HANDOUTS FOR SESSIONS 9-10

DIRECT MARKETING

Chapter Overview
One of the most rapidly growing areas in marketing is direct marketing. A variety of direct response
media are used to convey the communications message. In this chapter we examine the role of direct
marketing in the promotional mix. We discuss the objectives sought in direct marketing programs (noting
that these may often differ from the communications objectives discussed earlier). We also discuss direct
marketing strategies, direct selling and evaluation of the direct marketing program. We conclude the
direct marketing discussion with a discussion of its advantages and disadvantages. In Chapter 15 we
discuss two additional direct marketing media, the Internet and interactive media. Since both of these
include more than direct response, they warrant a separate chapter.

Learning Objectives
1. To recognize the area of direct marketing as a communications tool.
2. To know the strategies and tactics involved in direct marketing.
3. To demonstrate the use of direct-marketing media.
4. To determine the scope and effectiveness of direct marketing.

Chapter and Lecture Outline

I. DIRECT MARKETING
A. Defining Direct Marketing—Direct marketing involves a total set of activities by which the
seller attempts to elicit a direct action response —for example, a purchase. As such, it employs
many aspects of marketing, including marketing research, segmentation, advertising, evaluation,
etc. A distinction is made between direct marketing and direct marketing media. The former
includes the total set of marketing activities involved in obtaining a direct response. Direct
marketing media are the tools that direct marketers use in the communications process.

B. The Growth of Direct Marketing—Direct marketing has grown tremendously in the past few
years as a result of a number of contributing factors:

 the catalog
 the use of consumer credit cards
 direct-marketing syndicates
 the changing structure of the American market
 technological advances
 various other factors.
C. The Role of Direct Marketing in the IMC Program—Direct marketing activities support and are
supported by other elements of the promotional mix.

1. Combining direct marketing with advertising—Direct marketing is in itself a form of

advertising. Whether through mail, print, or TV, the direct-response offer is an ad. Sometimes
the ad supports the direct selling effort (i.e. Victoria Secret runs image ads to support its store
and catalog sales.)

2. Combining direct marketing with public relations—Private companies may use telemarketing
activities to solicit funds for charities or cosponsor charities that use these and other direct
response techniques to solicit funds.

3. Combining direct marketing with personal selling—Nonprofit organizations often use

telemarketing to solicit funds. Companies use telemarketing to screen and qualify potential
prospects.

4. Combining direct marketing with sales promotions—For example, many local merchants
send out mailers announcing sales and promotional offers.

D. Direct-Marketing Objectives—Direct marketers most often seek a direct response. This response
need not necessarily be a behavioral response, as direct marketing is now used for other purposes:
to build an image, maintain customer satisfaction, and inform and/or educate customers in an
attempt to lead to future actions.

E. Developing a Database—One of the most important parts of the direct marketing program is the
development of a database. The database is the foundation from which direct marketing decisions
evolve. Figure 14-2 demonstrates how database marketing works, while Figure 14-3 demonstrates
factors to be included in both consumer and business to business databases. Databases are used
to perform the following functions:
 Improving the selection of market segments
 Stimulate repeat purchases
 Cross-sell
Sources of database information are listed in the chapter.
F. Direct Marketing Strategies and Media —Direct marketers generally pursue either a (1) one-step
approach or a (2) two-step approach in developing media strategies. In the one-step approach,
the medium is used to directly obtain an order (for example, direct response television ads). In the
two-step approach, more than one medium may be used, with the first effort designed to screen or
qualify buyers and the second designed to generate the response. A number of direct response
media are available to the marketer including:

1. Direct mail—Mail order sales exceeded $44 billion in 2009, meaning that more monies have
been spent in this medium than any other. Keys to the success of direct mail are the mailing
list and the ability to segment markets.
 2. Catalogs—Over 13.5 billon catalogs were mailed in the year 2009. There is some interesting
examples of articles available through catalogs on page 481 of text book.

3. Broadcast media—Two broadcast media are available to direct marketers: TV and radio. The
majority of direct marketing broadcast advertising now occurs on TV, which receives the
bulk of our attention in the text

4. Infomercials—The lower cost of commercials on cable and satellite channels has led
advertisers to a new and very effective form of advertising. IMC Perspective 14-1 of your
book discusses some of the many companies employing this medium.

5. Teleshopping—The major shopping channels in the United States—QVC, and the Home
Shopping Network, are now being joined by others. Together they account for billions of
dollars in sales, and there seems to be no indications that this medium is reaching maturity.

