Sales promotion of FMCG in Indian market

Introduction

Sales promotions have become a vital tool for marketers and its importance has been
increasing significantly over the years. In India, sales promotions expenditure by
various marketing
companies is estimated to be Rs 5,000 crores and the emphasis on sales promotion
activities by the Indian industry has increased by 500 to 600 percent during the last 3 to 5
years (Economic Times, June 15, 2003). In the year 2001, there were as many as 2,050
promotional schemes in the Rs 80,000 crore FMCG Industry (Dang et. al, 2005).
Given the growing importance of sales promotion, there has been considerable interest in
the effect of sales promotion on different dimensions such as consumers’ price
perceptions, brand choice, brand switching behaviour, evaluation of brand equity, effect
on brand perception and so on. One of the purposes of a consumer promotion is to elicit a
direct impact on the purchase behaviour of the firm’s customers (Kotler, 1998; Blattberg
and Neslin, 1990). Research evidence suggests that sales promotions positively affect
shot-term sales (Priya, 2004). Research on price
promotion has consistently reported high sales effect and high price elasticity for brands
which are on promotion (Blattberg, Briesch and Fox, 1995). Studies have shown that
price promotions enhance brand substitution within a product category (Dodson et al,
1978), affect aggregate sales (Gupta, 1998), and significantly affect stock piling and
purchase acceleration (Blattberg, Eppen and Lieberman, 1981, Neslin, Henderson and
Quelch, 1985). However, there have also been studies that suggest that sales promotion
affects brand perceptions. Researchers have found out that promotions, especially price
promotions, have negative effect on brand equity (Mela et al, 1997). In another study,
Schultz (2004) argues that over dependence on promotions can erode consumers’ price-
value equation. The results of a study by Jedidi et. al (1999) indicates that in the long
term, advertising has a positive effect on brand equity where as
price promotions have a negative effect. Similarly, Yoo et. al (2000), based on structural
equation model, suggests that frequent price promotions, such as price deals are related to
low brand equity, where as high advertising spending, high price, good store image and
high distribution intensity are related to high brand equity. There is also a managerial
belief that if a brand is supported with frequent promotional offers, the equity of the
brand tends to get diluted. On the contrary, there have also been studies that indicate
brands benefit from promotions. Amongst the elements of marketing mix, sales
promotions have long-term influence on brand equity (Yoo et. al, 2000). Mariola &
Elina, (2005), based on a sample of 167 buyers suggest that monetary and non-monetary
promotions are useful to create brand equity because of their positive effect on brand
knowledge structures. The researchers in this study propose to explore whether the
phenomenal growth of sales promotion as a promotional tool in marketing products in
India is perceived favorably by the consumers and examine the differential effect, if any,
of two types of sales promotion namely cash discount and free gift on consumers
perception.
Theoretical background
A good definition of sales promotion would be as follows:

“An activity designed to boost the sales of a product or service. It may include an advertising
campaign, increased PR activity, a free-sample campaign, offering free gifts or trading
stamps, arranging demonstrations or exhibitions, setting up competitions with attractive
prizes, temporary price reductions, door-to-door calling, telemarketing, personal letters on
other methods”.

More than any other element of the promotional mix, sales promotion is about “action”. It is
about stimulating customers to buy a product. It is not designed to be informative – a role
which advertising is much better suited to.

Sales promotion is commonly referred to as “Below the Line” promotion.

Sales promotion can be directed at:

• The ultimate consumer (a “pull strategy” encouraging purchase)

• The distribution channel (a “push strategy” encouraging the channels to stock the product).
This is usually known as “selling into the trade”

Sales Promotion

• Sales promotion is aimed at boosting the sales in shorter duration by providing

effective incentives to the buyers.
• Advertising is aimed at boosting the sales by giving reasons to buy and sales promotion
is aimed at boosting sales by giving incentives to customers. Sales promotion integrated
or combined with advertising will be more effective than doing only one of the two
alone.
• Sales promotion consists of:
- Consumer promotion which uses free samples, free trials, discount coupons, loyalty
rewards, cash paybacks, discounted prices, prizes etc.
- Trade promotion which includes discounted prices to the retailers, advertising and
display allowances to retailers, certain amount of free goods if dealer or retailer buys
certain minimum quantity etc.
- Business and sales force promotion include trade shows and conventions, sales
contests among sales people of company/dealers and their recognition, specialty
advertising by way of the give-aways like pens, tee shirts, bags, key chains, calendars,
torches and such goodies with company’s products and company’s name etc displayed
on them.

