MARKETING MATERIAL
Precision Marketing Availability of Data Marketing Research EPOS & EFTPOS
In-House Data Manipulation of Data Delivery Systems Direct Mail Mailing List
Investing in Database Direct Mail Offer Letter Response Rates Door to Door
Computer Mediated Branch Marketing Sales Promotion Advantages Disadvantages
Promotional Pricing Non-Price Promotions Sampling Promotional Performance
Telesales PR Corporate PR Issue Management Sponsorship Exhibitions
9440 MARKETING Chapter 10
- Other Forms of Promotion
Introduction
There are other possible methods of promotion. `Precision
Marketing', for instance, is set to expand significantly over
the present decade, with the advent of the computing power and
data collection techniques needed to drive it. Currently, though,
this is best evidenced by direct mail activity, but branch
marketing also shares some of the characteristics, as does
telesales.
On the other hand, sales promotion should be used almost
exclusively in support of other promotional activities; since it
offers essentially short-term gains, whether or not it takes the
form of price-based promotions. Despite its limited
effectiveness, however, this form of promotion reportedly
accounts for a greater proportion of the overall spending than
advertising.
Public relations is a neglected resource in most organizations.
In terms of press relations it offers a very cost-effective
vehicle for promotion. In terms of corporate relations, it is the
vehicle for dealing with many of the contacts with the external
environment, at least those in the very important area of
political activity, described in chapter 4. In both functions,
professionalism is essential.
Exhibitions are specialized activities; which may, however, have
much to offer some organizations.
The explosion of data over the past decades has only recently
been harnessed in the most direct way; that of marketing direct
to the individual customers or small groups of customers. Martin
Baier - 1 - describes some key aspects of this:
Direct marketing, with its historical roots in direct mail (an
advertising medium) and mail order (a selling method), has
evolved as an aspect of the total marketing concept. It is
characterized by 'measurability' and 'accountability'
as well as reliance on 'lists' and 'data'.
He goes on to offer a definition:
Direct marketing is an interactive system of marketing which uses
one or more advertising media to effect a measurable response
and/or transaction at any location.
Another --more traditional --form of `direct marketing', which will be
described in detail in chapter 13, has been the normal selling
approach employed, for example, in the industrial (complex sale)
markets; the salesperson often spends a considerable time, face
to face with the customer, tailoring the sale to that
individual's specific needs.
The key to success in 'both' of the fields described above
is 'detailed information about individual customers'.
Until recently, however, those suppliers in the mass markets were
not allowed the luxury of employing a face-to-face salesforce;
the cost was, and still is, prohibitive. The new factor, which
can go some way towards achieving the same impact, is the
increasing availability of much more detailed information on
large numbers of individual customers (or groups of these),
together with the processing power to handle this data. The main
drivers for change are:
Over recent years there has been a growing awareness that the
broad averages hide considerable variations in terms of specific
groups. At one level, this has been explored by very large
surveys (such as TGI, the Target Group Index), which are
statistically significant in terms of the smaller groups and, for
example, allow the complementary relationships between different
brands (as well as their relation to quite specific life-style
groups) to be investigated.
At another level, the geographical dimension has been developed
by organizations (such as ACORN and PIMS in the UK) which have
categorized local neighbourhoods, so that suppliers can target
specific groups with greater accuracy.
As John Whitehead - 2 - says:
Neighbourhood classifications have spawned a whole portfolio of
techniques that are able to dissect markets in great detail.
Geodemographics is used primarily to analyse customer addresses
and market research data; to target door-to-door advertising; and
in the use of census and other demographic data to describe and
model markets locally.
He goes on, though, to describe the most recent developments
which link this data with life-style data, for instance:
CON Marketing, linking up with National Shoppers Survey, has
launched Persona, a `behaviourgraphic' classification, defining
electoral roll households by categories such as `Bon Viveurs' and
`Wildlife Trustees', which relate to consumers' priorities and
lifestyles.
Availability (and consolidation) of general data
More data is becoming available from existing sources. The ACORN
work, for example, is based upon census data, which is now
generally available in computer-readable form. In addition to
this, many organizations are recognizing the value of what they
hold on their own databases (membership lists, for example) and
are making them available for sale.
A more fundamental, and as yet little developed, approach is to
consolidate these various databases; to provide a greater amount
of information about, and a more `three-dimensional' picture of,
the individuals involved. To date, at least in the UK, this
approach has been most effectively explored in terms of
consolidating `warranty card' information (the `market research'
information provided by consumers returning warranty cards) from
different suppliers.
