CHAPTER 16
SALES PROMOTION
Chapter Overview
In this chapter we turn our attention to sales promotion and its role in a firm’s integrated marketing
communications program. We examine how marketers use both consumer- and trade-oriented promotions
to influence the purchase behavior of consumers as well as wholesalers and retailers. The chapter begins
with a discussion of the scope and role of sales promotion and a discussion of the reasons for its
increasing importance. Attention is also given to sales promotion objectives including a discussion of
consumer-franchise-building versus non-franchise-building promotions and specific promotional
objectives. Much of the chapter is devoted to an examination of the various consumer- and trade-oriented
sales promotion techniques used by marketers and considerations involved in their use. The chapter
concludes with a discussion of how sales promotion and advertising can be integrated with other elements
of the promotional mix as well as problems involving marketers’ over-reliance and even abuse of sale
promotion.
Learning Objectives
1. To understand the role of sales promotion in a company’s integrated marketing communications
program and to examine why it is increasingly important.
2. To examine the various objectives of sales promotion programs.
3. To examine the types of consumer and trade-oriented sales promotion tools and factors to consider
in using them.
4. To understand how sales promotion is coordinated with advertising.
5. To consider potential problems and abuse by companies in their use of 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 the so-called “below
the line” IMC discipline areas such as sales promotion are being used to build brand equity and are taking
center stage alongside advertising.
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:
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
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. It should be noted that this chapter focuses on both consumer- and trade-oriented promotions.
Professor Notes
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 2002 spending on various forms of
sales promotion reached nearly $100 billion while another $150 was spent 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.
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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. Increasing 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 packagedgood products was purchased with some type of incentive.
4. Brand proliferation—Consumer product companies are launching nearly 30,000 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.
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.
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 companies are turning to sales promotion to gain or
maintain a competitive advantage. A major development in recent years is the use of accountspecific marketing (also referred to as comarketing) whereby a marketer collaborates with
customizes promotions for individual retailers. Exhibit 16-6 provides an example of an
account specific promotion Coppertone’s promotional agency developed for Wal-Mart.
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.
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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. The book discusses how
Heinz allocated most of its marketing budget to trade promotion during the early to mid ‘90s,
which hurt the brand equity of many of its brands.
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.
Professor Notes
III.
CONSUMER-ORIENTED SALES PROMOTION
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
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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.
Figure 16-2 shows the extent to which these consumer promotions are used by package-goods companies.
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 Catalina Marketing’s
ValuPage.com and the Sunflower Group’s SiteLinkPlus. The text discusses several reasons
for a recent resurgence in sampling.
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B.
Couponing —Couponing is the oldest, yet most widely used and effective sales promotions tool.
The number of coupons distributed to consumers has increased dramatically over the past decade
and over 4 billion are redeemed each year in the U.S. As Figure 16-2 shows, coupons are the
most popular sales promotion technique.
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—Over the past four years the number of coupons distributed has declined
by nearly 20 percent while coupon redemption has declined by nearly 25 percent. Some
companies such as Procter & Gamble have 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 manufacturerand 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.
Professor Notes
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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.
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
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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.
Professor Notes
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.
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:
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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.
Frequency programs—Frequency programs (also referred to as continuity or loyalty programs)
are promotional programs that reward customers for continuing to purchase the same brand of a
product or service over time. Frequency 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 frequency 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
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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. 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 16-5 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 consumeroriented sales promotion tools.
Professor Notes
228
V.
TRADE ORIENTED SALES PROMOTION
A.
Objectives for Trade-Oriented Sales Promotion—As with consumer oriented promotions, sale
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:
 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 adopted 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
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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, standup 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.
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 (for example, the popular “Intel Inside” campaign which is
discussed in IMC Perspective 16-5).
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.
Professor Notes
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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. The WD-40 ad shown in Exhibit 16-30
provides a good example of how a sweepstakes theme is coordinated with the positioning used
for the brand.
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 16-8 shows this dilemma which
is analogous to the “prisoner’s game” as the only way out of it is for both parties to cooperate by cutting
back on promotions.