6. Print media—Magazines and newspapers are difficult media to use for direct marketing
because of clutter and the relative expense. In addition, the benefit of an immediate response
is not as apparent.

7. Telemarketing—Almost $334 billion dollars worth of sales took place through telemarketing
phone calls in 2009. Telemarketing has been hurt by the do not call lists, though the
business to business sector remains strong.
II. DIRECT SELLING
Direct selling involves the direct, personal presentation, demonstration and sales of products and services
to consumers in their homes. The text discusses three forms of direct selling including:

1. Repetitive person-to-person selling—Amway/Mary Kay

2. Non-repetitive person-to-person selling – Encyclopedia Brittanica
3. Party plans—Tupperware/PartyLite Gifts
A demographic profile of the direct salesperson is provided in the chapter.

III. EVALUATING THE EFFECTIVENESS OF THE DIRECT MARKETING PROGRAM

In addition to some of the effectiveness measures employed by other marketers, direct marketers also
employ a measure based on cost per order (CPO). Using CPO the marketer knows almost instantly
whether or not the advertisement is working.

A. Advantages of direct marketing are cited including: (1) selective reach; (2) segmentation
capabilities; (3) frequency; (4) flexibility; (5) timing; (6) personalization; (7) cost efficiencies;
and (8) ability to measure effectiveness.

B. Disadvantages include: (1) image factors; (2) accuracy; and (3) content support.
 SALES PROMOTION

Chapter and Lecture Outline

I. THE SCOPE AND ROLE OF SALES PROMOTION
For many years advertising constituted the major part of the promotional budget of most consumer
product firms. Over the past decade, however, many marketers have come to the realization that
advertising alone often is not enough to stimulate demand for their products and are increasingly turning
to sales promotion methods targeted at both consumers and the trade. Many companies are developing
fully integrated marketing programs that include consumer and trade promotions that are coordinated with
advertising, publicity/public relations, and Internet marketing programs as well as sales force efforts. It is
important to note these trends and emphasize to students the important role sales promotion plays in the
marketing of most consumer products. The chapter opening vignette discusses how Subway’s $5
Footlong promotion was very successful and generated nearly $4 billion in sales for the company.

Sales Promotion has been defined as “a direct inducement that offers an extra value or incentive for
the product to the sales force, distributors or the ultimate consumer with the primary objective of
creating an immediate sale.” There are several important aspects to sales promotion that should be
noted:

Sales promotion involves some type of inducement that provides an extra incentive to purchase the
product or service

Sales promotion is essentially an acceleration tool that is designed to speed up the selling process and
maximize sales volume

Sales promotion programs and activities can be targeted to different parties in the marketing channel
including wholesalers, retailers and consumers.

Sales promotion can be broken into two major categories:

Consumer-oriented sales promotion which are promotions directed at the consumers who are final
purchasers of goods and services

Trade-oriented sales promotion which includes promotional programs and activities designed to
motivate distributors and retailers to stock and promote a manufacturer’s products

The various activities included under each sales promotional category are shown in Figure 16-1 of the
text book. It should be noted that this chapter focuses on both consumer- and trade-oriented promotions.

II. THE GROWTH OF SALES PROMOTION

The role and importance of sales promotion in companies’ integrated marketing communications
programs have increased dramatically over the past decade. In 2009 spending on various forms of
sales promotion reached nearly $350 billion while another $150 is spent each year on trade
promotions targeted at retailers and wholesalers.
A. Reasons for the Shift in Marketing Dollars to Sales Promotion—Since the mid ‘80s the proportion of
marketers’ promotional budgets allocated to both consumer and trade promotion has increased while the
proportion allocated to media advertising has declined. Current estimates are that marketers spend
between 60 to 75 percent of their promotional budgets on sales promotion, with the remainder going to
media advertising. There are a number of reasons for the increases spending on sales promotion. These
include:
1. The growing power of retailers—in recent years several developments have helped to
transfer power from the manufacturers to the retailers. 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. Consolidation of the grocery store industry has also resulted in larger and
more powerful retailers who can use their purchasing power to demand more trade
promotion deals. We discuss how Wal-Mart has become such a powerful retailer and the
challenges this creates for marketers who must often develop account specific promotions for
the retailing giant.

2. Declining brand loyalty—consumers have become less brand loyal and are purchasing more
on the basis of price, value, and convenience. They are also looking for more deals and will
buy whatever brand is on sale or for which they can use a coupon.