In the longer term, the consolidation of the very large databases
(including those of the credit card companies, always assuming
that this will be allowed under the terms of the relevant
legislation) will provide quite detailed information on at least
one of the activities of most individuals in the population.
The most immediate stimulus, albeit probably more in theory than
in practice, is the introduction of EPOS (Electronic Point Of
Sale), together with EFTPOS (which adds the electronic transfer
of funds), by the major retailers. Using EPOS, details of an
individual transaction (but not the identity of the individual
purchaser) can be tracked. Using EFTPOS it should also be
possible to relate these transactions to any individual. In this
way, retailers in particular will be able to build up a very
detailed picture of the buying habits of individual customers.
In the specific context of supermarket retailing, Cathy
Bond - 3 - comments:
Database marketing is on the way, ushered in by the growth of
EPOS and direct debit scanning tills. It is worlds away from the
kind of mass coupon drops and mailers which typically herald a
new store opening, or which try to drum up seasonal extra
business. Database experts dream of a world where mailshots will
look as if they were tailor-made for every recipient. Where
grocery retailers will value individual customers and not think
of them as just so many feet through the door each week. The
attitude will be caring, but not patronising --and definitely
not tainted with the intrusive commercialism that is conventional
direct marketing's big drawback.
A number of organizations, ranging from direct mail houses to
domestic appliance retailers, already have detailed information
available on their existing records. Even organizations in the
FMCG field, such as Nestl<130>, Pedigree Petfoods and Kraft
General Foods, are also reported to be consolidating data that
they accumulate about their consumers.
In the USA, for example, Sears-Roebuck uses the computerized
database information on its 40 million customers to promote
special offers to specific target segments.
The theory of precision marketing is simple: it is merely a
matter of matching the requisite marketing approach to the
individual. Thus, for example, Sears-Roebuck targets those of its
customers who have purchased a number of domestic appliances
without any associated maintenance cover, in a drive to sell them
general maintenance contracts. A salesperson, in face-to-face
contact, follows much the same process.
The problem comes in manipulating the vast quantities of data
involved. Until recently even starting on this task was near
impossible, just because of the amount of data involved, but now
computers (which almost all organizations already have) have
developed to the stage where they can easily handle the amount of
this `paperwork'.
Unfortunately, computers cannot --as yet --take decisions,
without being fed very elaborate sets of rules to govern every
possible situation.
There are two main solutions to this dilemma:
'Expert systems'. The longer-term solution may well be to
teach the computers how to make the necessary decisions,
including some `learning from experience', using artificial
intelligence or expert systems based approaches. This is a
subject which is beyond the scope of this book.
'Simplified approaches'. In the shorter term, the answer may
be to develop simpler ways of dealing with the data which, while
not releasing the true potential of precision marketing, will
still allow some of the benefits to be gained. There are two main
routes:
'Aggregation'. The individuals (or separate stores), can be
aggregated with others which share broadly similar performance or
behaviour patterns; this is the broad principle on which ACORN
already works. The precision is limited, but at least
`individual' approaches are possible at the group level.
'Simple decisions'. Instead of exactly matching the total
purchasing profile of consumers, the decisions can be made to
relate to relatively simple factors, as in the example of the
Sears maintenance contracts. This approach can be developed
incrementally, adding new decisions based upon simple
combinations of factors as justified by experience.
The final requirement of a precision marketing system is that it
should be capable of delivering the promotional effort where it
is needed. Many forms of media will claim to deliver tightly
defined audiences (and some of the specialist and trade magazines
do exactly that), but in general the minimum size of group which
can be targeted (often no smaller than an individual town)
excludes them from precision marketing. The traditional approach,
and probably still the cheapest and most effective in this
context, is direct mail.
We saw, in chapter 10, how direct marketing can be used to
distribute product direct to the consumer. Direct mail
advertising is just one --albeit very large --part of the
overall direct marketing effort; but it can make an important
contribution to closely targeted, precision marketing, campaigns
--especially those in the industrial sector.
Thus, one effective way of generating numbers of prospects for
the face-to-face, industrial, salesforce, is to undertake mass
mailings. The normal response rate for such mailings is often
claimed to be as much as 1 or 2 per cent; - 6 - but in practice
rates can be much lower. On the other hand, when mailing to
specialized markets with a particularly powerful message, the
response can reach almost 10 per cent. Whatever part of this very
wide range a mailing falls into, you will still have to
distribute large numbers to obtain even reasonable numbers of
prospects --it is a `numbers game' with a vengeance.
Pierre Passavant - 7 - says:
The psychology of direct marketing is somewhat special. It tends
to blend aspects of selling with elements of advertising.