Professor Notes
231
Teaching Suggestions
In this chapter we examine the very important area of sales promotion including the promotional activities
directed at consumers as well as the trade. This is a very long chapter as its covers both consumer and
trade-oriented sales promotion very thoroughly. We strongly suggest that this material be covered over a
two-class period. The first lecture can provide an overview of the sales promotion area, reasons for the
shift in marketing dollars to sales promotion and consumer-oriented sales promotion. The second lecture
can cover trade promotion, the coordination of sales promotion with advertising and other promotional
mix elements, and the problems of sales promotion abuse. In covering sales promotion you may want to
refer students back to Chapter 4 and the discussion of behavioral learning theory. The discussion of
shaping procedures is particularly relevant to the use of sales promotion. You may want to review Figure
4-8 to show how sales promotion can be used in the introduction of a new product. This exhibit is
particularly helpful in showing how sales promotion techniques can be valuable in leading a consumer
from trial of a new brand to regular purchase through the use of samples and coupons.
It is very important to point out to the students the increasing emphasis many companies are placing on
sales promotions targeted to both consumers and the trade and how it has come at the expense of media
advertising. The instructor should point out the fact that sales promotion accounts for anywhere from 60
to 75 percent of the promotional budget of consumer product companies. It is also helpful to review some
of the reasons for the increase in sales promotion and discuss whether this trend will continue. The
instructor should review the various consumer-and trade-oriented sales promotion techniques along with
their advantages and limitations. Students should be encouraged to evaluate these techniques as strategic
and tactical promotional tools and to consider the reasons why marketers use them. We also feel that it is
very important to discuss how sales promotion can and should be coordinated with the advertising
program. Figure 16-7 shows how the role of sales promotional agencies is changing and provides insight
into how many firms are attempting to coordinate their advertising and promotional efforts.
It is important to clarify the differences between event marketing and event sponsorship as the two are
often confused. We discuss event marketing as a form of sales promotion while event sponsorships are
discussed in Chapter 17 as part of the public relations program. You might also want to review the chart
shown in Figure 16-5 which shows how sales promotion tools can be used to accomplish various
marketing objectives and whether the extra consumer reward or incentive is immediate or delayed. We
also feel it is important to devote some attention to the problem of sale promotional abuse and the number
of companies that are becoming over-reliant on sales promotion for a short-term “sales fix” rather than
investing in the long term image of the brand. The instructor may want to spend some time discussing the
sales promotional dilemma shown in Figure 16-8 of the text.
To keep abreast of development in the sales promotion area and to find some very interesting articles on,
and examples of, successful promotions, the instructor can refer to sources such as Promo magazine. This
magazine offers complimentary subscriptions to professors and is also available online at
www.promomagazine.com. Another organization that provides a wealth of valuable information on sales
promotion is the Promotional Marketing Association (PMA). Their website can be found at
www.pmalink.org.
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Answers to Discussion Questions
1. Discuss the role of sales promotion as part of the promotional mix and how it can be integrated with
other marketing communication tools.
Sales promotion plays a very important role in the integrated marketing communications program of
most companies and consumer packaged goods firms in particular. Both consumer- and trade-oriented
promotions are an important part of a firm’s IMC program. In a very competitive market, consumers
must often be provided with an extra incentive such as a coupon, bonus pack, premium, or price
reduction to encourage them to choose one brand over another. Consumer-oriented promotions, along
with advertising, are a very important part of marketers’ “pull strategy” which create demand for their
brands. With the increasing amount of advertising clutter and many purchase decisions being made in
the store, marketers must do more than just advertise to gain and hold market share. Trade-oriented
promotions are also very important, as marketers must give attention to getting the channel members
to stock, display and promote their brands. Much of the power in channels of distribution has shifted
to the retailer and competition as limited amounts of shelf space have intensified. Thus marketers
must focus attention and effort on “pushing” their products through the channels of distribution.
Trade-oriented promotions are an important part of this strategy.
2. Discuss how sales promotion can be used as an acceleration tool to speed up the selling and/or
purchasing process and maximize c company’s sales volume.