3. Increased promotional sensitivity—the percentage of purchases made in conjunction with

some sort of promotional offer has increased sharply over the past decade. The text discusses
a national survey with interesting results and the reasons for consumers’ increasing sensitivity
to sales promotion. This study found that 42 percent of the total unit volume of 12 packaged-
good products was purchased with some type of incentive.

4. Brand proliferation—consumer product companies are launching nearly 20,000 new products
each year, according to a study by Marketing Intelligence Service, compared with only 2,689
in 1980. Sales promotion tools such as samples and coupons are often used as part of the
shaping process that leads consumers from trial to repeat purchase at full price. Supermarkets
carry an average of 30,000 SKUs compared to 13,000 in the early ‘80s

5. Fragmentation of the consumer market—the consumer market is becoming more fragmented

and traditional mass media advertising is being replaced by promotional tools that can target
specific market segments. Sales promotion tools have become one of the primary vehicles for
tailoring promotional efforts to specific regional markets as well as specific demographic and
lifestyle segments.

6. Short-term focus—the increase in sales promotion in motivated by marketing plans and

reward systems geared to short-term performance and the immediate generation of sales
volume. Marketing and 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 opening vignette to the chapter discusses how many marketing
managers have become enamored with the short-term increases in sales which are generated
by promotional discounts and often results in them becoming overly dependent upon them
 which in turn results in less money being allocated to advertising or new product
development.

7. Increased accountability—many companies are demanding to know what they are getting for
their promotional expenditures. Many companies feel that sales promotion programs are more
economically accountable than advertising since they often generate a quick and easily
measured jump in sales.
8. Gaining a competitive advantage—many marketers are turning to sales promotion to gain or
maintain a competitive advantage. A major development in recent years is the use of
account-specific marketing (also referred to as comarketing) whereby a marketer
collaborates with customizes promotions for individual retailers. Exhibit 16-5 provides an
example of an account specific promotion Unilever developed for Wal-Mart to promote its
Sunsilk product line.
9. Clutter—the increasing problem of advertising clutter has lead to the need to use consumer
promotions as a way of attracting attention and interest to advertising. Sales promotion offers
such as coupons, contests and sweepstakes are often used to attract attention to ads and
increase consumers’ involvement with a marketer’s IMC program.

B. Concerns about the Increased Role of Sales Promotion—it is very important to note that the
increased use of sales promotion is coming at the expense of media advertising. This has led to
concern that the increased use of sales promotion is having a negative effect on brand equity. As
was noted in the Chapter 2, brand equity refers to a type of intangible asset of added value or
“goodwill” those results from the favorable image or differentiation that a brand has achieved.
Another term used synonymously with brand equity is consumer franchise. There are many
examples of situations where a company’s have hurt the brand equity of their products by placing
more emphasis on consumer and trade promotions than advertising.

C. Consumer Franchise-Building versus Nonfranchise-Building Promotions—It is important to

make the distinction between consumer-franchise building sales promotions and non-franchise
building efforts. Consumer-franchise-building promotions are designed to communicate
distinctive brand attributes and contribute to the development and reinforcement of brand image
and identity. Non-franchise-building promotions are designed to accelerate the purchase
decision process and generate immediate increases in sales. They do very little, if any, to
contribute to the brand identity and image. IMC Perspective 16-1 discusses concerns over
marketers becoming too dependent upon sales promotion and how this is undermining their brand
building efforts.
III. CONSUMER-ORIENTED SALES PROMOTION
Marketers make extensive use of sales promotion, particularly those marketing to consumers and
have found a variety of ways to give consumers an extra incentive to purchase their products and
services.

A. Objectives for consumer-oriented sales promotion— as the use of sales promotion

techniques continues to increase, companies must give consideration to what they hope to
accomplish through their promotions and set clearly defined objectives and measurable goals for
their sales promotional programs. While the basic goal of most sales promotion activities is to
induce purchase of a brand, there are a number of different objectives the marketer might have for
both new and established brands. These include:
 1. Obtaining trial and repurchase

2. Increasing consumption of an established brand

3. Defending current customers

4. Targeting a specific market segment

5. Enhancing integrated marketing communications and building brand equity

IV. CONSUMER-ORIENTED SALES PROMOTION TECHNIQUES

The various consumer-oriented sales promotion techniques used by marketers should be discussed along
with their advantages and limitations and the role they play in meeting various promotional objectives.