He goes on to make the further point, which is not widely
appreciated, that:
The direct marketer allocates a far larger proportion of the
sales dollar to promotion than manufacturers or most sellers of
packaged goods ...
As with all forms of promotion, however, before conducting any
mailing you have to be clear what are your specific objectives.
Most mailings are designed to produce immediate sales enquiries.
Even then you may decide that you want to make this route more
clearly defined; and may decide to set your specific objective as
attracting people to a free seminar, or to `buy' enquiries by
offering a free sample. There are many ways of achieving results;
but it is important, before you go further, that you know
'exactly' what you wish to achieve.
The advantages and disadvantages of direct mail
Advantages include the following:
'Specific targeting'. Clearly, the most important aspect of
direct mail is that it can be directed 'exactly' at the
specific, individual, customer. In 1990 Porsche were able to
target the 300 000 Americans most likely to spend $75 000 on a
German car.
'Personalization'. Direct mail can address the customer
personally. If the full benefits of precision marketing are
exploited, it can be directly tailored to his or her needs
(interactively based upon prior experience, as recorded on the
database). Needless to say, the Porsche mailing was elaborately
personalized.
'Optimization'. Because of its direct response nature, the
marketing campaign can be tested and varied to obtain the
optimal results.
'Accumulation'. Responses can be added to the database,
allowing future mailings to be even better targeted.
'Flexibility'. A direct mail campaign can be mounted
quickly on a wide variety of topics within an overall promotional
campaign.
Disadvantages include the following:
'Cost'. The cost per thousand will be higher than almost
any other form of mass promotion (although the wastage rate may
be much lower).
'Poor-quality lists'. The mailing lists may initially be of
poor quality (with duplicate names, for example): they may be
expensive to `clean' and may even contribute to offending
customers.
'Relative lack of development'. The techniques of direct
mail are, as yet, relatively unsophisticated, and this may mean
that the medium is less effectively used.
Perhaps the greatest disadvantage, certainly in terms of
consumer marketing, is the poor image that direct mail currently
holds. Its popular description, as `junk mail', is well deserved,
and historically accurate. Mailings have been poorly planned,
poorly targeted and poorly presented.
The first question to ask is to whom you wish to mail. The
answer will probably come most frequently, and most successfully,
from your own database of customers and prospects. On the other
hand, even though you may have a great many names on your files,
it may still be worthwhile being selective, choosing just those
who will be susceptible to the mailing. This saves on cost, but
it also protects the investment in the database by not exposing
recipients to mounds of irrelevant `junk mail'.
If you do not have a suitable list of prospects on your database,
you may be able to use the services of a specialist mailing house
which does maintain such a list (often compiled from customer and
prospect lists bought from other suppliers such as yourself).
Mailing houses will usually sell a list for one-time use,
providing labels (or sometimes computer readable material for
your own use) or even a complete mailing service.
In the UK, the best list of such mailing houses is probably that
contained in the 'Direct Mail Databook'. - 8 - The most
important question to ask in buying such a list is how accurate
it is. The source of many lists may be suspect (they are
frequently derived from subscribers to magazines, for example,
or respondents to free offers; who may not be the ideal
prospects), but then this may be the only way in which you can
reach your target audience. Lists may also be out of date (12 per
cent of the UK population changes address every year) - 9 - and
may need `cleaning' (for example, to remove duplicate entries or
to update contacts within organizations). Usually the only
satisfactory way of finding out how useful they are is to run a
test mailing, even though that represents an investment of time
and money.
Investing in your own database
As the above section implies, the most productive mailing list is
usually the one that you have built for yourself. As Edward
Nash - 10 - comments, in the context of mail order operators:
The single most valuable list used by the majority of advertisers
is their own house list. Tragically, it is often the most
neglected. For most direct marketing companies, it )s the single
most precious asset --the one whose loss could put them out of
business. It is usually the most responsive list to a company's
additional offers.
Even in organizations with more general fields of operation, the
data obtained as a result of those operations (enquiries, face-
to-face selling, exhibitions, direct mail, and so on) should all
be regarded as precious. Data should be consolidated and
protected so that they ar% usable, and useful, as a direct input
to all marketing activities --especially for precision
marketing.
The basis for a mailing has to be a clear-cut `offer'. This may
be simply a statement about the products or services, or it can
be a specific promotion. As with all forms of promotion, you need
to be very clear what your real offer is and, despite the
apparent opportunity to convey large amounts of material, you
will usually need it to be kept as simple as possible. The
material will almost inevitably arrive through the prospect's
letterbox among half a dozen other similar mailings. Thus, as
with all advertising, your direct mail message will have just a
few seconds to grab the recipient's attention. The much quoted
sales acronym, KISS (Keep It Simple, Stupid), is nowhere more
applicable than in mailings.
