Sales Promotions: Getting Action Now

Sales promotions are a marketing communication tool for stimulating revenue or providing incentives or extra value to distributers, sales staff, or customers over a short time period. Sales promotion activities include special offers, displays, demonstrations, and other nonrecurring selling efforts that aren’t part of the ordinary routine. As an additional incentive to buy, these tools can be directed at consumers, retailers and other distribution partners, or the manufacturer’s own sales force.

Companies use many different forms of media to communicate about sales promotions, such as printed materials like posters, coupons, direct mail pieces and billboards; radio and television ads; digital media like text messages, email, websites and social media, and so forth.

Companies use sales promotions to increase demand for their products and services, improve product availability among distribution channel partners, and to coordinate selling, advertising, and public relations. A successful sales promotion tries to prompt a target segment to show interest in the product or service, try it, and ideally buy it and become loyal customers.

There are two types of sales promotions: consumer and trade. A consumer sales promotion targets the consumer or end-user buying the product, while a trade promotion focuses on organizational customers that can stimulate immediate sales.

Consumer Sales Promotion Techniques

Free samples of Starbucks Mocha Toffee Latte

Most consumers are familiar with common sales promotion techniques including samples, coupons, point-of-purchase displays, premiums, contents, loyalty programs and rebates.

Do you like free samples? Most people do. A sample is a sales promotion in which a small amount of a product that is for sale is given to consumers to try. Samples encourage trial and an increased awareness of the product. You have probably purchased a product that included a small free sample with it—for example, a small amount of conditioner packaged with your shampoo. Have you ever gone to a store that provided free samples of different food items? The motivation behind giving away samples is to get people to buy a product. Although sampling is an expensive strategy, it is usually very effective for food products. People try the product, the person providing the sample tells consumers about it, and mentions any special pricing or offers for the product.

Often paired with samples are coupons. Coupons provide an immediate price reduction off an item. The amount of the coupon is later reimbursed to the retailer by the manufacturer. The retailer also gets a handling fee for accepting coupons. When the economy is weak, more consumers collect coupons and look for special bargains such as double coupons and buy-one-get-one-free (BOGO) coupons. While many consumers cut coupons from the inserts in Sunday newspapers, other consumers find coupons for products and stores online. Stores may also provide coupons for customers with a loyalty card.

Consumers can download coupons on many mobile phones. Mobile marketing and the Internet give consumers in international markets access to coupons and other promotions. In India, the majority of coupons used are digital, while paper coupons still have the largest share in the United States. More than 80 percent of diapers are purchased with coupons; imagine how much easier and less wasteful digital coupons scanned from a mobile phone are for both organizations and consumers.

Point-of-purchase displays encourage consumers to buy a product immediately. These displays draw attention to a product by giving it special placement and signage. Coupon machines placed in stores are a type of point-of-purchase display. When a consumer sees a special display or can get a coupon instantly, manufacturers hope the easy availability or the discount will convince them to buy, increasing overall sales in the process.

A variety of different sales promotions are conducted online. Common online consumer sales promotions include incentives such as free items, special pricing for product bundles (buying multiple products together), free shipping, coupons, and sweepstakes. For example, many online merchants such as Bluefly and Zappos offer free shipping and free return shipping to encourage consumers to shop online. Some companies have found that response rates for online sales promotions are better than response rates for traditional sales promotions.

Another very popular sales promotion for consumers is a premium. A premium is a product or offer a consumer receives when they buy another product. Premiums may be offered free or for a small shipping and handling charge with proof of purchase (sales receipt or part of package). Remember wanting your favorite cereal because there was a toy in the box? The toy is an example of a premium. Some premiums are designed to motivate consumers to a buy product multiple times. What many people don’t realize is that when they pay the shipping and handling charges, they may also be paying for the premium.

