initial product awareness, another important use of sales promotion is to build demand by convincing customers to make a purchase. Special promotions, especially those that lower the cost to the customer can be employed to stimulate sales. Sales promotion can be used as a tool to help consumer in making a choice between two similar commodities.
For example if there are no points of difference for two commodities, then sales promotion helps consumer to make choice between the two commodities. Reinforcing the Brand ??? Once customers have made a purchase, sales promotion can be used to both encourage additional purchasing and also as a reward for purchase loyalty. Loyalty programs may include price discounts, free products etc. Many companies, including airlines and retail stores, reward good or “preferred” customers with special promotions, such as email “special deals” and surprise price reductions at the cash register. Decisions involved in sales promotion
According to Kotler, before implementing any sales promotion program, the company needs to find out first the objective of the sales promotion. As we have discussed earlier, a company may have many options like to increase the awareness, stimulate sales etc. Then the company needs to decide the proper tools to plan and implement the promotion campaign. After planning out the strategy, the company should first pre-test the promotion plan, and if successful implement it on a full scale. The last stage would be to evaluate the program which would give the company an idea about the effectiveness of the program.
The major decisions involved in sales promotion of a company are ascertain the objectives, choose the tools, develop the program, pre-test the program, implement and control the program, evaluate the program. Ascertain the objectives – Sales promotion objectives can be classified into three types – objectives for consumers, objectives for retailers, objectives for the sales force. For consumers, objectives can be attracting consumers away from the competitor’s brands, encouraging them to make more purchases and have more trials.
For retailers, objectives include convincing retailers to keep more inventories, to carry new items, encouraging off-season buying, encouraging stocking of corresponding items, building brand loyalty and gaining entry into new retail outlets. For the sales force the main objective is to increase the sales by encouraging consumer to buy new products and by encouraging consumers for off-season sales. Choose the tools ??? The company has to take care while choosing the tools. The tools for sales promotion are consumer promotion tools, trade promotion tools, sales force promotion tools.
Major consumer promotion tools can be giving samples & coupons, providing rebates, cash refund offers, offering price packs, offering premiums, providing rewards to more frequent consumers, giving prizes, giving awards, allocating free trials, giving warranties, encouraging tie-in-promotions, encouraging cross-promotions and Point-of-Purchase displays. The main aim of the consumer promotion tools is to build the consumer franchise and to build the brand loyalty. Major trade promotion tools include straight discounts, allowances and free goods. The trade promotional tools are mainly aimed at attracting retailers.
Major business and sales force promotion tools include trade shows & conventions, sales contests and speciality advertising. These tools are used to gather business leads, impress and reward customers, and motivate the sales force to greater effort. Develop the Program – Now once the company establishes its objectives and selects the tools, it has to develop a program to promote sales. This program has to be developed keeping budget and duration in mind. If program development takes much time, then consumer may lose interest in the product and if program budget is more, then the manufacturer may end up in losses.
So marketers should determine the total sales promotion budget and program has to be developed within the budget. Pre-test the program – Pre-tests can determine the appropriateness of tools, whether the incentive size optimal and whether the presentation method efficient. For knowing this consumer can be asked to rate or rank different possible deals or trial tests can be run in limited geographic areas. Implement and control the program – Marketers should keep lead time and sell-in-time in mind while preparing implementation and control plans. Lead time is the time necessary to prepare the program prior to launching it.
Initial planning, design, approval of package modifications, material to be mailed or distributed, advertising, notification of field sales personnel, allocation for individual distributors, offering special premiums, production of advance inventories and distribution to retailer will come under lead time preparations. Sell-in-time begins with the promotional launch and ends when approximately 95% of the deal merchandise is in the hands of consumers. Evaluate the program – Managers can evaluate the program using three methods: sales data, consumer surveys and experiments. Certain promotions may not be favourable to the retailers & consumers.