Major Factors of Sales Promotion

Marketers need to decide about four factors for effective sales promotion:

• Deciding the objective(s) of sales promotion

• Selecting appropriate sales promotion methods (from the ones described earlier under
consumer promotion, trade and business and sales force promotion)
 • Developing the sales promotion campaign
• Sales promotion effectiveness evaluation

Objectives of sales promotion

One could work to achieve one or more of the following objectives through various methods
(mentioned earlier) of sales promotion:

• Encouraging trial by new prospective customers of the products, services and ideas
offered
• Brand switching by customers
• Buying earlier than usual requirement by customers
• Buying in quantities more than usual by customers
• Encouraging off season buying by customers
• Store switching by customers
• Attracting new customers
• Establishing customer loyalty
• Offsetting competitive sales promotions

Selecting sales promotion method(s)

Various tools/methods of sales promotions have been mentioned earlier for consumer
promotion, trade promotion and business and sales force promotion. The choice of these
tools/methods depends on:

• Type of market/customers
• Objectives of sales promotion (see the earlier point)
• The nature of market competition
• Appropriateness of the methods/tools
• Cost effectiveness of methods/tools

Developing sales promotion campaign

Following factor need to be thought of and developed:

• Quantum of the incentives to be offered (considering its possible and expected

benefits)
• Duration of sales promotion program
• Deciding the lead time of sales promotion preparation and sell-in duration (the
duration within which the targeted sales will be accomplished)
• Timing of promotion campaign
• Terms and conditions of participation by the prospective/existing customers
• Mode of distribution of incentives
• Budget for the entire sales promotion plan

Sales promotion effectiveness evaluation

Evaluation of effectiveness of sales promotion can be done using:

 • Sales data analysis: customer behavior- pre-promotion and post promotion, number of
switches from the competitors, profile analysis of customers who participated, boost in
sales etc
• Customer surveys: to gather the feedback about their assessment/reaction of the sales
promotion program
• Construct experiments: around quantum of incentives, duration of incentives and
incentive distribution mix/channels etc

Sales promotion is one level or type of marketing aimed either at the consumer or at
the distribution channel (in the form of sales-incentives). It is used to introduce new
product, clear out inventories, attract traffic, and to lift sales temporarily. It is more
closely associated with the marketing of products than of services. The American
Marketing Association (AMA), in its Web-based "Dictionary of Marketing Terms,"
defines sales promotion as "media and non media marketing pressure applied for a
predetermined, limited period of time in order to stimulate trial, increase consumer
demand, or improve product availability." Business pundits and academic students
of business have developed almost fancifully sophisticated views of sales promotion.
In down-to-earth terms it is a way of lifting sales temporarily by appealing to
economic motives and impulse-buying behavior. The chief tools of sales promotion
are discounts ("sales"), distribution of samples and coupons, the holding of
sweepstakes and contests, special store displays, and offering premiums and rebates.
All of these techniques require some kind of communication. Thus sales promotion
and advertising are difficult to distinguish.

The need for promotion arises from the intensity of competition. Sellers must
somehow attract customers' attention. In the open markets of old (and farmers
markets of today), sellers did and do this by shouting, joking with customers, and
sometimes by holding up a squealing piglet for everyone to see. Priya Raghubir and
his coauthors, writing in California Management Review, identify "three faces" of
consumer promotions: these are information, economic incentive, and emotional
appeal. Information may take the form of advertising the availability of something,
incentives are offered in the form of discounts, and emotional appeals are made by
displays and, of course, by the low price itself.

Precisely because sales promotions must provide incentives—whether to the

distribution channel, the company's own sales people, or to the consumer—they cost
money by definition and must produce additional volume to pay for the
expenditures. A grand sale that clears out the inventory but, with added advertising
costs factored in, reduces margin too is—a failure. Sales promotions therefore must
be carefully calibrated to achieve the purpose. Holding promotions too frequently
will habituate customers to buy only when promotions are in effect. Avoiding
promotions altogether will let competitors draw customers away. Alas, business
never fails but to challenge the participant'�.

GROWTH OF SALES PROMOTION

Craig Endicott and Kenneth Wylie, writing for Advertising Age in the magazine's
62nd annual Agency Report, indicate a continued shift of revenues in advertising
from traditional to new forms of media. They label the new forms as "marketing
services" and comment as follows: "Marketing services—identified as all forms of
interactive, sales promotion and direct marketing in this report—grew 11.3% to $7.66
billion in revenue in the U.S. [in 2005]; traditional advertising and its media
component advanced to $12.02 billion, a 5.1% advance that was slightly stronger
than last year." The growth of sales promotion, a significant portion of total
marketing services expenditures, is no doubt in part due to the proliferation of media
channels by cable, the availability of the Internet to channel direct marketing
messages, and simply the fact that advertising has become so ubiquitous it has
become less effective: people tune (or mute) it out.

