Sales Promotion

Encyclopedia of Small Business, 2nd ed., (2002)

SALES PROMOTION

Sales promotion is an important component of a small business's overall marketing strategy, along with advertising, public relations, and personal selling. The American Marketing Association (AMA) defines sales promotion as "media and nonmedia marketing pressure applied for a predetermined, limited period of time in order to stimulate trial, increase consumer demand, or improve product quality." But this definition does not capture all the elements of modern sales promotion. One should add that effective sales promotion increases the basic value of a product for a limited time and directly stimulates consumer purchasing, selling effectiveness, or the effort of the sales force. It can be used to inform, persuade, and remind target customers about the business and its marketing mix. Some common types of sales promotion include samples, coupons, sweepstakes, contests, in-store displays, trade shows, price-off deals, premiums, and rebates.

In determining the relative importance to place on sales promotion in the overall marketing mix, a small business should consider its marketing budget, the stage of the product in its life cycle, the nature of competition in the market, the target of the promotion, and the nature of the product. For example, sales promotion and direct mail are particularly attractive alternatives when the marketing budget is limited, as it is for many small businesses. In addition, sales promotion can be an effective tool in a highly competitive market, when the objective is to convince retailers to carry a product or influence consumers to select it over those of competitors. Similarly, sales promotion is often used in the growth and maturity stages of the product life cycle to stimulate consumers and resellers to choose that product over the competition—rather than in the introduction stage, when mass advertising to build awareness might be more important. Finally, sales promotion tends to work best when it is applied to impulse items whose features can be judged at the point of purchase, rather than more complex, expensive items that might require hands-on demonstration.

GROWTH OF SALES PROMOTION

Sales promotion has grown substantially in recent years. There are several reasons for this dramatic growth in sales promotion. First, consumers have accepted sales promotion as part of their buying decision criteria. It provides reluctant decision makers with an incentive to make choices by increasing the value offered by a particular brand. Second, the increasing tendency of businesses to focus on short-term results has helped spur growth in sales promotion, which can provide an immediate boost in sales. Product managers also tend to view sales promotion as a way to differentiate their brand from that of competitors in the short term. Third, the emergence of computer technology has enabled manufacturers to get rapid feedback on the results of promotions. Redemption rates for coupons or figures on sales volume can be obtained within days. Finally, an increase in the size and power of retailers has also boosted the use of sales promotion. Historically, the manufacturer held the power in the channel of distribution. Mass marketers utilized national advertising to get directly to consumers, creating a demand for the heavily advertised brands that stores could not afford to ignore. With consolidation and the growth of major retail chains, however, retailers have gained the power to demand incentives from manufacturers to carry their products. Many sales promotions are designed to provide benefits to the retailers.

LIMITATIONS OF SALES PROMOTION

Although sales promotion is an important strategy for producing quick, short-term, positive results, it is not a cure for a bad product, poor advertising, or an inferior sales team. After a consumer uses a coupon for the initial purchase of a product, the product must then take over and convince them to become repeat buyers. In addition, sales promotion activities may bring several negative consequences, including "clutter" due to the number of competitive promotions. New approaches are promptly cloned by competitors, as each marketer tries to be more creative, more attention getting, or more effective in attracting the attention of consumers and the trade. Finally, consumers and resellers have learned how to milk the sales promotion game. Consumers may wait to buy certain items knowing that prices will eventually be reduced, for example, while resellers have become experts at negotiating deals and manipulating competitors against one another.

CONSUMER PROMOTIONS

Consumer sales promotions are steered toward the ultimate product users—typically individual shoppers in the local market—but the same techniques can be used to promote products sold by one business to another, such as computer systems, cleaning supplies, and machinery. In contrast, trade sales promotions target resellers—wholesalers and retailers—who carry the marketer's product. Following are some of the key techniques used in consumer-oriented sales promotions.