Evaluation is the right tool to find this out and helps in re modification of the sales promotion program. There should be constant evaluation on the sales promotions and this in turn will help in promoting sales effectively and generates large revenues for the company. Types of sales promotion After looking at the steps which a company has to take in deciding and implementing a promotion strategy, we now look at the different ways in which a company can do sales promotion. We find that a company is spoiled for choice due to the many options available to it. Here we evaluate a few of them by providing examples.
Coupons ??? Coupons are a very popular way for companies to promote the sales of their products. Coupons are almost always time-bound and this puts a time limit on the customers before which they have to buy the product to enjoy the discount. Companies can use this to sell off their stock by a given date. A very successful example of using coupons is being used by regional newspapers in South Gujarat. Divya Bhaskar was one such company who followed this strategy. Being a new entrant in the market, it offered small cut-out coupons in the newspaper which the reader had to cut and keep.
At the end of the month, the reader could submit all the coupons at the local newspaper dealership to get a free gift like a glass set. This led to a rapid increase in the circulation of the newspaper in a very short time and the paper could compete effectively with other newspapers in the region. Rebates ??? A rebate is when the customer buys a product and he is promised a lesser price the next time. Usually to qualify for a rebate, the customer has to share his name and contact information to the company. Sales ??? Sales are a very popular tool especially in India to attract customers.
Housewives are known to spend a large amount of money in sarees and dresses whenever a sale is on. In India, sales discounts have proven to be a foolproof way to ‘get rid of’ of unsold stock and providing more space for new designs or other popular products. Exchange offers ??? Exchange offers are a way to get customers to trade in their old products and buy news ones at a small discount. This has been popular in India in the late 90s in the consumer electronics segment. Akai was a company which marketed its TVs and music systems at the lowest cost and aggressively offered exchange programs.
The program proved to be a huge success in the initial stages. However, in the long run the company failed because of the low quality of its products. The same strategy was followed by companies manufacturing washing machines and the like. Even then we feel that exchange offers do not have much of a negative effect. The customer is getting a discount on a new product and the company is helping the customer to get rid of an old product. Therefore exchange offers can prove to be a very effective tool of sales promotion. Loyalty programs ??? Through loyalty programs, customers are rewarded for sticking to one brand.
Such loyalty programs are popular in the airline industry. Frequent flier programs of an airline reward customers based on the distance flown in that airline. The ‘miles’ earned can be redeemed by the customer for free tickets, special facilities at airport lounges, discounts at hotels. To further this strategy, banks tie up with airlines and hotels to provide frequent flier miles if the customer uses the credit card for buying or by staying in certain hotels. Not only airlines, even book stores offer cards which can be used to accrue points on book purchases. Crossword is one such book store chain which provides such a service.
Promotional Pricing – One of the most powerful sales promotion techniques is the short-term price reduction or, as known in some areas, “on sale” pricing. Lowering a product’s selling price can have an immediate impact on demand, though marketers must exercise caution since the frequent use of this technique can lead customers to anticipate the reduction and, consequently, withhold purchase until the price reduction occurs again. An example of this was the Rs5 bottles introduced by Coca Cola and Pepsi. But promotional prices focuses on the Price P of the marketing mix more than the Promotion P.
So we don’t discuss it in much detail here. Samples and free trials ??? Samples and free trials are used by companies to attract customer especially during the introduction phase. This kind of strategy is a common way to promote cosmetics like shampoos, beauty cream etc. Free Product – The free product may be in the form of additional quantities of the same purchased product (e. g. , buy one, get one free) or specialty packages (e. g. , value pack) that offer more quantity for the same price as regular packaging. Premiums – Another form of sales promotion involving free merchandise is premium or “give-away” items.
