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Sales promotion

How many times have you visited a store and found that there was a buy one get one free deal on a product you wanted? What a terrific deal; a second item free is such a great incentive. Then when you get home and use the product you got for free, it feels very valuable to you, as it provides utility at no cost. This is a small scenario of sales promotions' positive impact on customers. Read along to learn more.

Sales Promotion Definition

What better way to start than to state the definition of a sales promotion? A sales promotion is a temporary incentive to purchase a product. Put simply, advertising provides a reason to buy, and sales promotions provide a reason to buy now.

While buying immediately is the most favorable outcome for businesses, promotions don't always require a purchase to be a success. Promotions can increase customers' opinions on the brand or create interest in a product.

A sales promotion is a temporary incentive to purchase a product. Sales promotions provide customers with a reason to buy now.

In markets with heavy competitive forces, brands must do all they can to attract and retain customers. Even if it means giving discounts or free goods. Across the world, companies spend hundreds of millions of dollars on sales promotions, whether a dollar-off coupon or an extreme sports event hosted by Red Bull.

Sales promotions allow off-brand products to be tried out by new customers. Customers may be hesitant to try a new brand when they know a different one has worked in the past. Sales promotions can help customers through this apprehension.

There are three types of promotions: trade, consumer, and business.

Trade promotions by dollar value are the largest volume of promotion benefactors. Trade promotions incentivize stores and vendors to feature a business's items. Trade promotions have increased dramatically as competition and market saturation increase. Manufacturers must compete for shelf space with many identical goods. Manufacturers often give free products or discounted stock to retail locations in exchange for favorable store positioning.

Consumer promotions are the type of promotions we are familiar with, from discounted price signs scattered throughout the store to coupon pamphlets delivered to homes. Consumer promotions are benefits exclusive to the final consumer, increasing the value received from purchasing.

Business promotions are incentives that encourage business-to-business interactions, these can take place at trade shows, events, and contests. Discounts or lucrative offers are made to attract new customers and strengthen relationships with existing business customers.

Sales Promotion Importance

If you have visited a grocery store, you know how hard it can be for products to stand out from the dozens of competing products. In a perfectly competitive market, brands have very little power over things like price. Firms are incentivized to differentiate themselves from others to gain a competitive advantage.Sales promotions have been on the rise as advertising efficiency has decreased over recent years, likely due to the high level of saturation of advertising we see.

Sales promotions are one of the most common tools marketers use to gain favor with customers. While sales promotions are very good at causing impulse purchases and generating immediate sales, marketers should not consider this their only communications tool. While short-run bumps in sales and brand awareness can appear favorable to stockholders, the ultimate goal of marketing activities is to build long-term customer relationships.

Sales promotion Everything is on sale, Buy it now! StudySmarterFig. 1. Everything is on sale, Buy it now!

Consider a contractor who uses the GetterDone brand for all their projects. One day, next to his normal product purchases, he sees a new brand Blammo, and they have a sales promotion for buy 1 get 10 free. Of course, the contractor buys Blammo, as he gets 11 products for the price of 1. But what happens after the promotion is gone?

What will customers choose when the promotion ends, and both products have no explicit sales promotion? Will the contractor believe, "I received 11 products for the price of 1, I love Blammo and will purchase them for eternity"? Or will they feel that "Blammo gave me a really good deal, but without the deal, I'll stick to my original brand GetterDone"? Many factors can influence customer impressions, and each customer will perceive it differently.

Customer relationship management (CRM) is the main priority in any marketing strategy and can take many forms. While sales promotions incentivize an immediate purchase, they also build positive opinions in a customer's mind about the brand.

With CRM in mind, it's easy to evaluate the effectiveness of a sales promotion. What do you think would be better at creating a recurring customer? Would a one-time terrific deal, like the contractor had in the example above, keep you coming back? Or would a loyalty program that gives discounts to returning customers be more effective? The answer is the loyalty program, which also costs the company less money than giving away free products.

Sales Promotion Techniques

In our technologically evolved society, sales promotion techniques come in many shapes and sizes. Consider the list below:

Digital promotions: are coupons or information about sales the customer receives on their phone, laptops, etc. Digital promotions can take the form of e-mails, text messages, or notifications.

Samples: are generally smaller variations of a product that a customer can try for free, like an ice cream shop giving away a spoonful of any flavor for free.