A. Sampling—sampling involves a variety of procedures whereby consumers are given some

quantity of a product for no charge to induce trial. Sampling is often used as a way of introducing
a new brand to the market although it is also used for established products.
1. Benefits and limitations of sampling
 Samples are an excellent way of inducing trial
 Sampling allows consumers to experience a product directly and gain an appreciation for
its benefits and characteristics
 Costs of sampling programs can be very high
 The benefits of a brand may be difficult to gauge from a sample

2. Sampling Methods—decisions must be made concerning the method by which the sample
will be distributed. The sampling method is important not only in terms of costs, but also in
terms of influencing the type of consumer who receives the sample. Some of the more widely
used sampling methods include:

 Door-to-door sampling
 Sampling through the mail
 In-store sampling
 On-package sampling
 Event sampling

There are other sampling methods available such as inserts in magazines and newspapers,
requesting samples by phone, and the use of specialized sample distribution services. The
Internet is yet another way companies are making it possible for consumers to sample their
products. There are several online sampling services such as StartSampling, Eversave, and
MyTownOffers.

B. Couponing —Couponing is the oldest, yet most widely used and effective sales promotions tool.
The number of coupons distributed to consumers in the United States has increased dramatically
from 16 billion in 1968 to 1994 when it peaked at 310 billion. Coupon distribution in the U.S.
declined for the next 7 years but has rebounded during the first decade of the new millennium,
reaching an all time high of 311 billion in 2009 when 3.3 billion were redeemed The average
face value of coupons distributed was $1.37 in 2009 and the average value of those redeemed was
$1.09.

1. Advantages and limitations of coupons

Pros:
 Coupons make it possible to offer a price reduction to those consumers who are price
sensitive without having to reduce the price for everyone.
 Coupons allow the offering of a price reduction without having to rely on retailers.
 Couponing can be an effective promotional device for generating trial of a new brand.
 Coupons can be used to encourage trial and increase consumption of established brands.
Cons:
 It can be difficult to estimate how many consumers will redeem a coupon and when they
will do so.
 Coupons targeted to attract new users of established brands are often redeemed by
previous loyal users.
 Couponing programs can be expensive.
 Problems of coupon misredemption and fraud exist.

2. Coupon Distribution—Coupons can be distributed in a variety of ways including:

 media delivery in newspapers and magazines and as free-standing inserts (FSIs)
 through direct mail
 in or on packages
 in stores and at points-of-purchase
 over the Internet through online promotion sites
3. Couponing Trends—in 2009 consumers used more coupons than ever before as more than 3.3
billion were redeemed. The increase in coupon use is primarily a result of the difficult
economic times consumers are having as a result of the great recession. Some companies
such as Procter & Gamble have tried to cut back on their use of coupons because of concerns
over costs and effectiveness. Marketers continue to search for new and more effective
couponing techniques to get around the problem of “coupon clutter.” In-store coupon
distribution techniques are becoming more popular and many companies are attempting to
more precisely target consumers when distributing their coupons. Several companies now
offer online couponing services. Catalina Marketing offers Valupage.com where consumers
can log onto a web site, type in their zip code and download manufacturer- and retailer-
sponsored coupons. Cox Target Media also offers consumers the opportunity to access
coupons for their local area online through its Valpak.com web site. A rapidly growing
method of distribution is mobile couponing whereby coupons are sent directly to mobile
phones. IMC Technology Perspective discussing a new form of couponing that is becoming
popular that utilizes social media and the power of group purchasing. Companies such as
Groupon, LivingSocial and others are some of the companies offering coupons and other
types of discounts in this manner.
 C. Premiums—A premium is an offer of an extra item of merchandise or service either free or at a
low price that is used as an incentive for purchase. The two basic types of premiums are:

1. Free Premiums—usually inexpensive gifts or items that are included in the product package,
distributed with a purchase, or sent to consumers who make mail-in-requests along with a
proof of purchase. One of the fastest-growing types of premiums or incentive offers being
used by marketers is airline miles which have become a type of promotional currency

2. Self-liquidating premiums—those that require the consumer to pay some or all of the cost
of the premium plus handling and mailing costs. Self-liquidating premiums can be used to
create interest in a brand as well as generate goodwill that enhances the image of a brand.