There are several ways sales promotion can be used as an acceleration tool to speed up the sales
process and maximize sales volume. Consumer promotion tools such as premiums, bonus packs, and
price-off deals provide an extra incentive that may motivate consumers to take more immediate
action. Coupons usually have expiration dates that require consumers to use them during a specific
time period, which is another way of accelerating the purchase process. Marketers often use
techniques such as in-store sampling programs that may be accompanied by a discount coupon and
thus encourage immediate purchase. Trade promotions can also accelerate the selling process with
retailers. For example, retailers who take advantage of an off-invoice allowance often pass the
savings on to consumers in the form of a price reduction, which encourages them to purchase the
brand. Promotional allowances are given to retailers for performing certain promotional or
merchandising activities such as providing special displays, running in-store promotional programs or
including the marketer’s brand in an ad. These activities will help generate sales volume and
encourage immediate purchases by consumers.
3. Discuss the various factors that have led to companies shifting more of their marketing budgets to
sales promotion. Discuss the pros and cons of this reallocation of marketers advertising and
promotion budgets.
There are many reasons why sales promotion has become so important and is receiving a great deal of
marketers’ promotional budgets. These include the growing power of retailers; the decline in
consumers’ brand loyalty and their increasing sensitivity to sale promotion offers; brand proliferation
in the consumer market as many product categories have experienced a flurry of new brand
introductions; fragmentation of the consumer market and trend toward increased market segmentation
and regional marketing; pressure for increased accountability for promotional expenditures from
companies and the resulting focus on short-term sales results; reliance on sales promotion as a way of
gaining competitive advantage; and finally the increasing problem of advertising clutter which has led
many advertisers to turn to consumer promotions as a way of attracting attention and interest to their
advertisements.
Some experts argue that the reallocation of marketing budgets from media advertising to sales
promotion is reasonable as many companies are now using the various promotional tools in a more
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strategic way that contribute to brand equity. However, critics argue that this reallocation often comes
at the expense of brand equity. They note that many types of sales promotion do not contribute to the
building of brand identify or image. The allocation trend toward sales promotion is unlikely to go too
much further as many marketers recognize that they are sacrificing brand equity by spending
promotional dollars on sales promotion rather than advertising. Marketers are also concerned that the
large sums of money they are spending on trade promotions are not being passed through to
consumers and thus they are attempting to cut back in this area. It is unlikely, however, that we will
see a return to the good old days when media advertising accounted for the largest portion of the
promotional budget. The sales promotion area is becoming too sophisticated and consumers have
learned to expect some type of promotional deal when making a purchase. Thus marketers are likely
to continue to provide them with sales promotion incentives in one form or another.
4. IMC Perspective 16-1 discusses how marketers are using contests as a way of increasing involvement
with their products and/or services and building brand equity. Discuss how a contest can be used to
increase involvement and contribute to brand equity. Find an example of a contest that you believe
contributes to the equity of a brand and explain how it does so.
Building and/or maintaining brand equity has become an important goal for marketers as they
develop their sales promotion strategies and many companies are finding that contests are an
excellent way to accomplish these objectives. Contests are a very good way to get consumers to think
more closely about a brand and how they can relate to it, which increases the level of involvement.
Contests that require consumers to think about a brand and how it might be used, such as a recipe
contest, are an excellent way to increase involvement. They also can be a way of creating interest and
excitement in a brand and get them to focus on the brand and what it represents or can do rather than
just the prize they might win. One way a contest can be used to build brand equity is by developing a
theme that is consistent with the image of the brand and helps reinforce the positioning or branding
message. For example, the WD-40 company has held contests asking consumers to submit novel
ways of using the mulit-purpose lubricant product. These contests encourage consumers to think
about how they use the brand and also reinforce the multiple use positioning theme used for the
brand. Students should be encouraged to find examples of other contests that they feel contributes to
brand equity and explain how it does so. An excellent place to find contests are in the FSIs that are
delivered in the Sunday newspapers.
5. Discuss how samples and coupons can be used to generate trial of a new product or increase
consumption of an established brand.