Premiums differ from samples and free product in that these often do not consist of the actual product, though there is often some connection. For example, how Reliance gives away handsets for the people who take a connection with Reliance Contests and sweepstakes – Consumers are often attracted to promotions where the potential value obtained is very high. In these promotions only a few lucky consumers receive the value offered in the promotion. Two types of promotions that offer high value are contests and sweepstakes. Contests are special promotions awarding value to winners based on skills they demonstrate compared to others.
For instance, play Sudoku and you could win prizes in the contest organised by Times of India Sweepstakes or drawings are not skill based but rather based on luck. Winners are determined by random selection. For example Readers Digest keeps very frequent Sweepstakes contest for those who purchase the promotional books or CDs it offers. Demonstrations – Many products benefit from customers being shown how products are used through a demonstration. Whether the demonstration is experienced in-person or via video form, such as over the Internet, this promotional technique can produce highly effective results.
Unfortunately, demonstrations are very expensive to produce. Costs involved in demonstrations include paying for the expense of the demonstrator, which can be high if the demonstrator is well-known (e. g. , nationally known chef), and also paying for the space where the demonstration is given. These are common for cosmetic products or for kitchen appliances and tools like mixers and grinders, knives, cutlery, etc. Personal Appearances – An in-person appearance by someone of interest to the target market, such as an author, sports figure or celebrity, is another orm of sales promotion capable of generating customer traffic to a physical location. However, as with demonstrations, personal appearance promotion can be expensive since the marketer normally must pay a fee for the person to appear. Bollywood personalities such as Aamir Khan and Kareena Kapoor are brand ambassadors for Titan. Also authors are frequently called in to sign their books in certain bookstores to promote the book. Extent of usage of a particular Sales Promotion There are many ways to boost sales through Sales Promotions, but these methods must have some extent after which these promotions dilute the brand equity of the product.
Coupons and Rebates:- The extent of usage of these sales promotions should be limited to either when the product is newly introduced in the market as in the case of “Introductory Offers” for a short period of time or should be done seasonally as seen in the case of “Off Season Sales” to increase volumes of sales when the sales volumes are bound to fall. Example Rebates given on woollen clothing that has not been sold at the end of the winter season. Also there are discounts on Air Conditioners during winters when the sales of the product drop. These can be used as a tool to keep the volumes of sales from dropping too drastically.
The negative effect of this is seen in the case of brands like “Koutons” where the company knows that the product will lose its value is the discounts are removed. Also excessive sales discounts have caused the customer to lose the excitement about the product itself, making it lose its brand value. Loyalty Programs and Premiums:- These programs are used to increase the loyalty of the customer to a particular brand Example Big Bazaar combining their offer with banks like ICICI Bank like the “Shakti Credit Card” which is exclusively for housewives.
Also there are some club membership cards like Westside offers “Club West” membership card which provides points and special discounts to regular customers. These sort of sales promotions can be pushed to a large extent as these increase the loyalty of the customer towards the brand. Demonstrations, Contests and Sweepstakes:- These programs can be used intermittently between normal sales to keep the excitement about the products and brands. Hypermarts to maintain the excitement about the place conduct sudden discount offers. Example:- Westside offers sudden discounts on particular product whose sales seem to be reducing to produce ultiple effects like boosting sales for a very short period of time and also keeping the excitement about the place in the minds of the customers. This helps in improving customer experience about the place. Thus these can be pushed intermittently but not all the time as it will tend to make the event too common that it loses essence. Free Products:-This sort of sales promotion is preferred only as an introductory offer. This sort of sales promotion is a huge cost to the company and hence if pushed too much can cause damage to the company profits.
Example KFC offers Free Food to al its customers on the first day of the opening of their new store inviting people in the locality to taste the Fried Chicken they are offering. This in turn pushes the people to try out the food and if they like the product, they will visit the outlet again thus pushing sales up. Personal Appearances:- This form of sales promotion should be pushed only to a moderate extent as this also has a huge cost to the company. Film stars who have been put in as brand ambassadors, charge huge sums of money from the company to make appearances in front of people.