Advantages and Limitations of Premiums

Pros:
 Premiums have high impulse value and can provide consumers with extra incentives to
purchase a product.
 Premiums are consumers most preferred types of promotions.
 Premiums can be used to create interest in a brand and goodwill that may enhance the
brand’s image.
 Premiums can be a way of generating trade interest and support.
Cons:
 Premiums can have high costs.
 There may be restrictions on the use of premiums.Redemption rates of mail in premiums
are low.
 Consumers may not perceive the premium offer as a value

D. Contests and Sweepstakes—A contest is a promotion whereby consumers compete for prizes or
money on the basis of skills or ability and winners are determined by judging entries against
some predetermined criteria. Contests often provide a purchase incentive by requiring a proof of
purchase to enter or to obtain an entry form from a dealer or advertisement. A sweepstakes is a
promotion whereby winners are determined purely by chance and cannot require a proof of
purchase as a condition for entry. Another form of a sweepstakes is a game which also has a
chance element associated with winning. IMC Perspective 16-2 discusses some of the problems
marketers have encountered contests, games and other types of promotions.

1. Some advantages of contests and sweepstakes:

 Contests and sweepstakes can be an effective way of getting the consumer to become
involved with the brand by making the promotion product relevant.
 They can also be used to generate interest in or excitement over a brand and attract
attention to advertising.
 Contest and sweepstakes can be an effective way of dealing with specific marketing
problems.
 Well designed contests and sweepstakes can help build brand equity among specific
target audiences
 2. Problems with contests and sweepstakes
 A contest or sweepstakes promotion may overwhelm the ad or brand and may do little to
contribute to the brand franchise or image.
 There are numerous legal problems and considerations that impact the design and
administration of contests and sweepstakes.
 The presence of professionals or hobbyists who submit large numbers of entries but have
no interest in the product can detract from the effectiveness of contests and sweepstakes.
E. Refunds and Rebates—Refunds or rebates are offers to return some portion of the product
purchase price after supplying some sort of proof or purchase. Consumers are generally
responsive to refund or rebate offers, particularly as the size of the savings offer increases.
Marketers are using rebates extensively, particularly in products categories such as consumer
electronics. However, many consumers have become frustrated with rebates and many
marketers, as well as retailers, are taking steps to deal with consumer dissatisfaction and problem
created by them.
1. Evaluating refunds and rebates—The advantages and disadvantages of refunds and rebates
are:
Pros:
 Refunds and rebates can be effective sales promotional tools for creating new users and
for encouraging brand switching
 Refunds and rebates are often perceived as immediate savings or value even though the
money is not received until the offer is redeemed and many consumers never follow
through on the offer.
 Refunds and rebates can allow a marketer to achieve a price reduction for much less than
if a direct price deal were utilized.
Cons:
 Many consumers do not like the delay and effort required to redeem refund and rebate
offers.
 The terms of some rebate offers are inconvenient or even unrealistic.
 Consumers may have a negative perception of brands that use rebates.
 Many retailers do not want to become involved with the administration of rebate
programs.

F. Bonus Packs—bonus packs offer the consumer an extra amount of a product at the regular price
by providing larger containers or extra units. Here are some of the advantages and limitations of
bonus packs:
Pros:
 They provide extra value to consumers without having to get involved with things such as
coupons or rebate offers.
 They can be an effective maneuver against a competitor’s promotion or introduction of a
new brand by loading consumers with the product and making them less susceptible to
competitors’ promotional efforts.
 Bonus packs often receive favorable response from retailers.
Cons:
 They may require additional shelf space and do not provide extra profit margins to the
retailer.
  They may appeal primarily to current users who may have purchased the brand anyway.

G. Price-off Deals—price-off deals provide a reduction in the regular price of the brand, typically
right on the package through specially marked price packs. Here are some of the advantages and
limitations of price-off promotions:
Pros:
 They are controlled by the manufacturer, which enables them to ensure that the
promotional discount reaches the consumer rather than being kept by the trade.
 Price-off deals usually present a readily apparent value to consumers, particularly when
they have a reference price point for the brand and recognize the value of the discount.
 Price-offs can provide a strong influence when point-of-purchase comparisons are made.
 They can encourage consumers to buy larger sizes.
Cons:
 They can create pricing and inventory problems for consumers
 They may appeal primarily to regular users rather than attracting nonusers

H. Loyalty programs—loyalty programs (also referred to as continuity or frequency programs) are

promotional programs that reward customers for continuing to purchase the same brand of a
product or service over time. Loyalty programs have become commonplace in a number of
product and service categories, particularly travel and hospitality, as well as among retailers.
Many consumer packaged goods companies are also developing frequency programs that offer
consumers to accumulate points for continuing to purchase their brands. The points can be
redeemed for gifts such as merchandise or for discounts.

