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- Sales Promotion and the
CHAPTER 15
Role of Trade Promotions
© 2010 South-Western, a part of Cengage Learning PowerPoint Presentation by Charlie Cook
All rights reserved. The University of West Alabama
Eighth Edition
- Chapter Objectives
After reading this chapter you should be able to:
1. Understand the nature and purpose of sales
promotions.
2. Know the factors that account for the increased
investment in promotions, especially those that are
trade oriented.
3. Recognize the tasks that promotions can and cannot
accomplish.
4. Appreciate the objectives of trade-oriented
promotions and the factors critical to building a
successful trade promotion program.
© 2010 South-Western, a part of Cengage Learning. All rights reserved. 15–2
- Chapter Objectives (cont’d)
After reading this chapter you should be able to:
5. Comprehend the various forms of trade allowances
and the reasons for their use.
6. Be aware of forward buying and diverting and how
these practices emerge from manufacturers’ use of
off-invoice allowances.
7. Appreciate the role of everyday low pricing (EDLP)
and pay-for-performance programs as means of
reducing forward buying and diverting.
8. Understand nine empirical generalizations about
promotions
© 2010 South-Western, a part of Cengage Learning. All rights reserved. 15–3
- The Nature of Sales Promotion
• Sales Promotion
Is any incentive that is additional to the basic
Is
benefits provided by the brand and temporarily
temporarily
changes its perceived price or value
changes
Is short-term oriented and capable of influencing
Is short-term
behavior because it offers buyers superior value
and can make them feel better
about the buying experience
about
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved. 15–4
- The Nature of Sales Promotion (cont’d)
• Purposes of Sales Promotion
To induce the trade (wholesalers and
To
retailers) or consumers to buy a brand
retailers)
To encourage the manufacturer’s sales
To
force to sell a brand aggressively
force
To encourage immediate, desired
To
shopping and purchasing behaviors
from their consumers
from
To encourage people to increase their
To
donations to nonprofits now rather than
later
later
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved. 15–5
- Brand-Level Promotion Targets
Figure 15.1
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved. 15–6
- Increased Budgetary Allocations
to Promotions
• Advertising Spending
Advertising expenditures have declined in recent
Advertising
years while promotion spending has increased
years
• Push Strategy
Using promotional efforts to push product through the
Using
selling chain
selling
• Pull Strategy
Using consumer advertising to pull product through
Using
the channel of distribution
the
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved. 15–7
- Push and Pull Strategies
Table 15.1
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved. 15–8
- Developments Underlying the Growth in Promotions
Table 15.2
• Shift in manufacturer versus retailer balance of power
• Increased brand parity and price sensitivity
• Reduced brand loyalty
• Splintered mass market and reduced media
effectiveness
• Emphasis on short-term results in corporate reward
structures
• Increase in responsiveness of consumers to promotion
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved. 15–9
- A Consequence of the Increase:
New Accounting Rules
• Financial Accounting Standards Board (FASB)
Financial
Emerging Issues Task Force
Emerging
Regulations EITF 00-14 and 00-25 require that price
Regulations
discount sales promotion—iincluding those directed to
ncluding
discount
retailers and consumers—must be treated as
retailers must
reductions in sales revenue.
Adherence to the new rules will cut reported net sales
Adherence
for CPG companies by 8.5% on average.
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved. 15–10
- Illustration of “Old” and “New” Accounting Procedure
Table 15.3
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved. 15–11
- Tasks That Promotions Can and Cannot Accomplish
Table 15.4
Sales Promotions Can
• Stimulate sales force enthusiasm for a new, improved, or mature product
• Invigorate sales of a mature brand
• Facilitate the introduction of new products to the trade
• Increase on- and off-shelf merchandising space
• Neutralize competitive advertising and sales promotions
• Obtain trial purchases from consumers
• Hold current users by encouraging repeat purchases
• Increase product usage by loading consumers
• Preempt competition by loading consumers
•
© Reinforce advertising
2010 South-Western, a part of
Cengage Learning. All rights
reserved. 15–12
- Tasks That Promotions Can and Cannot Accomplish (cont’d)
Table 15.4
Sales Promotions Cannot
• Compensate for a poorly trained sales force or for a lack of advertising
• Give the trade or consumers any compelling long-term reason to continue
purchasing a brand
• Permanently stop an established brand’s declining sales trend or change
the basic nonacceptance of an undesired product
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved. 15–13
- The Role of Trade Promotions
• Trade Promotions’ Scope and Objectives
1. Introducing new or revised products
2. Increasing distribution of new packages or sizes
3. Building retail inventories
4. Maintaining or increasing manufacturer’s share of shelf space
5. Obtaining displays outside normal shelf locations
6. Reducing excess inventories and increasing turnover
7. Achieving product features in retailers’ advertisements
8. Countering competitive activity
9. Selling as much as possible to final consumers
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved. 15–14
- Ingredients for a Successful
Ingredients
Trade Promotion Program
Trade
Financial
Incentive
Minimize
Correct
Retailer’s Effort
Timing
and Cost
Improved
Quick
Retailer
Results
Performance
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved. 15–15
- Illustration of Forward Buying and Diverting
Table 15.5
1. In preparation for a huge promotional event in 2009 surrounding the Cinco de Mayo
celebration of Mexican independence on May 5, Beauty Products Inc.—a hypothetical
manufacturer of personal-care products—extends an off-invoice offer to grocery
chains in the Los Angeles area. This promotion is a 15 percent off-invoice allowance
on all orders placed for SynActive shampoo (a hypothetical brand) during the week
beginning April 3, 2009, and extending through the week beginning April 24, 2009.
