One of the most difficult marketing decisions facing companies is how much to spend on promotional John Wanamaker, the departmental - store magazine, said, "I know that half of my advertising is wasted but I don't know which half."
Thus it is not surprising that industries and companies vary considerably in how much they spend on promotion. Promotional expenditures might amount to 30-50% of sales in case in cosmetics industry and only 10-20% in the industrial equipment industry. Within a industry, a low and high spending companies can be found.
How do companies decide on their promotion budget? There are mainly four methods of sales promotion :
• Affordable Method :
Many companies set the promotion budget at what they think the company can afford. One executive explained this method as follows : "Why, it’s simple. First I go upstairs to the controller and how much they can afford to give us this year. He says a million and half. Later, the boss comes to me and asks how much we should spend and I say ‘Oh about a million and half."
It is a method which is uncertain one and makes long term planning difficult.
• Percentage of Sales Method :
Many companies set their promotion expenditures at a specified percentage of sales. Accordingly the sales is set on the basis of sales.
In this a specified sales percentage is decided for the promotional budget Advantages of this method :
First, its use means that promotional budget vary with what a company can afford.
Second, it encourages the management to think in terms of the relationship among promotion costs, selling price, and profit per unit,
Third, it encourages the competitive stability to the extent that competing firms spend approximately the same % of their sales on promotion.
Inspite of the advantages, the % sales method has little to justify it. Its reasoning is circular : It views sales as the determiner of the promotion rather than as a result. It leads to budget setting by availability of funds rather than by marketing opportunities.
• Competitive Parity Method :
Some companies set their promotional budget to achieve share-of-voice parity with other competitors. Two arguments are made in support of competitive parity method. One is that the competitors expenditure represents the collective wisdom of the industry. The other is that maintaining a competitive parity helps prevent promotional wars.
Neither argument is valid. There are no grounds for believing that competition knows better what should be spent on promotion.
• Objective and Task Method :
The objective & task method calls upon marketers to develop their promotion budgets by defining their specific objectives, determining the task that must be performed to achieve these objectives, and estimating the cost of performing these tasks.
Deciding on the promotion mix :
Companies face the task of distributing the total promotion budget over the five promotional tools :
• Sales Promotion
• Public Relations and Publicity
• Sales Force
• Direct Marketing.
Whatever method a company adopt for promoting its product it must be from above mentioned method.
Promotion is the final element in the marketing mix. After the nature of product is decided, its price fixed and the methods of distribution decided, the manufactures has to take effective steps in meeting the consumers in the markets. In the present consumer oriented markets it is the duty of manufacturers to know what is required by the consumer. It is also their duty to make the customers know where, when how and at what prices. The products would be available.
Meaning of Promotion
The term promotion is the term and includes mainly three type of sales activity :
1. Mass impersonal selling methods (Advertising).
2. Face to face personal selling (Salesman ship).
3. Activities other than personal selling and advertising such as point of purchase display (P.O.P.) show and exhibitions, demonstrations and other non securing selling efforts. This form of activity is called ‘Sales Promotion’.
There are two type of promotion blends :-
1. Pull Blend.
2. Push Blend.
Both of these are closely related to the channel of Distribution.
1. A pull blend is one in which mass impersonal, sales efforts are given the greatest emphasis. The purpose of pull blend to pre-sell to the final consumers. So that they demand the product at the retail level of distribution. The firm adopting this strategy would spend more on advertising and sales promotion rather than in personal selling. These efforts pull down the product from the manufacturer.
2. A push blend emphasizes personal selling. Naturally firms adopting this method develop a strong sales force at both the distributor and the dealer level. This method would tends to push the product through the channel of distribution.
The term promotion is very often used as a synonym for selling. But selling is a narrow term which includes only transfer of title or personal selling. Promotion on the other hand is broader in its outlook and includes a variety of activities used ultimately for increasing sales volume.
Similarly the terms sales promotion can not be taken to mean what is commonly does. Sales promotion, is only a part of the promotion. Basically promotion is an "exercise" in information persecution and influence. Promotion has come to mean the over all co-ordination of advertising selling, publicity and public relations. Promotion is a helping function designed to make all other marketing activities more effective and efficient. But sales promotion as such helps only the selling activity still, there exit same difference of opinion on the real connection of the term sales promotion.
Acc. to A.H.R. Delons :-
"Sales promotion means any step that are taken for the purpose of obtaining or increasing sales".
Acc. to W.Q. Kelly Opines :-
"Muddled misused misunderstood that is sales promotion Acc. to him the field of sales promotion as a marketing activity is still vaguely defined and organized.
There is no universally accepted distribution between these two terms. To same advertising includes all forms of mass media communication directed towards influencing the end consumer. Sales promotion on the other hand, includes the form of mass communication directed towards information and influencing the channel of distribution (e.g. distributors, retailers etc.). Hence a price of product literature distributed by retailers in sales promotion. These sales promotion merges on one side in to advertising and on the other in to personal salesman ship. It is concerned with the dissemination of information to whole salers, retailers, customers (both actual and potential, and to the salesman).
