Companies have different ways of rewarding their loyal customers or attracting new ones. They use promotions to increase their sales and customer loyalty. So, how does the promotion work? How does it help companies generate more sales? What type of promotion methods are there?
You can find the answer to these questions and much more by reading through this explanation!
Promotion Definition
Promotion is the use of communication to influence consumers to buy goods or services. It can include all forms of communication, ranging from poster advertisements to digital ads on social media. More specifically, a promotion in business can refer to a specific deal being offered on a good or service to attract additional sales. These often refer to temporary sales or tying arrangements where a select good or service can be acquired for a lower-than-average price or bundled with a complementary good.
Promotions are used by a company or brand to grow or improve consumers' perception of the promoted asset and to raise sales.
Promotion may take place in several different contexts, including jobs, businesses, and marketing. Product promotions are a common marketing tactic used by large and small companies alike in the effort to attract new clients. The primary objective of product marketing is to bring attention to a new brand or specific item.
An example of a marketing promotion would be the addition of a new specialty menu item at a restaurant or implementing a buy-one-get-one-free discount at a grocery store.
On the other hand, promotion in Internet service, cable television, cell phone service, or streaming television packages may include bundling additional services with a basic package for no additional charge.
For example, new customers who order a basic cable Internet package during a particular month of the year may receive lower-cost cable TV service for the next 24 months.
In retail, a common promotion involves buying one item and getting the second item of equal or lesser value for half price. A standard promotion offers a period during which interest is not charged for things that need to be financed or paid for with interest over time.
Promotion Strategy
Promotion strategies can differ based on the type of customer a business wants to attract.
Some strategies are focused on attracting new customers, which can be done through introductory offers and promotional events. New customers are introduced to the product or company and are offered lower-than-usual prices. Introductory offers and promotional events are usually only available for a limited time to attract customers quickly.
When a company expands into a new market, it may focus heavily on these promotion strategies to quickly build a customer base where none previously existed.
Other strategies are focused on rewarding existing customers, frequently by offering unique products, services, and subscription packages only to those who have already registered with or purchased from the company. Companies with routine high-volume sales may use this strategy more frequently, such as gas stations and grocery stores.
These companies may offer reward plans that offer discounts to customers who purchase specific product volumes, especially over long periods. If a substantial percentage of a firm’s sales comes from repeat customers, this promotion strategy is a good idea to maintain.
It may be less expensive to use promotion strategies to reward existing customers and build brand loyalty than to attract new customers.
Some strategies are generic and focus on all potential customers but will likely be conducted differently to appeal to different groups.
For example, a simple "25 percent off" sale may be advertised in different ways to potential new customers, existing casual customers, and loyal customers.
Targeted advertisements may be used for each group, highlighting various pieces of information.
For example, social media ads aimed at those who have already liked and followed the company’s social media profiles will likely praise customers for their loyalty and highlight the sale as a reward for its “best customers". Those who have never interacted with the company’s social media profiles may be targeted with ads encouraging them to “come to check out” the company and learn about its amazing deals.
Promotion Methods
There are many methods of creating, running, and advertising promotions. Some promotions can be advertised widely on all media platforms, from print to radio to the Internet. These appeal to a wide array of potential customers but are expensive.
To attract new customers, firms must advertise promotions more widely than if trying to retain existing customers.
Existing customers can be informed about promotions through information they have already provided the company.
For example, most customers of durable goods like appliances, expensive electronics, and automobiles often register their purchases with the company for warranty purposes.
This allows the company to also advertise to these previous customers directly. They can even tailor direct advertisements to the product the customer registered!
For example, previous purchasers of new Chevy Silverados from General Motors can be targeted for direct mail advertisements and emails about trading in their current Silverado for a similar new model.
Conversely, companies that have purchased data about the customers of competing products may offer promotions that give discounts or additional goods and services to those who switch company loyalty.
For example, Chrysler may provide a discount for owners of Ford and General Motors vehicles who trade them in for a new Chrysler vehicle.
Some advertised promotions may offer to match deals made by any rival company, potentially attracting customers who want to buy from a brand that provides aggressive promotions.
Promotion Types
There are many individual Promotion Types.
Promotions geared toward attracting new customers include:
These promotions must usually be simple, as potential customers may quickly tune out if an advertisement appears complex and difficult to get.
For example, a 25-per cent-off sale during the first weekend of July is easy to understand. On the other hand, a promotion that requires customers to make accounts on websites and sign up for programs may quickly alienate potential buyers.
Promotions aimed at maintaining brand loyalty include:
Direct email advertising.
Deals on upgrades for existing purchases.
Deals on trade-ins of existing purchases.
Exclusive previews of new products.
Contests and giveaways for existing customers.
Because they are targeting existing customers, many of whom are likely already registered with the company, the company can use more complex promotions.
For example, a referral program for new customers can be done much more easily if the referrer has already created an account on the company's website.
These types of promotions will likely offer greater deals than generic promotions to all customers or introductory offers for new customers. Customers who have displayed brand loyalty over long periods may receive generous promotions to build inter-generational brand loyalty.
An example would be a 'child of alumnus tuition rate' at universities - giving an out-of-state child of an alumnus in-state tuition may help the university guarantee additional tuition payments for generations as a family legacy of attending the school has been established.
Recipients of such brand loyalty promotions are also likely to advertise the product or service's benefits to others, serving as organic marketing.
Role of Promotion in Marketing
Promotions are an excellent tool in marketing because they increase consumer demand.
One determinant of demand is the expectation of future prices. In other words, demand for a good or service rises today if it is believed that the cost of the good or service will increase in the future. Sales are only successful, therefore, if consumers believe that they are for a limited time only. By making promotions seem limited, companies can boost demand.
Promotions often amplify this determinant of demand by making promotions seem exclusive and only targeted toward customers who are savvy and loyal. New customers want to feel like they are part of the "in crowd" and jump at the chance to be part of the promotion.
Another determinant of demand is the price of available substitutes and complements. Promotions can make the prices of substitutes seem higher in comparison, thus increasing demand for the promoted goods.
Promotions that include preferential access to, or lower prices for, complementary goods also increase demand directly for the promoted good. Using tying arrangements and bundling can increase consumer demand for the advertised product by providing complementary goods simultaneously. This can benefit the company if they have a surplus of complementary products and are trying to reduce the excess.
For example, supermarkets can print coupons that give customers of a promoted product a free complement that has been overstocked.
Promotion - Key takeaways
- Promotion is the use of communication to influence consumers to buy a good or service.
- Promotions are used by a company or brand to grow or improve consumers' perception of the promoted asset and to raise sales.
- Promotion types include general advertising, mass email marketing, advertising positive customer reviews, exclusive previews of new products, etc.
- Promotion strategies focused on attracting new customers can be done through introductory offers and promotional events.
- Customers who have displayed brand loyalty over long periods may receive generous promotions to build inter-generational brand loyalty.
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