Finally, as direct mail is almost always only a part of a wider
campaign, there must be a clear action associated with the
message. This may be just the suggestion (but a strong one) that
the recipient should return the reply-paid card; or it may be
stronger, telling the recipient to be prepared for a telephone
call from a salesperson.
It is, of course, quite possible to send out a mailing without
any letter; and perhaps most mailings in consumer markets simply
comprise such unaccompanied `flyers'. But most mailings sent out
as part of overall campaigns in the industrial sales environment,
even mass mailings, usually include a letter. In any case, the
evidence suggests that enclosing a letter improves the response
rate; and enclosing a 'personalized' letter improves it
significantly. Market research among personal computer buyers
showed that between 60 per cent and 80 per cent of them read a
letter addressed to them by name, whereas less than 40 per cent
read one addressed to them by title, and in just over 20 per cent
of cases where it was addressed to the company. 'According to
this evidence, personalization can improve the performance by a
factor of four'. There is some controversy as to what is the
best form of letter. Clearly, a simple price promotion (still one
of the most powerful ways of gaining attention) will benefit from
a short, punchy, style; whereas the more `serious' nature of a
technical brief on a sophisticated new product might be better
suited to a longer format. Whatever its format it should be
written (preferably by a trained copywriter) in a style that is
easy for the reader to understand --with the minimum of jargon,
for example.
Howard Dana Shaw (one of the most respected US authorities on
writing mail order letters) has produced `six checking points
for writing that gets people to do things':
1. Be natural instead of literary
2. Simplify your sentences
3. Write in pictures
4. Make things move
5. Use personal pronouns
6. Don't inflate
The one point that most commentators seem to agree on is that
the areas at the top and foot of the letter receive the most
attention from the recipient. At the top, try to encapsulate the
overall message in a punchy headline; and then make the hottest
offer immediately, in the first paragraph. The best way to use
the area at the foot is to include an important postscript.
The most frequently used item in a mailing is a brochure. Once
more, the rule is to keep it simple, and in line with the message
of the letter: conflicting messages will just confuse the reader.
If two mailings are needed to avoid confusion, take consolation
from the fact that the most effective mailing campaigns are those
with a 'number' of separate mailings --like most
advertising, the effect is cumulative.
Over the years, the large number of devices, such as gifts,
`Yes/No' stamps, samples and so on, have (on the basis of
testing) been found to be effective. These are usually the
province of the specialist mailing house. On the other hand, as
with all marketing, the `product' offer itself must be
attractive to the recipient.
A reply-paid (or FREEPOST) card improves the chances of
generating a response. According to 'The Dartnell Sales
Promotion Handbook': - 11 -
The cheapest way to get inquiries for a product or service is
the post-paid reply card. An offer to send some helpful booklet,
or to send some article of use, to a list of prospects has been
known to produce as high as 37 percent replies at a cost of less
than 54 cents each. Returns of five percent to ten percent on
reply paid cards of this kind are common.
'Better results (by a factor of three or four) can be obtained
if the reply-paid card is personalized'.
The best results of all are generated by sending a personalized
reply form, together with
a ready 'stamped' envelope (rather than a reply-paid cover),
even though this approach increases costs dramatically.
The timing of mailings can influence their impact. Clearly, they
have to be integrated with the overall campaign. On the other
hand, there are some times of year (particularly July, August
(holidays) and December (Christmas)) when it is traditionally
believed to be unproductive to mail. Even the day of the week can
have an impact. 'The Dartnell Sales Promotion
Handbook', - 12 - for example, reports that:
Care should be taken, they say, to avoid reaching a businessman's
desk on Monday, or any day following a holiday, when there is
likely to be a large accumulation of letters needing attention
... the best day is Tuesday, and Wednesday is next best.
The great advantage of direct mail advertising is that every
aspect of promotion can be tested, simply by measuring the
resulting response rates. All that is required is that the reply-
paid card (or the response coupon in an advertisement) can be
identified with the specific element of the campaign under test.
The most useful, and most frequently used, technique is to
include `Department xxxx' (where xxxx is the number of the test)
in the address; this is sometimes called the `key number'.
In this way, every element of direct mail promotion may be
optimized. The mailing list can be categorized, and the letter
(and other promotional material) designed to have the greatest
impact (as measured by response).
This technique has been honed to a fine edge by large-scale
users, such as Reader's Digest. Every part of the mailing will
have been tested, and selected precisely because it is the most
effective in terms of generating measured responses. This testing
is often carried out using `split runs', in which some of the
(randomly selected) customers receive one version of the mailing
and other customers receive the one with which it is to be
compared. In this way, the effectiveness of two may be directly
compared.