Sales promotion is concerned with the creation. Application and dissemination of material and techniques that supplement advertising and personal selling. Sales promotion makes use of direct mail, catalogues, trade shows, sales contests, premiums, samples, windows displays and other aids. Its purpose is to increase the desire of salesman, distributors and dealers to sell a certain brand to make consumers more eager to buy that brand. Personal selling and advertising do include prospects to make these decisions. Sale promotion provides an extra stimulus.
Objective of Sales Promotion
1. To increase sales directly by publicity through media which are complementary to press and poster advertising.
2. To disseminate information through sales man dealers etc. So as to insure the product getting in to satisfactory use by the ultimate consumer.
3. To attract new consumer.
4. To face the competition effectively.
5. To help salesman in selling more to the retailers and consumers.
6. To check seasonal decline in sales. Generally speaking sales promotion involves rendering the following services:-
(a) Services to dealers.
(b) Services to own salesman.
(c) Special publicity.
Sales Promotional at different levels
1. Sales promotion at Dealers Level :-
It may include various schemes some of which are discussed here.
(i) Advertising Materials :-
The advertising material prepared by the company such as store signs, banners, shelf signs, board etc. are distributed to sub dealer for display purposes this is in fact a method of advertising.
(ii) Store Demonstration :-
In the promises of the whole saler or the retailer the products sales personnel will conduct special demonstration for the companies product. A personal demonstration is good to introduce a new product at its peculiar advantage can be high lightened and the consumer’s doubt clear. It can be used to restimulate an old product. A good demonstration with a great dealer of action will draw heavy crowds in to the store and will attract attention to the product.
(iii) Special Display and Shows :-
These are in seasonal in character but could be arranged in an elaborate manner and for all the products of an company. Usually these are arranged along with trade fair and exhibition. Besides effecting sales these shows impress the company’s name generally on the public.
Sales promotion at consumer’s level
The various schemes of sale promotion at Consumer’s Level may include.
1. Coupons (A Chit of Stated Value) :-
These are given directly to the consumer these coupons are in most cases kept inside the package. The consumers many receive a price reduction of the stated values of the coupon at the time of purchase. The retailer receives reimbursement for the value of the coupon form the manufacturer. Coupons act as a short run stimulus to the sale of the product, since they are directly tied with the purchase of the item. They encourage the retailer to stock the product.
What is important is that a coupon offer does not spoil the named price of the brand nor does it un pair the margin of the dealers. But it is not easy to measure the effectiveness of a coupon offer. One over knows how many customer would have bought the product without the incentive. It is also difficult to find out how many customers were held after the coupon offer expired.
2. Price-off-offer (Also known as bargain offer price packs) :-
This offer is intended to stimulate the sales during a slump season. In this method the customer is offered a reduction from the printed price list. It is also used when a substitute for competing product enters the market.
Many experts on sales promotion fed that ‘Off Schemes’ are among the weaker and less desirable methods of promotion. These can be trade resentment particularly when the retailer raises the price to retain his margin. Secondly that is not conductive to building up brand loyalty. Consumers may simply shift to the products that offer this scheme.
3. Samples :-
In the hope of converting a prospect into a customer a sample (Some quantity of the product) may be given. This helps the consumer to verify the real quality of the product. Various pair manufacturing companies offer this method. For developing brand loyalty this method is quite useful. Sampling is a fast method of demand creation because one knows the result as soon as the consumer has had time to use the sample and buy the brand.
Disadvantage of Sampler :-
Offering sample in quit expensive. There is the cost of producing samples. The distribution costs are also high. Sample have to be mailed to potential customers or to be distributed through retail shops. There are also problems when the real product does not resemble the sample supplied.
4. Money Refund Offer :-
An offer usually stated on the package is that manufacturers will return with in a stated period part or all of the purchaser’s money if he is not completely satisfied with the product.
5. Trading Stamps :-
A premium in the form of stamps is given by the sellers to consumers while selling goods. The number and value of stamp that the buyer receives depends on the values of the purchase. These stamps are redeemable through premium catalogues at the stamp redemption centres.
6. Buy-Back Allowance :
This an allowance following a previous trade deal not offer a certain amount of money for new purchases based on the quantity of purchases on the first trade deal. It extends the life of a trade deal and helps to prevent part deal sales decline. It greatly strengthens the buyer’s motivation to co-operate on the first deal.
7. Premium :-
There are various forms of premiums provided by the manufacturer as sales promotional devices :-
(a) Coupons are supplied for effecting price reductions.
(b) Factory in pack premium these are popular in the case of Body food and Tin food items, Spoons, Cups, Measuring, Glass etc. and such other items are packed with the product in the box itself. Factory in pack premium are particularly goods for product meant for children. The Binaca Toothpaste packs contain animal shape toys. These are very attractive and qutie popular among the children.
(c) Self Liquidating Premiums :-
The cost of the premium is collected from the buyer himself. But when the buyers pays for it he has to pay only a considerably low price for the premium. This is possible for the manufacturer purchases the items in bulk at a premium and his cost per unit as is substantially low.