Reasons for the popularity of loyalty programs include:

 Marketers view these programs as ways of encouraging consumers to use their products or
services on a continual basis and as a way of developing customer loyalty
 Many companies are realizing the importance customer retention and frequency programs
help them build relationships with customers
 Frequency programs provide marketers with the opportunity to develop databases containing
valuable information on their customers and which can be used for direct marketing purposes

Challenges associated with frequency programs include:

 Finding ways to make them true loyalty programs rather than just frequent-buyer programs
 Using frequency programs to effectively differentiate a product, service or retail store,
particularly when they are being used by competitors

I. Event Marketing—Event marketing is a form of promotion where a company or brand is linked

to a specific event or a themed activity is developed for the purpose of creating experiences for
consumers and promoting a product or service. Marketers often do event marketing by
associating their product with a popular activity such as a sporting event, concert, fair, or festival.
It is important to make a distinction between event marketing and event sponsorships, as the two
are often used interchangeably yet refer to different activities. Event sponsorships are promotions
whereby a company develops sponsorship relations with a particular event and provides financial
 support in return for the right to display a brand name, logo, or advertising message and be
identified as a sponsor of the event. Sponsorship of sporting events such as golf and tennis
tournaments and NASCAR races are common and many companies are sponsoring concert tours,
exhibits, cultural events and other activities. Event sponsorship is discussed in Chapter 17.

Event marketing has become very popular in recent years for several reasons:
 Events can be used as to create experiences for consumers and associate a company’s brand
with certain lifestyles and activities
 Events can be used to distribute samples as well as information about a marketer’s product or
service or to actually let consumers experience the product
 Events often provide marketers with access to large numbers of consumers at a relatively low
cost and can be an effective part of a grass roots marketing program
J. Summary of Consumer-Oriented Promotions—the discussion of the various consumer-oriented
promotion techniques shows that marketers use these tools to accomplish a variety of objectives.
These techniques provide consumers with an extra incentive or reward for engaging in a certain
form of behavior such as purchasing a brand. These incentives or rewards can be either
immediate or delayed. Figure 16-4 in the text outlines which sales promotional tools can be used
to accomplish various objectives of marketers (such as inducing trial, customer retention/loading,
and supporting the IMC program and/or building brand equity) and whether the incentive is
immediate or delayed. This chart is a useful way of summarizing the discussion of consumer-
oriented sales promotion tools.

V. TRADE ORIENTED SALES PROMOTION

A. Objectives for Trade-Oriented Sales Promotion—as with consumer oriented promotions, sales
promotion programs targeted to the trade should be based on well-defined objectives and a
consideration of what the marketer wants to accomplish by using trade promotions. Objectives
for trade-oriented promotions include:
1. Obtain distribution for new products

2. Maintain trade support for established brands

3. Encourage retailers to display and promote established brands

4. Build retail inventories

B. Types of Trade Oriented Promotions—there are a variety of trade promotion tools that
manufacturers can use as inducements for wholesalers and retailers. These include:

1. Contests and incentives—manufacturers use contests and special incentive programs to

stimulate greater selling effort from resellers management or sales personnel. An important
target of contests or special incentives is the sales personnel of the middlemen. In addition to
using contests, programs targeted to sales personnel may include push money or spiffs.

2. Trade allowances—probably the most commonly used trade promotion is some form of trade
allowance which is a discount or deal offered to the retailer or wholesaler to encourage them
 to stock, promote, or display a manufacturer’s products. There are several types of trade
allowances including:

3. buying allowances—a deal or discount offered to resellers in the form of a price reduction on
product ordered during a fixed time period

 promotional allowances—discounts provided to retailers for performing certain

promotional or merchandising activities in support of a manufacturer’s brand

 slotting allowances—rather than a discount, these are special fees that retailers charge
manufacturers for agreeing to handle a new product and providing a slot or position in
their store to accommodate the new product.

