© 2010 South-Western, a part of Cengage Learning All rights reserved. PowerPoint Presentation by Charlie Cook The University of West Alabama Eighth Edition Sales Promotion and the Role of Trade Promotions CHAPTER 15 1. Understand the nature and purpose of sales promotions. 2. Know the factors that account for the increased investment in promotions, especially those that are trade oriented. 3. Recognize the tasks that promotions can and cannot accomplish. 4. Appreciate the objectives of trade-oriented promotions and the factors critical to building a successful trade promotion program. Chapter Objectives After reading this chapter you should be able to: © 2010 South-Western, a part of Cengage Learning. All rights reserved. 15–2 5. Comprehend the various forms of trade allowances and the reasons for their use. 6. Be aware of forward buying and diverting and how these practices emerge from manufacturers’ use of off-invoice allowances. 7. Appreciate the role of everyday low pricing (EDLP) and pay-for-performance programs as means of reducing forward buying and diverting. 8. Understand nine empirical generalizations about promotions Chapter Objectives (cont’d) After reading this chapter you should be able to: © 2010 South-Western, a part of Cengage Learning. All rights reserved. 15–3 © 2010 South-Western, a part of Cengage Learning. All rights reserved. 15–4 The Nature of Sales Promotion The Nature of Sales Promotion • Sales Promotion Sales Promotion  Is any incentive that is additional to the basic Is any incentive that is additional to the basic benefits provided by the brand and benefits provided by the brand and temporarily temporarily changes its perceived price or value changes its perceived price or value  Is Is short-term oriented short-term oriented and capable of influencing and capable of influencing behavior because it offers buyers superior value behavior because it offers buyers superior value and can make them feel better and can make them feel better about the buying experience about the buying experience © 2010 South-Western, a part of Cengage Learning. All rights reserved. 15–5 The Nature of Sales Promotion (cont’d) The Nature of Sales Promotion (cont’d) • Purposes of Sales Promotion Purposes of Sales Promotion  To induce the trade (wholesalers and To induce the trade (wholesalers and retailers) or consumers to buy a brand retailers) or consumers to buy a brand  To encourage the manufacturer’s sales To encourage the manufacturer’s sales force to sell a brand aggressively force to sell a brand aggressively  To encourage immediate, desired To encourage immediate, desired shopping and purchasing behaviors shopping and purchasing behaviors from their consumers from their consumers  To encourage people to increase their To encourage people to increase their donations to nonprofits now rather than donations to nonprofits now rather than later later © 2010 South-Western, a part of Cengage Learning. All rights reserved. 15–6 Brand-Level Promotion Targets Figure 15.1 © 2010 South-Western, a part of Cengage Learning. All rights reserved. 15–7 Increased Budgetary Allocations Increased Budgetary Allocations to Promotions to Promotions • Advertising Spending Advertising Spending  Advertising expenditures have declined in recent Advertising expenditures have declined in recent years while promotion spending has increased years while promotion spending has increased • Push Strategy Push Strategy  Using promotional efforts to push product through the Using promotional efforts to push product through the selling chain selling chain • Pull Strategy Pull Strategy  Using consumer advertising to pull product through Using consumer advertising to pull product through the channel of distribution the channel of distribution © 2010 South-Western, a part of Cengage Learning. All rights reserved. 15–8 Push and Pull Strategies Table 15.1 © 2010 South-Western, a part of Cengage Learning. All rights reserved. 15–9 Developments Underlying the Growth in Promotions Table 15.2 • Shift in manufacturer versus retailer balance of power • Increased brand parity and price sensitivity • Reduced brand loyalty • Splintered mass market and reduced media effectiveness • Emphasis on short-term results in corporate reward structures • Increase in responsiveness of consumers to promotion © 2010 South-Western, a part of Cengage Learning. All rights reserved. 15–10 A Consequence of the Increase: A Consequence of the Increase: New Accounting Rules New Accounting Rules • Financial Accounting Standards Board (FASB) Financial Accounting Standards Board (FASB) Emerging Issues Task Force Emerging Issues Task Force  Regulations EITF 00-14 and 00-25 require that price Regulations EITF 00-14 and 00-25 require that price discount sales promotion discount sales promotion — — including those directed to including those directed to retailers and consumers retailers and consumers — — must be treated as must be treated as reductions in sales revenue. reductions in sales revenue.  