Posted September 24, 2011on:
Every promotion has an objective to increase sales, brand-building, building added values to the brand, increase purchase frequency, introducing a new sample product, etc. Based on the objective to be achieved, category/brand managers and key account managers develop and implement a promotional programme that gives the maximum return on investment and maintains the trade off between profits and share, and among different stakeholders like suppliers, finance, merchandising, distributors, retailers and other trade partners.
For example, some of the simple reasons for a price promotion are:
1. Offensive Sales Gain: To offset competitive threats where the manufacturer is ready to forego short term profits for long term base and traction.
2. Recover Market Share: The player has lost some market share to competitors and want to recover the share.
3. Stimulate Sales and increase profitability: The company will increase the sales revenue which wouldn’t have come without the promotion, as a result it increases the total profit from the promotion.
4. Switches and Trials: Certain promotions are made to attract the consumers using competitive products and let them switch to our product
5. Increase purchases and push stocks/volumes: Certain promotions are made to let the consumer buy more than required. So the consumer buys three t-shirts instead of one t-shirt.
6. Trade promotions are given to trade partners like distributors and sellers to maintain the product on the shelf, and push the product. These include more margins, etc.
Promotions Management is one of the key challenges faced by the marketing and brand managers. It is one of the most interesting areas in marketing involving a lot of creativity and understanding of the customers. Various decisions are taken about:
- What to promote?
- When to promote?
- How long to promote?
- Which bundle of products to select?
- What is the effect on the brand equity?
- What do the trade partners, production process, etc. require to do?
- How do I communicate the promotions?
- What sort of impact will the promotions make on my baseline consumer sales?
Some of the different promotions are:
- Price promotions
- Volume Promotions
- Saver packs
- Different banded packs, pack free promotions
- Cash refunds
- Container premiums
- Promotional Games
Let us see how one of the Toothpaste brands used promotions to increase its share.
Promise Toothpaste Promotion
Test marketing a new brand in a single area before extending distribution nationally can produce invaluable data. This is about how Promise discovered in test market that a sales promotion was needed to achieve a market share target.
Promise toothpaste was test marketed by Balsaras in Delhi in early 80′s. The product was similar to Colgate toothpaste in taste and packaging, but media advertising stressed the clove oil content of Promise.
Three months after the Delhi launch, a tracking study was conducted and the study indicated that Promise had achieved a 17% trial rate and repeat purchase rate of 22%. This meant that if the marketing support for the brand is unchanged in a national launch, it would achieve a market share of 17% X 22% = 3.74%. As the target market share was at least 8%, this predicted result was unacceptable.
The agency indicated that a repeat purchase rate of 22% is good in a product category like Toothpaste. So, the problem is the media advertising had not induced enough people to try the brand. If the trial rate could be increased to 40% and the repeat purchase rate is maintained at 22% then Promise would achieve 40% X 22% = 8.8% market share.
Promotion Vehicle Chosen: Sampling
Free samples of Promise were distributed to approximately 1 lakh homes in Delhi. Care was taken that the free samples were not placed in those households which had already tried the brand.
Within three months of the promo Promise’s market share climbed to 10% in Delhi.
It is interesting to see how promos are used to achieve various objectives. In the further blogs, I will analyze a set of earlier promotions and a set of recent promotions to understand how marketers are using promotions to achieve different targets.