Problems with trade allowances—many companies are concerned over the abuse of trade
allowances by wholesalers, retailers and distributors. Marketers give retailers trade
allowances with the expectation that the savings will be passed on to the consumer in the
form of lower prices. However, the trade members often pocket these discounts. Two
practices that are particularly bothersome are forward buying and diverting. To deal with
these trade problems some companies, such as Procter & Gamble, have tried to adopt a policy
of Everyday Low Pricing (EDLP) whereby the list price of its product line is lowered and
promotional allowances to the trade are reduced or even eliminated. However, most
company’s efforts to enforce EDLP have not been received well by retailers who still prefer
to operate on a high/low strategy of frequent discounts and price specials.
3. Displays and point-of-purchase materials—marketers use a variety of point-of-purchase
materials including end-of-aisle displays, posters, banners, shelf cards, motion pieces, stand-
up racks and other material. Point-of-purchase displays are an important promotional tool
because they can help a manufacturer obtain more effective in-store merchandising of their
products. Products often sell better when they are on display as they are more likely to be
noticed by consumers and displays also are often accompanied by price deals.

4. Sales training programs—another important form of manufactured sponsored promotional

assistance is sales training programs for reseller sales personnel. Manufacturers provide sales
training assistance to retail salespeople in a number of ways including having formal classes,
having their sale reps work with resellers and providing sales manuals, brochures, videos and
other selling aids.

5. Trade shows—a trade show is a type of exhibition or forum where manufacturers display
their products to current as well as prospective buyers. Trade shows provide a major
opportunity to display and demonstrate products, interact with customers, identify new
prospects, gather customer and competitive information and even write new orders. The
social aspects of trade show are also important as many customers use them to entertain key
customers and to develop and maintain relationships.

6. Cooperative advertising—cooperative advertising, whereby the cost of advertising is

shared by more than one party, is another important form of trade promotion. Actually there
are three types of cooperative advertising including:
 
Horizontal cooperative advertising – refers to advertising sponsored in common by a
group of retailers, companies or other organizations providing products or services to a
market. Automobile dealerships that are concentrated in a specific location in many large
metropolitan areas often use this form of cooperative advertising.
 Ingredient sponsored cooperative advertising – refer to advertising supported by a raw
materials or component manufacturer to help establish end products using the company’s
materials or ingredients. The popular “Intel Inside” campaign is an example of this form of
cooperative advertising. Intel provides cooperative advertising funds to personal computer
manufacturers which totals five percent of the total dollar amount of microprocessors they
purchase from the company.
 Vertical cooperative advertising—vertical cooperative advertising is the most common
type of co-op ad program used as part of a trade-oriented promotional program. Under a
vertical co-op program, the manufacturer pays for a portion of the advertising a retailer
runts to promote its product and its availability in the retailer’s place of business. The limit
or amount of co-op funds the manufacturer provides to the retailer is usually based on a
percentage of dollar purchases made from the manufacturer. This percentage is usually
around 3 to 5 percent.
VI. COORDINATING SALES PROMOTION AND ADVERTISING
Sales promotion techniques usually work best when used in conjunction with advertising. Conversely, a
consumer sales promotion program can enhance the effectiveness of an ad campaign. When properly
planned and executed to work together, sales promotion can provide a synergistic effect that is much
greater than the response that would be generated from either promotional mix element used alone.
Proper integration of advertising and sales promotion requires the coordination of several decision areas
including:

A. Budget Allocation—this allocation depends on a number of factors:

 the promotional objectives of the campaign
 the market and competitive situation
 the brand’s stage in its life cycle

B. Coordination of Advertising and Promotion Themes—to integrate the advertising and sales
promotion programs successfully, the theme of consumer promotions should be tied in with the
advertising and positioning themes wherever possible.
C. Media Support and Timing—using a promotion without prior or concurrent advertising can limit
its effectiveness and risk damaging the brand’s image. Conversely, the effectiveness of an ad can
be enhanced by a coupon, a premium offer, or an opportunity to enter a sweepstakes or contest.

VI. SALES PROMOTION ABUSE

The increasing use of sales promotion in the marketing program represents a change in the fundamental,
strategic decisions regarding how companies market their products and services. However, the value of
this increased emphasis on sales promotion has been questioned by many experts. Concerns include the
following:

Marketers becoming too dependent on using sales promotion to produce short-term or immediate
increases in sales
Investing in sales promotion at the expense of advertising and thus not building the long-term value of the
brand franchise
Brands losing their perceived value from the perspective of consumers when they are purchased because
of a promotional offer

In many situations there is the potential for companies to fall into a sales promotion trap or spiral
whereby all competitors are making extensive use of promotions. Figure 16-7 shows this dilemma which
is analogous to the “prisoner’s dilemma game” as the only way out of it is for both parties to cooperate by
cutting back on promotions.