The trap into which such organizations may fall is that this
incremental approach may gradually concentrate on an ever smaller
group of the population, who are particularly susceptible to
these direct mail techniques --in the process neglecting the
much larger part of the population which is less susceptible.
Some organizations have recently started to use telex and fax in
the same way as direct mail. This is more expensive, but may be
more likely to be read by the recipient due to its novelty value.
The use of such electronic communications is less of an
innovation than it might seem: according to Ed Burnett, - 13 -
over 90 per cent of Sears-Roebuck's catalogue sales are
'telephoned' in. It is likely that this approach will also
be extended to computer electronic mail when this becomes more
widely used.
An alternative, and cheaper, approach is to employ a door-to-door
distribution company to deliver unaddressed mailings to all
addresses in a specific area. This loses many of the advantages
of direct mail, but where the area is tightly defined it can
still offer a high degree of precision. In particular, it now
offers a very good vehicle for `sampling' new users on a tightly
targeted basis (which, once again, can be optimized by testing).
The maximum coverage by delivery organizations (such as Circular
Distributors and Donnelly Marketplace) is 16.5 million homes in
the UK (85 per cent of the total).
It is also now possible for those publications reaching the bulk
of their readers by mail to produce tailored versions to suit
even relatively small groups of consumers. Rapp and
Collins, - 14 - for instance, describe how 'Farm Journal'
uses computer-collated binding to send out a minimum of 2000
different versions (and, at that time, a maximum of 8896
versions) to its 825 000 readers. Advertisers are similarly
matched to readers, on the basis of computerized subscriber
profiles.
Computer-mediated Communications (CMC)
One new vehicle for precision marketing, which is likely to
emerge as the century draws to a close, is that of computer
communication. During the 1980s this was largely limited to
communication within organizations, and then within relatively
few pioneering organizations; although those that did develop it
on a large scale --such as IBM and DEC --found that it had
dramatic implications for their internal communications (and even
forced structural changes). With the rapid development of various forms of supe-highway, especxially of Internet, this type of communication is expanding dramatically. There already have been - as yet relatively ineffective - attempts to use these media for direct selling.
Even so, by 1990 Murray Turoff - 15 - estimated that there were
well over 10 000 active bulletin board systems in the USA, and
remarked: `It is amazing that they exist almost ignored by either
the communicators or the computer industry.'
The essential features of the more advanced CMC systems are
described by Kaye 'et al.': - 16 -
Most CMC systems provide an integrated range of facilities. These
generally include:
electronic mail for one-to-one communications
one or more asynchronous group communications (conferences)
a `chat' mode for real-time exchange of short messages with other
users
a directory of all users, with their r<130>sum<130>s and
information on when they last accessed the system
a directory of all listed conferences, and brief details of each
one ...
CMC can be used to `talk' individually to thousands of contacts
(simultaneously if necessary) --with all the power of the
accumulated database information immediately at hand. More
importantly, perhaps, it has the potential of becoming a
'new' medium of communications, positioned mid-way between
individual communications and the mass media.
One alternative, as a device for precision marketing, is that
based upon branches. This is typically only open to those in the
service sector (especially those in retailing), but for these
fortunate few it represents a particularly powerful form of
marketing; and is likely to grow considerably in use over the
next few years as the service sector learns to make use of
marketing in general, and of precision marketing in particular.
The `precision' enters this form of marketing in a number of
ways:
'Location'. In the first instance, the actual site of the
branch can be chosen to optimize its catchment area, so that the
maximum number of potential customers can be attracted. This is
normally carried out using a geographic database, such as ACORN
or PIMS in the UK, to locate the clusters of potential customers;
and then to optimize (by Monte Carlo or other statistical method)
the number covered.
'Range'. The exact range of products or services to be
offered can be matched to the profile of the exact catchment
area; and subsequently modified by practice, in the light of
actual sales.
'Direct mail'. Once again, direct mail can be very
effectively used to attract new prospects, and to rejuvenate
lapsed customers; by targeting precisely those promotions which
might be most attractive.
'Personal contact'. Once in the branch, and in a face-to-
face sale, feedback from an EPOS system could allow
personalization; even if only to allow the assistant to say
`Thank you, Mrs Patel', but possibly also to say, `We have just
received a shipment of the perfume you particularly like, and
which was out of stock the last time you called.'
'Experimentation'. As with direct mail, branches have the
luxury of being able to try out new ideas, and measure how
effective they are. This is the most powerful form of research;
testing exactly the factors which the question demands, rather
than extrapolating from indirect indicators.