Both samples and coupons are very effective for generating trial of a new brand of a product or
service. Samples are obviously effective as the majority of consumers who receive a sample either
use it immediately or save it to use sometime later. Samples of a new brand provide consumers a
risk-free opportunity to use and experience the benefits and outcomes of the product. This can be very
important when product’s features and benefits are difficult to describe through advertising. Coupons
are also an effective way to generate trial of a new brand and are second only to sampling for this
purpose. Coupons are effective because they lower the price of a product, thus reducing the
consumers’ perceived risk associated with trial of the product. Samples and coupons are often used
together to encourage trial and repeat purchase as coupons are often included with samples delivered
to consumers. The free sample provides consumers with an opportunity to try a brand with no
obligation while a coupon encourages them to purchase the brand at a reduced cost which provides
even more opportunity to experience the benefits associated with it.
Samples can also be a way to increase consumption of an established brand. Marketers are often
interested in attracting nonusers or users of a competitive brand and getting them to try their products.
This is often done if a significant modification and/or improvement is made to the brand such as
improving its taste, performance, efficacy and the like. Samples are an effective way of getting
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consumers to try a brand and compare it against the one they currently use. Coupons can also be a
way to increase consumption of an established brand. They can be used to encourage nonusers to tray
a brand, encourage repeat purchase among current users, and get consumer to try an improved version
of a brand. They can also be an effective way to encourage consumers to trade up to more expensive
brands.
6. Discuss how sales promotion programs can be integrated with a company’s online strategy and how
the Internet can be used as part of a company’s sales promotion efforts.
Many companies are integrating their sales promotion efforts with their online marketing efforts and
using the Internet to make various promotional offers available to consumers. Marketers promote
contests and sweepstakes on their web sites and consumers can enter them online. These companies
promote their contests and sweepstakes in their media advertising and encourage consumers to visit
their web sites to learn more about these promotions and to enter. Many companies also include
premium offers on their web sites and consumers can order merchandise online. Some companies
such as airlines, car rental companies and hotel/motel chains run special offers that are only available
online and provide consumers with extra incentives to make reservations or purchases through the
Internet. There are several online sampling services such as Catalina Marketing’s ValuPage.com and
companies such as The Sunflower Group’s SiteLinkPlus offers fulfillment services for companies that
want to provide samples, coupons and premiums on their own web sites.
7. In recent years a number of companies have questioned the economic feasibility of couponing
programs. Discuss the various reasons marketers are questioning the value of coupons. Evaluate the
arguments for and against the use of coupons.
There are a number of reasons why marketers have been questioning the economic feasibility of
coupons. Coupons have become very expensive to print, distribute and process and a number of
marketers have begun taking a very close look at their efficiency. As shown in Figure 16-3, the costs
of a couponing program is very high as it may cost as much as $1.48 per product moved. Many
marketers also feel that consumers are less willing to take time to clip and save coupons and during
strong economic times they are even less likely to use them. Many companies only use coupons
because their competitors do so. Companies may continue to cut back on coupons as their competitors
do the same. Another important factor is the reactions of the trade. Many supermarkets are on board
with companies who are cutting back on the use of coupons and are interested in eliminating the
costly operational aspect of processing coupons in exchange for other types of programs that better
meet their needs. Many marketers feel they can compete without coupons by shifting their
promotional dollars to other areas such as sampling or in-store distribution or by offering consumers
every day lower prices. It is unlikely that marketers will totally eliminate their use of coupons, as they
are still very important in generating new-product trial and brand conversion. Moreover, there is still
a large segment of consumers who are regular coupon users and might switch to another brand that
offers coupons. However, marketers will continue to strive to improve the efficiency of their
couponing programs by using techniques such as universal coupons, shorter expiration periods and
more effective targeting when distributing coupons. They are also likely to use coupons more as part
of account specific marketing programs developed in conjunction with a particular retailer.
8. IMC Perspective 16-4 discusses the problems McDonald’s encountered as a result of the conspiracy
to embezzle winning game pieces from the company’s popular Monopoly game promotion. Do you
think McDonald’s will ever be able to use the Monopoly game promotion again? Why or why not?
