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2007 Thomson South-Western

Why Use Consumer Promotions?
• Promotions accomplish goals that advertising by itself cannot:
– Buy now rather than later
– Buy your brand rather than a competitor's
– Buy more and
– Buy frequently.
– Consummate the transaction

Brand Management Objectives and
Consumer Rewards
Three general categories of objectives
(1) Generating trial purchases
(2) Encouraging repeat purchases
(3) Reinforcing brand image

Marketer Objectives and
Consumer Rewards
Consumer Rewards
• All promotion techniques provide consumers with rewards
• Typically in the form of cash savings or free gifts
• Consumers are more responsive to immediate than delayed rewards

Sampling Sweepstakes
Couponing Bonus Packs
Rebates
Price-offs
Games
Contests
Premiums
Loyalty programs
Phone cards
Etc.

• The classification of promotional tools is necessarily simplified
• Promotions are capable of accomplishing more than a single objective
• Manufacturers use consumer-oriented sales also to leverage trade support
• Coupons and premiums achieve different objectives depending on the specific form of delivery vehicle

Sampling
The premier sales-promotion device for generating trial usage by delivering an actual- or trial-sized product to consumers

Direct mail
Newspapers and magazines
Door to door by special distribution crews
On- or in-pack sampling
High-traffic locations
In-store sampling
Internet sampling
• Mailed directly to households
• Targeted by demographic characteristics or geodemographics

Direct mail
Newspapers and magazines
Door to door by special distribution crews
On- or in-pack sampling
High-traffic locations
In-store sampling
Internet sampling
• The Sunday newspaper is an increasingly attractive medium for broad-scale sampling

Direct mail
Newspapers and magazines
Door to door by special distribution crews
On- or in-pack sampling
High-traffic locations
In-store sampling
Internet sampling
• Allows considerable targeting
• Lower cost than instore or direct-mail sampling
• Short lead times

Direct mail
Newspapers and magazines
Door to door by special distribution crews
On- or in-pack sampling
High-traffic locations
In-store sampling
Internet sampling
• Uses the package of another product to serve as the sample carrier

On- or In-pack
Sampling

Direct mail
Newspapers and magazines
Door to door by special distribution crews
On- or in-pack sampling
High-traffic locations
In-store sampling
Internet sampling
• Shopping centers, movie theaters, airports, or special events
• Change points – colleges, marriage offices

Direct mail
Newspapers and magazines
Door to door by special distribution crews
On- or in-pack sampling
High-traffic locations
In-store sampling
Internet sampling
• Provide product samples in grocery stores and other retail outlets for trial while consumers are shopping
• The most frequent form

Direct mail
Newspapers and magazines
Door to door by special distribution crews
On- or in-pack sampling
High-traffic locations
In-store sampling
Internet sampling
• Brand managers are increasingly distributing samples online
• Specialized online sample delivery firms aid this process (e.g.
StartSampling)

• Targeting rather than mass distributing samples
– Targeting middle school kids, young adults, business executives, newlyweds, etc.
– Warner Lambert and “anti-itch cream”
• Using innovative distribution methods where appropriate
– Progresso Soup & “Soupermen”
– Guinness Beer and Irish festivals
– ConAgra and Marie Callender frozen foods
– Ben & Jerry’s “Urban Pasture”
• Undertaking efforts to measure sampling’s return on investment
– Break even point at which sampling costs equal profits from conversions

• Brand is demonstrably superior/has distinct relative advantages
– When consumption is the best influencer of attitudes
• Concept is difficult to communicate by advertising alone
– Charmin Toilet tissue
– Olestra made fat-free Pringles
• Can afford to generate consumer trial quickly

• Expensive
• Mishandling in distribution
• Distributed to the wrong market
• In- or on-package samples do not capture current non-consumers
• Can fail to reach sufficient numbers of consumers to justify its expense
• May be misused by customers
• Pilferage (P&G’s Vidal Sassoon’s Wash & Go shampoo in Poland)

Coupon
A promotional device that provides cents-off to consumers upon its redemption

• Around 250 billion coupons are distributed annually in the United States.
• Cost to U.S. marketers is about $7 billion a year.