ACTIVITY 12.1
Design a mailing (to an intermediary, a retailer or agent) for
your organization's latest product or service. First of all, you
should decide upon the objective of the mailing, and how this may
be achieved in terms of the messages contained. Then write the
letter, and decide what inserts will be needed. Finally, decide
when and how it should be mailed.
You can obtain a criticism of the final result from a colleague,
or even from a member of your family (spouses make excellent
critics in this respect, since they will have received more than
their fair share of junk mail).
AUDIT 12.1
What direct mailing does your organization undertake? What are
its objectives, and how well does it succeed? What changes would
you suggest? What further mailing programmes would you suggest?
What branch-level precision marketing does it undertake, and how
well does it succeed? What changes would you suggest?
What other precision marketing does it undertake? What other, as
yet neglected, opportunities for precision marketing can you
see?
A direct salesforce is usually an optimal approach, but can be
very expensive. This problem has been nicely side-stepped by some
organizations which have recruited part-time agents (typically
housewives, at low rates of `pay'). Avon Cosmetics have developed
this to near perfection, with reportedly around a million
`representatives' worldwide. The friendly relationship between
seller and buyer (who often know each other socially) reinforces
the sale --and also motivates both seller and buyer. Tupperware
--and `erotic' lingerie --parties extend this approach
further.
These techniques can be considered as precision marketing in that
they involve a very direct --and often a very knowledgeable --
approach to the customer. On the other hand, since the
organization employing the seller has not as yet obtained access
to this knowledge, but depends upon the informal relationship
being handled by its `agents', it encounters some problems in
terms of applying the other techniques of precision marketing.
Sales promotion should normally be an adjunct to personal selling
or advertising; usually of products. Some techniques can also be
applied to services. Kenneth Runyon - 17 - succinctly defines
its key characteristics as:
1. A relatively short-term activity.
2. Directed towards sales force, distribution channels, or
consumers, or some combination of these groups.
3. Used in order to stimulate some specific action.
In recent years, however, spending on sales promotions, in both
the USA and Europe, reportedly has overtaken that on advertising.
This might seem to challenge the consensus drawn from theory. It
may, though, be seen more pragmatically as evidence of the short-
termism afflicting corporate strategies rather than as evidence
of well-founded marketing campaigns.
Sales promotion covers a wide range of possibilities; as
demonstrated by the list in table 12.1, developed by Malcolm
McDonald, - 18 - to which 'sponsorship' (typically of
events, such as sports meetings) should be added.
Advantages and Disadvantages of Sales Promotion
Despite its recent widespread use as the most important element
of marketing campaigns, at least in terms of money spent, the
essence of sales promotion is that it is intended as a very short-term influence on `sales': it typically has an insignificant long-term effect,
but may be used as a powerful additional factor, included in the
competitive balance, in the short term, to sway sales in the
supplier's favour, and to bring forward sales.
sales increase --the main short-term benefit
defined target audience --it can be targeted on specific groups
(especially selected retailers and their customers)
defined role --it can also be targeted to achieve specific
objectives, such as increasing repeat purchase
indirect roles --it can also be used to achieve other
objectives, such as widening distribution or `shelf facings'
short term --almost all of the effect is immediate. There is
rarely any lasting increase in sales
hidden costs --many costs, not least the management/salesforce
time and effort, do not appear in the direct costs
confusion --promotions can conflict with the main brand
messages, and confuse the customer as to what the image really
is. It is believed, for instance, that Burger King's promotional
activities, in its war with McDonald's at the end of the 1970s,
may have actually had an unfavourable influence on consumers'
brand perceptions! - 19 -
price-cutting --which can persuade users to expect a lower
price in future, and potentially damage `quality'
Perhaps its greatest disadvantage, though, may be the lack of
effectiveness. Abraham and Lodish - 20 - report that:
... only 16% of the trade promotion events we studied were
profitable, based on incremental sales of brands distributed
through retailer warehouses. For many promotions the cost of
selling an incremental dollar of sales was 'greater' than
one dollar.
They go on to record that, despite this:
... promotions have become so popular that they now account for
more than 65% of typical marketing budgets.
In line with its essentially short-term objectives, a promotion
may realistically be expected to achieve a number of limited
objectives:
'Trial purchase'. Some promotions are expressly planned to
induce consumers to try the product or service. The classic
example is that of `money-off' coupons, or samples of the
product, at the time of the launch (possibly `banded' as a free
gift on a related product).
'Extra volume'. Other promotions are designed to stimulate
the user's decision at point of sale; on-pack price cuts are the
obvious example. It may often be found that a cheaper alternative
is to offer more of the product (`free 20% extra') for the same
price.