Coupons: are a certificate to a lower price or additional item if the purchase requirements are met.

Rebates: are a post-purchase option that requires consumers to complete steps to receive cash back on their purchase.

Price pack: is when multiple products are bundled together or sold in bulk at a lower cost per unit.

Premium: is a bonus item offered for free or for a low cost when you buy another. A common example is when a customer buys motor oil, a premium promotion may give a funnel with which to pour the oil for free.

Advertising specialties: are branded low-cost items given as gifts to build relationships. You have probably received pens, a Frisbee, a keychain, or a t-shirt with a logo from a brand running a promotion.

Point of Purchase (POP): these are displays of products, typically in the main walkway of a store, that have seasonal or categorical relevance. In the aisle that sells lamps, it's likely to find extension cords being promoted nearby.

Contests: products can be associated with a contest by being a prize you win, such as a car. Or the contest can feature the use of a product, such as a photo submission of who can use a product in the most innovative way for a cash prize.

Event marketing: can be done through sponsorships of major events or, in Red Bull's case, extreme sports competitions.

Sales Promotion Examples

One of the most well-known sales promotion examples is the McDonald's Monopoly Game1. Starting in 1987, for a limited time, specific items on the McDonald's menu would have game pieces that needed to be combined for a prize.

Sales Promotion McDonald's monopoly stubs StudySmarterFig. 2. McDonald's monopoly stubs

The McDonald's Monopoly game gave collectible stubs that ranged from free food and drink items to matching sets of monopoly locations. If players were to collect a complete set, they could turn it in for various cash prizes from $50 to $1,000,000. These stubs were attached to the packaging on designated higher-cost items, such as the Big Mac, Large Fry, and medium to large McCafe drinks.

McDonald's employed a not-so-obvious strategy of giving consumers pieces of a set to win high-value prizes, but each set had 1 stub that was extremely rare. So nearly every customer could appear very close to winning. For example, 'Board Walk' and 'Park Place' were both required to collect the million-dollar prize. The amount of Park Place stubs in circulation was in the thousands. This means thousands of customers believed themselves 1 stub away from a million dollars. The catch was that only 1 Boardwalk was printed each year.

The McDonald's monopoly has an ingenious balance and style that keeps consumers ravenous for more, never winning major prizes, but receiving small food prizes to still feel like it's worth it.For this promotion to work and drive demand, consumers need to feel close to winning. This was facilitated by the unequal distribution of set pieces, leaving nearly anyone who collected just 1 stub away from $10,000 or more. It is important to consider that many people are close to winning, but only a handful do. That may create some frustration, and customers might get discouraged or feel cheated.

That's where McDonald's added small food item prizes to the mix. Some stubs offer coupons for a free drink, fry, or burger. This is critical as customers who may get frustrated at never winning the cash prizes can still reap some reward for playing, making them feel less bad when they don't win big.

The company that ran the monopoly game was found guilty of fraud as they gave the winning stubs to friends and family. We recommend you implement a game that is not fraudulent.2

The important takeaways from this promotion are:

  • Make customers feel like they are close to winning big

  • Offer smaller prizes as a consolation for not winning big

  • Only have a handful of wins to minimize payout expenses

Sales Promotion Advantages and Disadvantages

Sales promotions provide marketers with a wide range of tools to attract and win over customers. Every strategy is best off knowing its strengths and weaknesses.

Sales promotion: advantages

Sales promotions, at their core, convince non-customers to buy. They create value in a consumer's mind that they can try something for not the full price. Customers purchase if they perceive the utility gained from the purchase is worth more than the monetary cost of the purchase. This can be a critical step to a customer discovering they value a product more than they previously thought, in which case they become a repeat customer.

Sales promotions provide numerous avenues for generating consumer interest and building customer relationships. Promotions allow businesses to engage customers in a way that doesn't cost the customer resources. Advertisements on TV and radio stop the content people enjoy and then try to convince you to buy. Savvy marketers can use promotions and avoid this by sponsoring events many customers enjoy. What will customers enjoy more, a logo around their favorite football game or an advert interrupting their viewing of the game?

Sales promotion: disadvantages

Similar to other advertising methods, sales promotions can have a mixed reception from consumers. While some consumers are grateful, others may see it as an indication of low quality. Other consumers may suffer from what is called promotion clutter - when a promotion's effects are mitigated by too many other promotions.