• Freestanding insert (FSI) is preferred
– Valassis Inserts, News America Marketing
• The establishment of cooperative coupon programs
– Val-Pak Direct Marketing Systems

Face Value
Distribution and postage cost
Handling charge
Consumer misredemption cost
Internal prep and processing cost
Redemption cost
Total Cost
$1.00
.40
.08
.07
.02
.02
$1.59

• Households most likely to redeem coupons were also the most likely to buy the brand in the first place
• However, companies have to offer coupons to prevent losing consumers to other brands that do offer coupons

Instantly Redeemable Coupons
Shelf- Delivered Coupons
Scanner- Delivered Coupons
• Peelable from the package at the point of purchase
• Represent an immediate reward
• An alternative to price-off deals
• Redemption rate about 30%

• IRCs and FSIs with face values of 50 cents and
$1
• IRCs outperformed FSIs in sales
• 50 cent IRC outperformed $1 FSI
– High value FSI coupons signal high prices and scare customers away
• High value FSI coupons attract current brand users but scare away potential switchers

Instantly Redeemable Coupons
Shelf- Delivered Coupons
Scanner- Delivered Coupons
• Instant Coupon Machines, Smart Source TM
• Machines are attached to the shelf alongside coupon-sponsoring brands
• Redemption rate about 11%

Instant coupon machine
(so called
SmartSource)

Instantly Redeemable Coupons
Shelf- Delivered Coupons
Scanner- Delivered Coupons
• Catalina Marketing Corp. offers two programs
• Reward is delayed
• Potentially very effective because they provide a way to carefully target coupon distribution

Scanner- Delivered Coupons
Checkout Coupon Checkout Direct
• Delivers coupons based on the particular brands a shopper has purchased
• Directed at competitive-brand users
• Redemption rate about 9%

Scanner- Delivered Coupons
Checkout Coupon Checkout Direct
• A coupon for the sponsoring manufacturer’s brand is automatically dispensed for use on the shopper’s next purchase occasion
• Directed at users who satisfy a manufacturer’s prescribed demographic or product-usage requirements
• E.g. Baked Lays targeted super heavy users (at least 8 times in the past 12 months) of Tostitos Lays.

Mail-Delivered Coupons
• Highest household penetration
• Highest redemption rate of all mass-delivered coupons (3.5%)
• Increase the amount of product purchases
• Relatively expensive
• Inefficient and expensive for brands enjoying a high market share

FSIs and Other Media-Delivered Coupons
• 87% of all coupons distributed via Sunday newspaper freestanding inserts
• Broad exposure
• Relatively cheaper
• Reminder function
• Advertising function
• Redemption rate is very low
• Don’t generate much trade interest
• Susceptible to misredemption

• Included in- or on- product’s package
• Cannot be removed at the point of purchase; It’s for next purchase
• A coupon for one brand is promoted by another brand
( crossruffing ); e.g. General Mills cereal boxes carried coupons for their granola bars.
• Has bounce-back value
• No distribution costs
• Redemption rates are higher
• Delayed value to consumers
• Don’t reach nonusers of the carrying brand

• A number of Internet sites now distribute coupons.
• Consumers print their own coupons, at no additional cost to the advertiser.
• There is a great potential for fraud with these coupons that consumers can print themselves so it remains to be seen how popular this method will remain

Redemption Process and Misredemption
(F)
Manufacturer
Redemption Center
(A) (E)
(D)
(B) (C)
Consumers Retailers Clearinghouse
* Organized criminals
* Terrorists
* Media employees
* Crooked retailers
(M)
M: misredemption

Estimates of the misredemption have ranged from a low of 15% to a high of
40%. True misredemption rate is about 3 or 4% representing millions of dollars lost by manufacturers.

• Consumers present coupons that have expired, for items not purchased, or for a smaller size than specified by the coupon.
• Clerks take the coupons to the store and exchange them for cash without making a purchase.
• Store Management: retailers may boost profits by submitting extra coupons in addition to those redeemed legitimately.
• Shady Clearinghouses engage in misredemption by combining illegally purchased coupons with real ones and certifying the batch as legitimate.