'Repeat business'. Yet others are meant to build repeat
business. A good example is that of `money off next purchase'
coupons.
'Point of sale impact'. Free gifts, for example, may provide
additional interest for an advertising campaign, or a competition
may lead to a better display at the point of sale; but it is the
extra shelf space that sells the product, rather than the
promotion itself.
It should be added that sales promotion and advertising (or,
indeed, any of the other forms of promotion) are complementary;
and the most effective, well-balanced, campaign will often
include a mix of several types of promotion.
One of the most frequently used sales promotional techniques is
that of offering promotional discounts; `buying' extra sales --
albeit only in the short term. These can be grouped into a number
of main categories:
'Price reductions'. The simple `money-off' promotion is the
most direct and hence may have the most immediate impact on sales
levels. As it is shown on the `pack', it is also difficult for
any retailer to avoid passing it on to the consumer. It is the
most expensive technique, because to be effective it usually
needs to represent 15 to 20 per cent off the regular retail
price. It may also prove difficult to restore the price to its
original level at the end of the promotion, as consumers, and in
particular retailers, may decide to stock-pile in order to hold
off their purchases until the next promotion (indeed, Schultz and
Robinson - 21 - report that `more than 25 per cent of all
retail customers are considered regular "price-off" buyers'). It
may also do considerable damage to the image of quality products
or services, especially where the price-off `burst' or `flag' may
visually dominate the label.
'Free goods'. The offer of more product for the same price
has a number of advantages. It often costs the supplier
significantly less than a price cut, and it forces the customer
to buy more than usual; possibly setting a new pattern of usage.
Also, it possibly has less impact on the established price;
although it can set an awkward precedent.
'Banded offers'. Two or more products, often banded together
using adhesive tape, almost invariably at a lower price (although
one product may be offered as a `premium') are typically meant to
offer greater `value'; but this normally poses problems in terms
of requiring changes to the production lines --often with
considerable reductions in productivity.
'Vouchers or coupons'. Where the aim is to extend the
penetration (or trial) of the product or service to new customers
(particularly in the case of a new product launch), coupons are
often used. They are most effectively delivered door-to-door,
where they achieve high redemption rates. Schultz and
Robinson - 22 - report that `About 60 per cent of homes that
receive direct mail coupons actually use them', although they
also report that the redemption levels for individual coupons are
around 10 per cent. In the USA it is claimed that 80 per cent of
these are now delivered via FSIs (Free Standing Inserts, books
full of coupons). They may also be incorporated in Press
advertisements --which are cheaper to run but have a
considerably lower redemption rate (Schultz and
Robinson, - 23 - again, report between 2 per cent and 3 per
cent). Depending upon the generosity of the offer, this is
supposed to tempt consumers away from their existing brands to
try the new one. This can be a very effective type of promotion
if coupon redemption levels are high enough, and may be more
cost-effective than sampling; and it clearly has only limited
impact on the prices paid by existing customers. `Stamps', the
popularity of which has fluctuated over recent years, are a
special form of this type of promotion; one that is intended, in
particular, to buy very long-term loyalty, or for use on a staple
item of purchase. However, they can be expensive and very complex
to administer; particularly where they lose their `competitive
edge', and are taken for granted.
'Cash refund'. A cash refund (from the retailer or by mail),
usually on the basis of a `voucher' which is attached to, or is
part of, the pack, is a way of offering a controlled price
reduction. On the other hand, the redemption procedures may be
complex (and unwelcome to the trade). It can also be expensive:
sometimes (when `trial' is being sought) the refund may even be
as much as the whole purchase price, although the redemption
rates reported - 24 - (of only a few per cent) indicate that
many purchasers never redeem the offers --and so actual costs
may be significantly reduced.
'Money off next purchase'. A somewhat similar coupon offer,
this time on the label of the product itself, may be used to
extend buying patterns; and build customer loyalty. For instance,
the UK jewellery chain, Ratners, offered a <156>50 voucher for
every <156>150 spent; although (typically for a promotion) the
indications are that this was possibly used to boost short-term
sales and reduce stock levels rather than to build loyalty.
'Loss leader pricing'. In the case of the service and
distribution industries, a product or service may actually be
priced below cost in order to attract customers into the branch,
in the hope that they will buy other products or services which
'are' profitable.
'Cheap credit'. Where credit is offered, lower-priced or
even free credit may be used instead of a simple price reduction.
This may be cheaper to the vendor who has access to cheaper lines
of credit (although the cost of bad debts must also be covered).
It may be particularly attractive to the more na<139>ve consumer
who sees it as a way of getting something now, and paying later.
