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.

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.

Fig. 1. Everything is on sale, Buy it now!

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.

Fig. 2. McDonald's monopoly stubs

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 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.

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.