PUBLIC RELATIONS, PUBLICITY, AND CORPORATE

ADVERTISING

Chapter and Lecture Outline

I. PUBLIC RELATIONS
A. The Traditional Definition of PR—The chapter begins by differentiating between the traditional
role of public relations and the new role. The traditional role (as defined on page 573) reflects a
management function that has as its primary responsibility the goal of communicating and the
gaining acceptance of the organization’s policies and programs within its various communities.
B. The New Role of PR—The new role assumes a much broader, and more marketing-oriented,
perspective. In the new orientation, the public relations department operates in close
communication with the marketing department (rather than as separate entities) to develop
programs and policies.
C. Integrating PR into the Promotional Mix—The chapter takes the position that the activities of the
public relations department must be coordinated with marketing, and integrated into the overall
promotional mix.
D. Marketing Public Relations (MPR) Functions—Public relations activities designed to support
marketing objectives are called marketing public relations functions. The text discusses the
numerous ways that MPR adds value to the integrated marketing program.

II. THE PROCESS OF CONDUCTING PUBLIC RELATIONS

The actual process of conducting public relations will require a number of tasks. These tasks will
involve both traditional and new role activities.

A. Determining and Evaluating Public Attitudes—The first step in the public relations process is
to determine the public’s existing attitudes toward the firm and/or its products. Four reasons
are given to explain why this step is necessary :
 To provide input into the planning process
 To serve as an “early warning system” for potential problems
 To secure internal support
 To increase the effectiveness of the communication
B. Establishing a Public Relations Plan—Too many firms do not establish a formalized public
relations plan. As a result, actions tend to be more reactive than proactive. A formal plan—
coordinated with marketing—needs to be developed.
C. Developing and Executing the Public Relations Program—A number of activities must be
conducted once the plan has been established.
 Determining relevant target audiences—Target audiences may be categorized as internal
or external.
Internal audiences include:
a. employees
b. stockholders and investors
c. community members
d. suppliers and customers

External audiences may include:

a. the media
b. educators
c. civic and business organizations
d. governments
e. financial groups
 Implementing the public relations program—Once the target audience has been
established, and objectives established, a number of tools may be used for
implementation or delivery including:
 press releases
 press conferences
 exclusives
 interviews
D. Advantages and Disadvantages of Public Relations—Pages 571-572 of the text list a number
of advantages and disadvantages associated with the use of public relations.
Advantages include:
 credibility
 low cost
 less clutter
 lead generation
 ability to reach specific groups
 image building

The primary disadvantages result more from improper implementation of the programs than
with public relations in and of itself. These include:
 not completing the communication process
 redundancies with the marketing effort

E. Measuring the Effectiveness of Public Relations—Figure 17-4 lists a variety of criteria that
might be used as dependent variables in the measurement of the PR program. In addition, the
text lists a number of methods that might be employed in this process including
 personal observation and reaction
  matching objectives and results
 the team approach
 public opinions and surveys
 management by objectives
 audits

III. PUBLICITY
The text provides a definition of publicity and notes that the distinction between publicity and public
relations is not always clear. The dissemination of publicity is a task that is the responsibility of the
public relations department, as is the development of programs to deal with publicity originating from
other sources. At the same time, public relations activities are under the control of the firm. The same
cannot always be said for publicity.

A. The Power of Publicity—the text provides information for discussion of how companies handle
negative publicity. Simply put, publicity is powerful enough to make or break a firm. Products
such as aspirin and red wines are testimonials as to the way that companies can benefit from this
power. In addition to those stated above, products such as Wal-Mart, BP, and Toyota have all felt
the negative impact of this communication form. Given this power, the firm must have programs
in place to capitalize on or control and minimize the effects of these messages.
B. The Control and Dissemination of Publicity—While the marketer may not be able to control all
publicity, it is possible to impact these communications in a number of ways. For example, press
releases, or “leaks” may be used to make sure that the information gets out. Publicity can also be
managed or turned around to be used as an advantage (See the Martha Stewart and Cabernet
Sauvignon examples), or responded to (Tree Top).
C. Advantages and Disadvantages of Publicity—The text notes (p.561 that publicity offers the
advantages of (1) credibility; (2) news value; (3) high word-of-mouth communications; and
(4) perceived endorsement by the media. Disadvantages include possible problems with respect
to: (1) timeliness and (2) accuracy.
D. Measuring the Effectiveness of Publicity—The measures employed in assessment of the public
relations program can also be used here.