It may also be a means of introducing the consumer to the use of
the supplier's credit facilities.
'Special events'. Certain sectors of the retail trade offer
`special', usually seasonal, events to encourage buying during
periods of traditionally low turnover.
There are a number of other forms of promotion which aim to offer
`added value', but which are not so directly price-related:
'Competitions'. In this case the purchaser receives the
right to one or more entries in a competition. Exceptionally, if
the main prize is very large (and it is the size of the top prize
which reportedly determines the interest of the consumer), this
can be a very attention-getting form of promotion. It can be very
easy and cheap to mount, and has a guaranteed fixed maximum cost.
In its normal form, though, it has a lower level of interest for
the consumer, with a low `redemption' rate; and is now often just
used as a means of gaining extra in-store impact.
'Personality promotions'. In former times, in particular,
teams of `sales promoters' toured the country (sometimes dressed
in the most outlandish of costumes), offering incentives such as
`instant prizes' to potential users. More recently, this has been
largely superseded by `in-store promotions', staffed by personnel
who are usually part-timers employed by specialist agencies. The
process can be expensive, and difficult to control, although it
may occasionally generate some of the benefits of face-to-face
selling.
'Free gifts and mail-ins'. These give the customer an
additional offer (a `giveaway' either `on-pack', or at point of
sale, or by mailing in). They can be expensive to run (depending
on the value of the `free offer'). The technique can be used to
establish repeat purchase if a 'number' of coupons (and
hence packs) have to be collected. However, the administration
can be complex, and additional sales may just come from heavy
users buying forward. A special form of the `giveaway' is one
where the container itself is `reusable' (for instance, a shelf-
storage jar containing instant coffee). Such free gifts are not
restricted to FMCG products. Some banks, for example, have
offered free legal help and surveys to those taking out a
mortgage.
'`Self-liquidating' offers'. In this case the offer is not
free, as a result of which some writers call it a `premium'
offer. Like a competition it can add interest and the impression
is usually given that the supplier is subsidizing the offer, so
that the customer will obtain a good deal on the item. In
practice, the intention is usually to cover the cost within the
amount paid by the customer; in effect offering the customer only
the benefit of the supplier's buying power (or the special deal
which has been negotiated). It is now seen as having low consumer
interest (according to Schultz and Robinson: - 25 - `It's
estimated that less than 10% of the population have ever sent
away for a self-liquidating premium ... redemption of
self-liquidating premiums is usually less than 1% of the media
circulation where it is offered.') and is only used in the few
situations in which such marginal impact is worthwhile; though
there would appear to be few of these. It can also have
significant hidden costs, since it is difficult to administer;
and forecasting stock levels is a very problematic experience.
'Multibrand promotions'. A number of brands, typically from
one supplier, share a single promotion, in order to maximize
impact for given costs. This technique can be used to recruit new
users to these other brands, but it will only work well if all
these brands are in widespread distribution, and there is some
logic to the link.
This is generally the most powerful form of promotion for `new
products', the immediate aim being to obtain `trial' by users. It
is normally used as one of the very early elements in a launch.
Interestingly, though, Schultz and Robinson - 26 - say that:
Sampling seems to work best for new products when it is preceded
by four to six weeks of advertising. That generates interest
which the sample then converts into trial.
For example, to follow the launch of `Radion' detergent, Target
Group (on behalf of its client, Lever Brothers) delivered 200 gm
trial packs of this product to 10 million households in the UK.
It is a very expensive promotional device; often less cost-
effective than any of the other forms of promotion. But it is the
most effective, direct and immediate way of obtaining consumer
trial. Retailers also recognize its power to pull in customers,
and it may accordingly also help to achieve distribution. Indeed,
it is often combined with a money-off voucher, to ensure that a
successful trial is rapidly followed by a purchase. Thus, the
Radion sample mentioned above also carried a `20p off' coupon.
Charles Frederick Jr of Ogilvy & Mather Inc. (reported in Schultz
and Robinson) - 27 - tabulates the value of the technique
(table 12.2). This shows that while sampling is better than
coupons at obtaining trial, some of this advantage is clawed back
because coupons have a higher conversion rate from trial to full
users.
Measurement of Promotional Performance
Unlike most other forms of promotion, which can be considered --
at least in part --to have a cumulative effect over the longer
term (and hence can be considered as partly an investment), sales
promotions are almost always developed to have a direct, and
immediate, effect. As a result the extra sales should be directly
linked to the sales promotion.
Each such sales promotion can, and should, be set specific
performance objectives. The performance should be monitored to
ensure that these objectives are attained, and as a basis for
judging the us