As discussed in IMC Perspective 16-4, the scandal surrounding McDonald’s Monopoly game
generated a great deal of negative publicity and has probably undermined consumer trust and
confidence in this promotion as well as others that the company might run. McDonald’s may be able
to use the Monopoly game promotion again but will have to wait several years before doing so. After
a few years, the average consumer may have forgotten about the conspiracy that occurred with the
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Monopoly promotion. The company will have to take a number of steps to safeguard its promotion
efforts such as rotating the person who seeds the winning game pieces, more closely supervising the
seeding of the game to avoid any collusion, and conducting independent background checks on the
agency personnel administering prizes for games, and having in-house people work with the
promotion agency to evaluate the administration of the game.
9. What is meant by trade-oriented sales promotion? Discuss the various types of trade promotions and
reasons why marketers use them.
Trade-oriented sales promotion refers to promotional efforts designed to motivate marketing
intermediaries such as wholesalers, distributors, and retailers to carry a company’s product and make
an extra effort to push it through the channels to their customers. Marketers use a variety of tradeoriented promotions. Contests and incentives are used to stimulate greater selling effort and support
from resellers including sales personnel. There is a variety of trade allowances used which are
discounts given to retailers or wholesalers to encourage them to stock, promote, and/or display a
manufacturer’s product. Displays and point-of-purchase materials are other forms of sales promotion
that can help marketers achieve more effective in-store merchandising of their products. Cooperative
advertising programs are also a valuable promotional tool and are discussed in more detail in the
answer to question 11.
10. What is a slotting allowance or fee? Evaluate the arguments for and against retailers charging slotting
fees to manufacturers.
A slotting allowance is a fee that must be paid to retailers to provide a “slot” or position to
accommodate a new product in their stores. Retailers argue slotting fees are justified because there
are costs associated with taking on a new product such as redesigning store shelves, entering the
product into their computers, finding warehouse space, and informing store employees of the new
item. They also argue that they are assuming some risk in taking on a new product since a high
percentage of new product introductions fail.
Manufacturers argue that slotting fees are not justified, as it really does not cost manufacturers that
much money to take on a new product. They argue that these fees are excessive and end up going to
the bottom line of the retailers. They argue that these fees are another way retailers are extracting
money from manufacturers and really are a form of bribery or blackmail that has to be paid to get a
new brand on the retailer’s shelves. An excellent discussion on the debate over slotting allowances
can be found in a recent article by Paul N. Bloom, Gregory T. Gundlach and Joseph P. Cannon in the
Journal of Marketing, Vol. 64 (April 2000) pp. 92-108.
11. Describe the various forms of cooperative advertising and the reasons they are used by marketers.
There are three types of cooperative advertising. Horizontal cooperative advertising is advertising
sponsored by a common group of retailers or other organizations providing products or services to the
market. For example, automobile dealers who are all located in an auto park may allocate some of
their ad budget to a cooperative fund that will encourage consumers to come to the park to shop. This
form of cooperative advertising is used to achieve economies of scale in advertising as the retailers or
companies can share the costs of advertising and encourage consumers to come to their market area.
A second form is ingredient-sponsored cooperative advertising which is supported by a company that
makes a component or raw materials that go into a final product. The objective of this form of coop
advertising is to help promote end products that include the company’s components or ingredients.
For example DuPont provides cooperative ad funds to companies who use many of its materials in
their end products such as Teflon, Thinsulate and Kevlar.
The third form is vertical cooperative advertising whereby a manufacturer pays for a portion of the
advertising a retailer does to promote the manufacturer’s product at the retail level. This form of
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cooperative advertising has many advantages for manufacturers. It gives them the capability of
extending their advertising resources through the purchase of newspaper advertising at local rates. It
also allows them to tailor their advertising to local market conditions and to indicate to consumers
where their products can be purchased. Cooperative advertising can also enhance the manufacturer’s
position with retailers and help get their product promoted at the local level (and often on sale or
special). Cooperative advertising can also stretch a company’s promotional budget since the retailer
also contributes to the advertising of the product. From the perspective of the retailer cooperative
advertising also has many advantages. Co-op ads provide a source of funding for retailers to advertise
in local markets and bring consumers to their stores. Moreover, when a co-op ad is promoting a wellknown brand, it can generate store traffic that results in sales for this brand as well as other
merchandise. Astute retailers take advantage of cooperative advertising as it can pay for a large
amount of the advertising they do.