Adherence to the new rules will cut reported net sales Adherence to the new rules will cut reported net sales for CPG companies by 8.5% on average. for CPG companies by 8.5% on average. [...]... Higher-market-share brands are less deal elastic 6 Advertised promotions can result in increased store traffic 7 Feature advertising and displays operate synergistically to influence sales of discounted brands 8 Promotions in one product category affect sales of brands in complementary and competitive categories 9 The effects of promoting higher- and lower-quality brands are asymmetric © 2010 South-Western,... in and day out Pay-for-Performance Programs • Reward retailers for selling the brands supported with trade allowances rather than merely buying these brands • Produce win-win-win situations • Provide incentives to the retailer only for the items that are sold to consumers during the agreed-upon time period • Benefit all parties: consumers, retailers, and manufacturers © 2010 South-Western, a part of... movement that meets the manufacturer’s promotional requirements and warrants compensation  Paying the retailer  Collecting funds from the manufacturer along with a commission for services rendered © 2010 South-Western, a part of Cengage Learning All rights reserved 15–23 Trade Promotion Activities (cont’d) Account-Specific Marketing (Co-Marketing) • Creates promotional and advertising activities... could result from product tampering © 2010 South-Western, a part of Cengage Learning All rights reserved 15–20 Efforts to Rectify Trade Promotion Problems Reducing the Negative Effects of Trade Allowances Everyday Low Pricing (EDLP) Pay-forPerformance © 2010 South-Western, a part of Cengage Learning All rights reserved Account-Specific Marketing 15–21 Trade Promotion Activities Everyday Low Pricing (EDLP)... Accounting Procedure © 2010 South-Western, a part of Cengage Learning All rights reserved 15–11 Table 15.4 Tasks That Promotions Can and Cannot Accomplish Sales Promotions Can • Stimulate sales force enthusiasm for a new, improved, or mature product • Invigorate sales of a mature brand • Facilitate the introduction of new products to the trade • Increase on- and off-shelf merchandising space • Neutralize... along their savings to consumers © 2010 South-Western, a part of Cengage Learning All rights reserved 15–17 Trade Allowances (cont’d) Major Forms of Trade Allowances Off-Invoice Allowances Bill-Back Allowances © 2010 South-Western, a part of Cengage Learning All rights reserved Slotting and Deslotting Allowances 15–18 Major Forms of Trade Allowances Off-Invoice Allowances • Most frequently used form... advertising • Give the trade or consumers any compelling long-term reason to continue purchasing a brand • Permanently stop an established brand’s declining sales trend or change the basic nonacceptance of an undesired product © 2010 South-Western, a part of Cengage Learning All rights reserved 15–13 The Role of Trade Promotions • Trade Promotions’ Scope and Objectives 1 Introducing new or revised... South-Western, a part of Cengage Learning All rights reserved 15–14 Ingredients for a Successful Trade Promotion Program Financial Incentive Minimize Retailer’s Effort and Cost Correct Timing Quick Results © 2010 South-Western, a part of Cengage Learning All rights reserved Improved Retailer Performance 15–15 Table 15.5 Illustration of Forward Buying and Diverting 1 In preparation for a huge promotional... 2009 surrounding the Cinco de Mayo celebration of Mexican independence on May 5, Beauty Products Inc.—a hypothetical manufacturer of personal-care products—extends an off-invoice offer to grocery chains in the Los Angeles area This promotion is a 15 percent off-invoice allowance on all orders placed for SynActive shampoo (a hypothetical brand) during the week beginning April 3, 2009, and extending through... advertising and sales promotions • Obtain trial purchases from consumers • Hold current users by encouraging repeat purchases • Increase product usage by loading consumers • Preempt competition by loading consumers • © Reinforce advertising 2010 South-Western, a part of Cengage Learning All rights reserved 15–12 Table 15.4 Tasks That Promotions Can and Cannot Accomplish (cont’d) Sales Promotions Cannot . Task Force  Regulations EITF 0 0-1 4 and 0 0-2 5 require that price Regulations EITF 0 0-1 4 and 0 0-2 5 require that price discount sales promotion discount sales promotion — — including those directed. Cengage Learning. All rights reserved. 15–4 The Nature of Sales Promotion The Nature of Sales Promotion • Sales Promotion Sales Promotion  Is any incentive that is additional to the basic Is. experience © 2010 South-Western, a part of Cengage Learning. All rights reserved. 15–5 The Nature of Sales Promotion (cont’d) The Nature of Sales Promotion (cont’d) • Purposes of Sales Promotion Purposes