CONSUMER PROMOTIONS
Consumer sales promotions are steered toward the ultimate product users—typically
individual shoppers in the local market—but the same techniques can be used to
promote products sold by one business to another, such as computer systems,
cleaning supplies, and machinery. In contrast, trade sales promotions target resellers
—wholesalers and retailers—who carry the marketer's product. Following are some of
the key techniques used in consumer-oriented sales promotions.

Methods of sales promotion

There are many consumer sales promotional techniques available, summarised in the
table below:

Price promotions or Price Deals

Price promotions are also commonly known as” price discounting”

These offer either (1) a discount to the normal selling price of a product, or (2) more of the
product at the normal price.
Increased sales gained from price promotions are at the expense of a loss in profit – so these
promotions must be used with care.

A producer must also guard against the possible negative effect of discounting on a brand’s
reputation

A consumer price deal saves the buyer money when a product is purchased. The
main types of price deals include discounts, bonus pack deals, refunds or rebates,
and coupons. Price deals are usually intended to encourage trial use of a new product
or line extension, to recruit new buyers for a mature product, or to convince existing
customers to increase their purchases, accelerate their use, or purchase multiple
units. Price deals work most effectively when price is the consumer's foremost
criterion or when brand loyalty is low.

Buyers may learn about price discounts either at the point of sale or through
advertising. At the point of sale, price reductions may be posted on the package, on
signs near the product, or in storefront windows. Many types of advertisements can
be used to notify consumers of upcoming discounts, including fliers and newspaper
and television ads. Price discounts are especially common in the food industry,
where local supermarkets run weekly specials. Price discounts may be initiated by
the manufacturer, the retailer, or the distributor. For instance, a manufacturer may
"pre-price" a product and then convince the retailer to participate in this short-term
discount through extra incentives. For price reduction strategies to be effective, they
must have the support of all distributors in the channel. Existing customers perceive
discounts as rewards and often respond by buying in larger quantities. Price
discounts alone, however, usually do not induce first-time buyers.

Another type of price deal is the bonus pack or banded pack. When a bonus pack is
offered, an extra amount of the product is free when a standard size of the product is
bought at the regular price. This technique is routinely used in the marketing of
cleaning products, food, and health and beauty aids to introduce a new or larger size.
A bonus pack rewards present users but may have little appeal to users of
competitive brands. A banded pack offer is when two or more units of a product are
sold at a reduction of the regular single-unit price. Sometimes the products are
physically banded together, such as in toothbrush and toothpaste offers.

Coupons

Coupons are another, very versatile, way of offering a discount. Consider the following
examples of the use of coupons:

- On a pack to encourage repeat purchase

- In coupon books sent out in newspapers allowing customers to redeem the coupon at a
retailer
- A cut-out coupon as part of an advert
- On the back of till receipts

The key objective with a coupon promotion is to maximise the redemption rate – this is the
proportion of customers actually using the coupon.

One problem with coupons is that they may simply encourage customers to buy what they
would have bought anyway. Another problem occurs when retailers do not hold sufficient
stocks of the promoted product – causing customer disappointment.

Use of coupon promotions is, therefore, often best for new products or perhaps to encourage
sales of existing products that are slowing down.

Gift with purchase

The “gift with purchase” is a very common promotional technique. It is also known as a
“premium promotion” in that the customer gets something in addition to the main purchase.
This type of promotion is widely used for:

- Subscription-based products (e.g. magazines)

- Consumer luxuries (e.g. perfumes)

Competitions and prizes

Another popular promotion tool with many variants. Most competition and prize promotions are
subject to legal restrictions.

Money refunds

Here, a customer receives a money refund after submitting a proof of purchase to the
manufacturer.
These schemes are often viewed with some suspicion by customers – particularly if the method
of obtaining a refund looks unusual or onerous.

Frequent user / loyalty incentives

Repeat purchases may be stimulated by frequent user incentives. Perhaps the best examples of
this are the many frequent flyer or user schemes used by airlines, train companies, car hire
companies etc.

Point-of-sale displays

Research into customer buying behaviour in retail stores suggests that a significant proportion
of purchases results from promotions that customers see in the store. Attractive, informative
and well-positioned point-of-sale displays are, therefore, very important part of the sales
promotional activity in retail outlets.