This in turn pushes costs to a high extent. Thus this also should be used intermittently to maintain the excitement about the product among the people. Example Yamaha used John Abraham to endorse its brands. To push its sales John Abraham made appearances in its events and promotions to push the levels of excitement among the people. But doing such a promotion in excess would push the costs of the product up. So a moderate mix of such a sales promotion with advertising would be more preferable than just sales promotion.
After analyzing the various options available, we came up with a table which shows the different levels to which a company can indulge in a certain type of sales promotion and not affect the brand equity of the product or the service to a major extent. LowMediumHigh Sales Contests and sweepstakes Samples & free trials Free productsCoupons Personal appearances Promotional pricing (short term) Premium DemonstrationsRebates Exchange offers Loyalty programs Table 1: Levels of sales promotion Types of promotions used at each stage of product life cycle The major stages in a product life cycle are introduction, growth, mature and decline.
We will see what promotion can do at that stage? And which type of promotion can be used? Introduction stage – When the product is introduced, sales will be low until customers become aware of the product and its benefits. So during the introduction stage, the primary goal is to establish a market and build primary demand for the product class. In this stage promotion is mainly used to create brand awareness. Samples, trial incentives, introductory promotions can be used at this stage. New products such as soaps, detergents, cosmetics, tea, etc can be introduced by giving free samples.
Growth stage – The growth stage is a period of rapid revenue growth. Sales increase as more customers become aware of the product and its benefits and additional market segments are targeted. During the growth stage, the goal is to gain consumer preference and increase sales. Now as brand awareness is already created, we have to increase the brand preference, which can be done using increased advertising. Mature stage – The maturity stage is the most profitable. While sales continue to increase into this stage, they do so at a slower pace. Because brand awareness is strong, advertising expenditures will be reduced.
At this stage firm places effort into encouraging competitors’ customers to switch, increasing usage per customer, and converting non-users into customers. Promotions which emphasize on brand differentiation and building of brand loyalty have to be used at this stage. Incentives have to be given to get competitors’ customers to switch. Sales promotions may also be offered to encourage retailers to give the product more shelf space over competing products. Decline stage – Eventually sales begin to decline as the market becomes saturated, the product becomes technologically obsolete, or customer tastes change.
If the product has developed brand loyalty, the profitability may be maintained longer. At this stage promotions should aim at reinforcing the brand image for continued products. Direct and Interactive Marketing After looking at some of the various sales promotions, we look at other techniques indulged in by marketers to promote their product. Unlike the above techniques, the following have more of a negative effect on the consumer. These include direct mail marketing, catalog marketing and telemarketing.
The last of these has reached to such a level that it has caused the government to implement laws restricting or prohibiting such kind of promotions. 1. Direct Marketing ???Direct Mail Marketing ???Catalog Marketing ???Telemarketing ???Direct Response Marketing 2. Interactive Marketing Direct Marketing is to use various channels to reach the consumer directly without any middlemen. The current scenario has seen a drastic increase in the direct marketing activities as more and more customers are time starved and are unable to go to various stores to check out the newest innovations and schemes available to them.
Direct marketers buy mailing lists, containing the relevant customer details. But this sort of marketing activity must be timed rightly to reach the prospect at the right moment and thus receive a better response from the prospect customer. Under this category of marketing we have Direct Mail Marketing which involves sending offers, announcements, reminders etc to the customer. Direct mail marketing involves usage of both conventional mailing system and also the e-mail to target their customer. Companies like Pizza Hut, Dominoes pizza create their database of customers from their responses when they visit their outlets.