12. What is meant by a sales promotion trap or spiral? Evaluate the promotional war that begun by Dell
Computer when the company began using sales promotion offers to help sell personal computers.
What are the options for other personal computer companies in deciding whether to match Dell’s
promotional offers?
A sales promotion trap or spiral occurs when competitors in an industry are making extensive use of
sales promotions and an individual firm receives no differential advantage from doing so, but cannot
stop because its competitive position will be affected. When firms are caught in a sales promotional
trap, no one company gains from the use of promotions but the sales of an individual firm may
decline if it does not continue to offer the promotional incentive. Companies involved in a sales
promotion trap have two basic options—cut back on promotions or maintain them. As shown in the
matrix in table 16-8, if the company cuts back on promotions and other firms follow, the result should
be higher profits for all. However, if the company cuts back on promotions and competitors maintain
them, the company risks losing sales and market share to the other firms. If the company maintains
promotions and other companies cut back, it may see a gain in sales or market share (assuming the
market is promotionally sensitive). If all competitors maintain their promotions, market shares should
stay constant and profits may be negatively impacted by the costs all companies are incurring to offer
the promotional incentive.
Dell started a promotional war in the personal computer industry in the summer of 2002 when the
company began offering customers the chance to win a vacation worth up to $50,000. The move,
which was unprecedented in the industry at the time, was part of the company’s effort to boost market
share in the consumer market and also was a way to undermine its rival’s efforts to clear inventory
backlogs prior to the back-to-school sales season. Dell’s competitors really had no choice but to
match Dell’s promotion by developing their own offers such as giving away free printer or scanners,
developing their own sweepstakes or using rebates. Dell’s decision to use the promotions was also
brought about by sluggish demand and the company’s assessment that extra incentives were needed to
get consumers to purchase a new computer.
Additional Discussion Questions (not discussed in text)
13. Many marketers are making sales promotion an integral part of their brand building strategies.
Discuss how sales promotion can be used to help build brand equity.
Sales promotion has traditionally been thought of an IMC tool that could be used to generate shortterm sales increases, while brand building was viewed as the exclusive domain of media advertising.
In fact, sales promotion was often criticized as undermining brand-building efforts as various tools
such as coupons, price-off deals, and refunds or rebates were seen as encouraging consumers to buy
on the basis of price. Moreover, many marketers shifted their marketing dollars from media
advertising to trade promotion over the past 10 to 15 years. Much of these trade promotion discounts
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and allowances were never passed on to consumers while those that did were generally in the form of
lower prices or special deals that again encouraged them to buy on the basis of price rather than brand
equity.
Marketers have been changing the way they view sales promotion and realize that various forms of
consumer promotion in particular can be used as a part of their brand-building efforts. More
marketers recognize that brands are the sum total of all communication consumers receive. As more
marketers approach brand building from an IMC perspective, they are recognizing that sales
promotion techniques can be used to help create and maintain brand equity. Marketers are developing
contests and sweepstakes with themes that are consistent with the image of the brand. Premium offers
are now designed to tie into the theme of an advertising campaign and the positioning strategy for a
brand. For example, Marlboro cigarettes offers Western wear and gear through its Marlboro country
catalog which reinforces the brand’s positioning theme. Many marketers are now using frequency or
loyalty programs that encourage repeat purchase but also provide opportunities to develop long-term
relationships with customers. Event marketing is another form of promotion that has become very
popular and provides marketers with the opportunity to associate their brands with certain lifestyle,
activities and experiences. As noted in the opening vignette, sales promotion specialists are now
becoming an integral part of the brand-building team to work alongside of the advertising rather than
being brought into the process after key strategic branding decisions have already been made.
14. What are the differences between consumer-franchise-building and non-franchise-building
promotions? Find an example of a promotional offer you believe contributes to the equity of a brand
and explain why.
Consumer-franchise-building promotions are those that are designed to communicate distinctive
brand attributes and contribute to the development and reinforcement of brand identity and image.