Other Steps by Manufacturer for Promoting Sales
Dealers can be helps in different ways :-
1. Communicating Market News :-
Often this service is reciprocal the manufacturer may acquaint his dealer with the fact relating to his production and prices while the dealer may familiarize him in return with the information bearing on charges in the consumer's demand, their like and dislike complaints and criticism, substitutes etc.
2. Inviting to Sales Conference and Convention :-
The gestures of regard and respect pave the way for better relation and co-operation.
3. Offering Reasonable Terms of Sale :-
Of all the forms of encouragement, the monetary incentive evokes immediate response. Hence every producer must offer the most responsible terms of sale such as longer periods of credit and higher rates of descants.
4. Supplying suitable packages and useful things.
5. By taking the return back.
6. By furnishing them with sales literature and display materials.
Goods are produced for market. Manufacturers have to make efforts to sell all they produce. When the manufacturers uses various sales efforts to obtain increased sales volume for his product it is called aggressive selling or offensive selling. The sales efforts which a manufacturer makes to retain his customers i.e. to protect his already established market against against his competitors is termed as defensive selling. In contrast to this aggressive selling is concerned with the sales efforts made with the express objective of selling more by expanding the market for the product of the selling firm.
Aggressive Selling and Defensive Selling :-
Aggressive selling is based on the answer to the question how much does the firm gain (in term of sales with profit) by using this method defensive selling is based on consideration as to how much the firm will lose if it does not use this method increase of sales can be obtained from two sources:-
1. New customers if the market is expending.
2. From the competitors i.e. those consumers who were purchasing similar product of competiting firms, if the market for the product is static.
Acc. to H. Whitehead :-
"In case of an expanding market all the firm may stand to gain by following the methods of aggressive selling but if the market is static manufacturer of a new market will have to be much more aggressive to capture the established market of competitors".
When Aggressive selling is resorted ?
Usually manufacturer of a new product has to do aggressive selling :-
1. When the product has been improved.
2. When the manufacturer’s product is supervisor in quality to the product of the established competitor.
3. When the total market for the product or line of product to expanding.
4. If the manufacturer’s share of the market is comparatively small.
5. If the manufacturer has unused production capacity with heavy investment in plant and equipment he will like to develop the demand for his product rapidly so that demand for his product is equal to the optimum production capacity of his plant ; and
6. When primary demand for a product must be created and provision must be made in the channel of distribution to educate consumers regarding the new product and to instruct them in its use.
Method of Aggressive Selling :-
Sales promotion efforts use for aggressive selling may be divided in two classes.
1. Trade Promotion.
2. Consumer Promotion.
1. Trade Promotion :-
Under trade promotion methods special incentives are offered to the trader to buy products of the firm. Such incentive may take one or more of the following firm :-
(a) Cash Allowance :-
A definite percentage of discount is allowed on the purchase of given unit of a product.
(b) Extra Product :-
Instead of giving any cash allowance extra product is given with each unit of product ordered. For instance if a box normally contains 20 Cakes of Soap, special box contains 25 cakes may be made and sold at the same price as that of the box of 20 cakes.
(c) Gifts :-
Various gifts are awarded in return for an order of a particular magnitude.
2. Consumer Promotion :-
Under consumer promotion method special incentives are offered to the consumers to buy the firms product. The more prominent amongst such incentives are as following.
(a) Coupons :-
A coupon of a giving value is sent to the consumer. By presenting this coupon to the retailer consumers can purchase a particular product mentioned on the coupon at a reduced price. The retailer sells the products mentioned. In the coupon to such consumer (consumers presenting the coupons) under and agreement with the manufacturer at a price lower than the user retail price. Thus the consumer get the benefit of reduced price to the extent of the value of the coupons.
(b) Self Liquidating Offers :-
Under this system, the firm offers an article at an attracting price if the consumer send a given sum of money accompanied by a given number of box tops from the packages of a particular product the benefit to the consumer is that he receives the articles at a bargain price.
(c) Bargain Packs :-
Under this system a product is sold at a reduced price for a short period Bargain pack method encourages new consumers to try the product. It is also helpful in obtaining large displays in the shops.
(d) Sampling :-
The method involves giving the product or a small quantity of the product to a consumer free with the hope that the customer will be favourable impressed with its actual use and will eventually become a regular purchaser of the product.
A firm selling new product or an extensively improved product finds this methods useful. Also a firm whose market is hold by competitors whose free sampling almost expensive.
The above mentioned methods may be reinforced by adopting.
(i) Direct method of selling through.
(ii) Offer of door to door selling.
(iii) Hire purchase and installment payment methods of selling and by forming combination.
Other Methods of Aggressive Selling :-
(i) Employment of ‘Missionary Salesman also known as Promotional Salesman’. These salesman call upon retailers and aggressively promote a product.
(ii) Instead of using wholesalers, the firm may develop its own sales force to call directly on retailers.
(iii) The firm may follow a compromise method by employing a manufacturer’s agent and giving him a large enough commission to encourage him to sell product intensively and aggressively.
(iv) New territory exploitation sales promotion has a particularly important role in developing the company’s product in new territories.
(v) Increment and promotions.
(vi) Letters to dealer and Customer.
In fact, an ingenious sales manager can devise any number of incentives schemes for promoting the sales volume.