These companies use direct mail marketing techniques to increase the frequency of visits of the customers. This is done done by sending birthday cards with discount. Direct mail marketing has evolved from “Carpet Bombing” which involved sending mails to all possible customers to personalized marketing and lifetime value marketing which involve building long term relations with the customers Catalog Marketing involves sending the customer in print form or in form of a CD, the whole line of products offered by the companies. In India, websites publish e-catalogs. Example Indiainfo. om has such e-catalogs providing a range of products to the customer. Alibaba. com is the site which contains a whole range of products required by industries such as heat exchangers, pipes etc. Telemarketing has become a very popular means to reach to the customer nowadays. Companies buy lists containing details from the local telecom operators and use this to market their new products and schemes to gain prospective customers. Example Banks like ICICI Bank, HDFC Bank use this form of sales marketing activity to reach its customers, it provides information about “Free Credit Cards”, “Pre-approved Loans”, “Home Loans”, “Car Loans” etc.
But recently there have been cases where customers have filed cases against these companies against breach of right of privacy. Direct Response Marketing – This form of direct sales marketing is done with the use of means like televisions, kiosks etc. These involve 30-60 minute infomercials providing information about new products available in the market. At-home shopping Channels like Asian Sky Shop, TVC in India offer bargain prices to the customers on products like health equipment, tools, new innovative products etc. inviting customers to call on their toll free number to order the products they offer.
In the US Home Shopping Network (HSN) broadcasts 24 hours a day providing bargain offers on a large variety of products. Interactive Marketing – Companies are promoting more and more of this form of marketing. Companies develop their websites and provide information to the customer. It also asks for response of the customer to the information received about the product. Companies like AOL set up affiliation programs with other companies and provide their ads on the other websites based on the personalized interests. A special case: Intrusive sales promotions
A rising nuisance of companies indulging in excessive sales promotions, sometimes intrusively, is through telesales and telemarketing. It is a growing trend in the country today and is practiced mainly by credit card companies, banks and cell phone service providers. Through their BPO operations, they collect telephone numbers of a wide range of people and then call them up or send them text messages informing them about the various products and services. This can be effective to a certain level but can easily slip into the other side of the line as far as the customer is concerned.
According to the article, a 2% conversion was considered to be average. But in reality it may not match up to the costs the company has incurred to reach out and tap these customers. Companies have to draw some line between what is acceptable and what is not acceptable. There are a few aspects which we can consider and with the help of these we can improve the above problem up to some extent. ???There should be a reduction in aggressive sale promotion of a product. ???Proper timing of promoting the product should be required. Use of record voice to call up customers should be avoided completely. ???No phone number deception ??? mortgage problem (people give their credit cared number online and when they tried calling back …”this phone number is not accepting incoming call” comes as shock to customer. ???Do not disturb service ??? The company should offer a facility for customers who do not want any calls from the company. In USA people receive around 19 billion unsolicited calls per month. The Federal Government has passed a law to curb these kinds of activities. Conclusion
As with any thing else in life, excess of sales promotion too has a negative effect on the brand. Especially, premium brands which have a high image of the brand in the customer’s eyes should refrain from excessive and irrelevant sales promotion. For example, in the footwear business if we are continuously exposed to sales promotions by a brand like Nike, we might start to feel that Nike may not after all be a great brand and the quality we associate with the brand might come down. The high end customers who want quality may shift over to competitors.
Also too much sales promotion can cause the customers to wait for the promotional offer to go ahead with the purchases. This has a major effect on the variance of the sales over the year, because people normally buy consumer durables during Diwali or Christmas. Also too much promotion is not a good strategy as the financial burden on the company increases. The cost of the goods will include the promotional cost too which will bring down the profit margin. Too much sales promotion can become so routine that it might not even capture the attention of the customer at whom it is targeted.
Having said that, if there is large competition in the market and the only way to differentiate our product and attract the customer is through promotion then sales promotion can be considered as an active strategy. As we have seen, some promotions like frequent flier miles work out well because they provide a value add to the customer. Programs like these do not dilute the brand equity at all. Rather it enhances the image of the company in the consumer’s eyes. Thus we find that there are different strategies of sales promotion which, if used at the proper time and in the right mix, can increase the sales of the company to a large extent.