Sales promotions risk a one-time purchase, which generates little value as promotional products are generally less profitable. These are disadvantageous as the promotional investment put in the customer is lost and could be applied to a more impressionable consumer.

Greg is not a big fan of fireworks that cost $10. He normally doesn't buy any. If he were to purchase, he would feel it made him as happy as spending $6 on something else. Meaning if Greg purchases fireworks, he loses $4 of utility.

If a promotion occurs for 50% off fireworks, Greg can now purchase at $5 and have more joy than $5 normally brings him. However, once the promotion ends, Greg still values the fireworks at $6 and will not buy them.

Sales promotions are costly and, depending on the method, often negate profits, if not actively costing companies money. However, this must be objectively considered. The money spent on developing customer relationships must be judged by its effectiveness in winning customers and the effectiveness of other strategies.

Sales promotion - Key takeaways

  • Sales promotions are short-term incentives for consumers to purchase or generate a positive association for a product or brand.
  • There are three types of promotion structures: consumer, trade, and business.
  • Sales promotions are moldable tools businesses can use to bridge a gap with potential customers or solidify relationships with existing customers.
  • Sales promotions can take various forms, from discounts, rebates, coupons, event marketing, price packs, contests, samples, and more.

References

  1. Chiefmarketer. History in the Making: The Most Significant Promotions of the Last 15 Years. 2002. https://www.chiefmarketer.com/history-in-the-making-the-most-significant-promotions-of-the-last-15-years/
  2. Wikipedia. McDonald's Monopoly. https://en.wikipedia.org/wiki/McDonald%27s_Monopoly

Frequently Asked Questions about Sales promotion

The six sales promotion techniques are rebates, price packs, Points of Purchase, contests, samples, and event marketing.

A sales promotion can attract new customers and strengthen relationships with existing customers. This is created by the value a promotion provides to the customer.

Sales promotions help brands differentiate themselves from their competitors and win over their customers. Promotions increase the value customers received, making it less costly to risk trying a new brand or product.

McDonald's Monopoly Game is a massive promotion that attracts customers to buy more items more frequently to collect stubs and win prizes.

A sales promotion is a short-term incentive for consumers to purchase or generate a positive association for a product or brand.

Final Sales promotion Quiz

Question

What is a sales promotion?

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Answer

A sales promotion is a temporary incentive to purchase a product. Sales promotions provide customers with a reason to buy now.

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Question

Advertising provides customers with a reason to buy, sales promotions provide customers with a reason to buy _______.

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Answer

now

Show question

Question

What are trade promotions?

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Answer

Trade promotions are incentives for businesses to feature or sell their item.

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Question

What are business promotions?

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Answer

Business promotions are incentives that encourage business-to-business interactions, these can take place at trade shows, events, and contests. Discounts or lucrative offers are made to attract new business customers and strengthen relationships with existing business customers.

Show question

Question

What are consumer promotions?

Show answer

Answer

Consumer promotions are incentives for consumers to buy a product, or gain favor with a brand's product.

Show question

Question

Identify which type of promotion is described:
Several posters on the outside of a football match for a B2B shipping company offering a 50% discount per mile.

Show answer

Answer

Trade promotions

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Question

Identify which type of promotion is described:
Several posters on the outside of a football match for the new Fifa video game that is 50% off.

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Answer

Trade promotions

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Question

Identify which type of promotion is described:
Several posters on the outside of a football match show an offer from Uber to drivers "$100 bonus for your first 60-hour week"

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Answer

Business promotions

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Question

Identify which promotion fits the scenario best:
Customers use and repurchase this product every week.

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Answer

Price Pack

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Question

Identify which promotion fits the scenario best:
This product sounds weird but when customers try it they love it.

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Answer

Sample

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Question

Identify which promotion fits the scenario best:
Many customers who buy diapers also buy baby wipes.

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Answer

Premium.

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Question

Identify which promotion fits the scenario best:

Your business owns many obstacle courses throughout the state, you want them to share customers.

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Answer

Contest

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Question

Identify which promotion fits the scenario best:
Customers who purchase fajita mixes may also want to purchase other taco accessories.

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Answer

Point of Purchase

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Question

What is promotion clutter?

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Answer

When too many promotions are in proximity to each other, their perceived value is lost.

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Question

What promotional strategy is Red Bull Famous for?

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Answer

Event marketing

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