2. Assume that FB&D Supermarkets of Los Angeles (a hypothetical chain) orders 15,000
cases of SynActive—many more cases than it typically would sell in its own stores
during any four-week period. Beauty Products Inc. has offered the 15 percent off-
invoice allowance to FB&D Supermarkets with the expectation that FB&D will reduce
SynActive’s retail price to consumers by as much as 15 percent during the week of
Cinco de Mayo festivities.
3. FB&D sells at the discounted price only 3,000 of the 15,000 cases purchased. (The
remaining cases include some that are forward bought and some that will be diverted.)
4. FB&D resells 5,000 cases of SynActive to Opportunistic Food Brokers—a company
that services grocery retailers throughout the West. (This is the practice of diverting.)
© 2010 South-Western, a part of
5. FB&D later sells the remaining 7,000 cases of SynActive to shoppers in its own stores
but at the regular, full price. (These 7,000 cases represent forward buys.)
Cengage Learning. All rights
reserved. 15–16
- Trade Allowances
Trade
• Trade Allowances
Are used because manufacturers hope to increase
Are
purchases of the manufacturer’s brand by
wholesalers and/or retailers
Augment consumers’ purchases of the
Augment
manufacturers’ brand from retailers
manufacturers’
Foster the expectation that retailers will pass along
Foster
their savings to consumers
their
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved. 15–17
- Trade Allowances (cont’d)
Major Forms of
Trade Allowances
Slotting and
Bill-Back
Off-Invoice
Deslotting
Allowances
Allowances
Allowances
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved. 15–18
- Major Forms of Trade Allowances
• Most frequently used form
Off-Invoice
Off-Invoice
Allowances
Allowances • Deals offered to trade that permit wholesalers and
Deals
retailers to deduct a fixed amount from the invoice
retailers
• Retailers may not pass along discounts to consumers
• Retailers receive allowances for featuring the
Bill-Back
Bill-Back Retailers
Allowances manufacturer’s brand in advertisements or for providing
Allowances
special displays
special
Slotting • Fees that manufacturers pay retailers for access to the
Slotting Fees
Allowances slot, or location
Allowances slot,
• Fees paid by a manufacturer to get its new brand
Fees
accepted by retailers—a form of bribery? or legitimate
accepted
cost of doing business?
cost
Exit Fees • If brand does not meet an average weekly sales volume,
Exit If
©(Deslotting
2010 South-Western, a part of
the retailer can assess a deslotting charge for removing
CAllowances)
engage Learning.the item from its distribution center,
All rights
Allowances)
reserved. 15–19
- Undesirable Consequences of Off-Invoice
Allowances: Forward Buying and Diverting
Forward • Retailers purchase enough products on deal to carry them
Forward Retailers
Buying over until the manufacturer’s next regularly scheduled deal
Buying over
• Retailers’ savings from forward buying often are not passed
Retailers’
on to consumers
on
• Actions leads to increased distribution costs
• Manufacturers experience reduced margins due to price
Manufacturers
discounts
discounts
Diverting • Occurs when a manufacturer restricts a deal to a limited
Occurs
geographical area
geographical
• Retailers buy large quantities at the deal price and then
Retailers
resell the excess quantities in other geographical areas
resell
• Product quality potentially suffers due to delays and serious
Product
problem could result from product tampering
problem
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved. 15–20
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