They are designed to help build long-term brand loyalty or preference and help the marketer achieve
the ultimate goal of full-price purchase. Non-franchise-building promotions are those that are
designed to accelerate the purchase decision process and generate an immediate increase in sales.
These promotions do little or nothing to communicate information about a brand’s unique features or
benefits and contribute very little, if any, to the building of brand identity and image.
Students should find promotional offers that they feel are examples of each type and explain why.
Examples of non-franchise building promotions are not difficult to find as price-off deals, coupons
and refund offers usually fall into this category. Examples of franchise-building efforts might include
a contest or sweepstakes that helps develop and strengthen a brand’s image or position or promotional
programs that encourage repeat purchase.
15. Discuss how advertising and sales promotion can have a synergistic effect and what is required to
create this effect.
Advertising and sales promotion can have a synergistic effect whereby the impact of the combination
of the two promotional tools is greater than the response that would be generated if they are used
independently. Proper coordination of advertising and sales promotion requires coordinating decisions
regarding the allocation of the budget to each area as well as advertising and sales promotion themes,
the target audience reached and the timing of various sales promotion activities. For example, by
using advertising in conjunction with sales promotion for a new product, marketers can make
consumers aware of the brand and its benefits and increase their responsiveness to the promotional
offer. Consumers are more likely to redeem a coupon or respond to a price-off deal for a brand they
are familiar with or have favorable feelings toward versus a brand they know little about. Moreover,
product trial created through the use of sale promotion techniques such as sampling or coupons is
more likely to result in long-term usage of the brand when accompanied by advertising.
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16. What is mean by account-specific marketing and how does it affect sales promotion strategies?
Account-specific marketing refers to a practice whereby marketers develop a customized promotion
for individual retailers. Account-specific marketing affects sales promotion strategies in several ways.
First, the practice may result in more specific targeting of promotions through the use of direct mail.
Manufacturers will be partnering with retailers to develop promotions that are sent only to the latter’s
customers. Account-specific marketing also will result in more cooperation between marketers and
retailers in the development and implementation of sales promotion programs.
17. Why do you think the “Intel Inside” cooperative advertising program has been so successful? Can you
think of another company that might be in a situation to benefit from this type of cooperative
advertising program?
There are several reasons why the “Intel Inside” cooperative advertising program has been so
successful. First, Intel has been able to get participation from most of the major computer
manufacturers. Nearly all of the print advertising for PCs over the past decade has carried the “Intel
Inside” logo. These companies wanted to take advantage of the cooperative advertising funds they
could receive from Intel for running the logo as this has saved them large sums of money. It is also
important to note that PC manufacturers have probably wanted to tell consumers that their PCs have
an “Intel Inside”. Intel’s various generations of microprocessors such as the 486, Pentium, Pentium II
Pentium III, and Pentium IV have been key components of personal computers and in great demand
by consumers. It should also be noted that Intel has run its own print and TV ads promoting its
microprocessors and how they enhance the performance of a PC.
There are several other companies who make components or ingredients that contribute significantly
to the value of other end products. For example, DuPont makes materials such as Thinsulate, Kevlar
and Teflon, which are key components in various products. Thinsulate is a synthetic fiber that is used
in products such as ski pants and jackets, sleeping bags, windbreakers and many other items that
protect consumers from the cold. The artificial sweetener Nutrasweet is another example of a product
that has been able to use the ingredient branding approach successfully. Both DuPont and Nutrasweet
use cooperative advertising campaigns that contribute to the “ingredient branding” for their products.
IMC Exercise
The chapter discusses how sales promotion can be used to contribute to the development or
maintenance of brand equity by developing a promotional offer that is consistent with the image or
positioning of a product or service. Find an example of a contest, sweepstakes or premium offer that
a marketer is currently running and analyze the promotion with respect to how it contributes to brand
equity. You can find examples of contests, sweepstakes or premium offers in magazine ads, free
standing inserts (FSIs) in the Sunday newspaper, or on the Internet. Your analysis should include a
discussion of the image or positioning the marketer is using for the brand and how the promotional
offer supports the advertising campaign being used for the brand.
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