Contests and sweepstakes are also popular consumer sales promotions. Contests are games of skill offered by a company, that offer consumers the chance to win a prize. Cheerios’ Spoonfuls of Stories contest, for example, invited people to submit an original children’s story and the chance to win money and the opportunity to have their story published.  Sweepstakes are games of chance people enter for the opportunity to win money or prizes. Sweepstakes are often structured as some variation on a random drawing.  The companies and organizations that conduct these activities hope consumers will not only enter their games, but also buy more of their products and ideally share their information for future marketing purposes. As the following video shows, marketers have become increasingly sophisticated in the way they approach this “gaming” aspect of sales promotions.

You can read a transcript of the video here.

Loyalty programs are sales promotions designed to get repeat business. Loyalty programs include things such as frequent flier programs, hotel programs, and shopping cards for grocery stores, drugstores, and restaurants. Sometimes point systems are used in conjunction with loyalty programs. After you accumulate so many miles or points, an organization might provide you with a special incentive such as a free flight, free hotel room, or free sandwich. Many loyalty programs, especially hotel and airline programs, have partners to give consumers more ways to accumulate and use miles and points.

Rebates are popular with both consumers and the manufacturers that provide them. When you get a rebate, you are refunded part (or all) of the purchase price of a product after completing a form and sending it to the manufacturer with your proof of purchase. The trick is completing the paperwork on time. Many consumers forget or wait too long to do so and, as a result, don’t get any money back. This is why rebates are also popular with manufacturers. Rebates sound great to consumers until they forget to mail them in.

Which Sales Promotions Work Best, and When?

The table, below, summarizes the different types of sales promotions designed for both consumers and businesses. Although different types of sales promotions work best for different organizations, rebates are very profitable for companies because, as you have learned, many consumers forget to send in their rebate forms. In a weak economy, consumers tend to use more coupons, but they also buy more store brands. Coupons available online or at the point of purchase are being used more often by consumers. Trade shows can be very successful, although the companies that participate in them need to follow-up on the leads generated at the shows.

Advantages and Disadvantages of Sales Promotions^[1]

In addition to their primary purpose of boosting sales in the near term, companies can use consumer sales promotions to help them understand price sensitivity. Coupons and rebates provide useful information about how pricing influences consumers’ buying behavior. Sales promotions can also be a valuable–and sometimes sneaky–way to acquire contact information for current and prospective customers. Many of these offers require consumers to provide their names and other information in order to participate. Electronically-scanned coupons can be linked to other purchasing data, to inform organizations about buying habits. All this information can be used for future marketing research, campaigns and outreach.

Consumer sales promotions can generate loyalty and enthusiasm for a brand, product, or service. Frequent flyer programs, for example, motivate travelers to fly on a preferred airline even if the ticket prices are somewhat higher. If sales have slowed, a promotion such as a sweepstakes or contest can spur customer excitement and (re)new interest in the company’s offering. Sales promotions are a good way of energizing and inspiring customer action.

Trade promotions offer distribution channel partners financial incentives that encourage them to support and promote a company’s products. Offering incentives like prime shelf space at a retailer’s store in exchange for discounts on products has the potential to build and enhance business relationships with important distributors or businesses. Improving these relationships can lead to higher sales, stocking of other product lines, preferred business terms and other benefits.

Sales promotions can be a two-edged sword: if a company is continually handing out product samples and coupons, it can risk tarnishing the company’s brand. Offering too many freebies can signal to customers that they are not purchasing a prestigious or “limited” product. Another risk with too-frequent promotions is that savvy customers will hold off purchasing until the next promotion, thus depressing sales.

Often businesses rush to grow quickly by offering sales promotions, only to see these promotions fail to reach their sales goals and target customers. The temporary boost in short term sales may be attributed to highly price-sensitive consumers looking for a deal, rather than the long-term loyal customers a company wants to cultivate. Sales promotions need to be thought through, designed and promoted carefully. They also need to align well with the company’s larger business strategy. Failure to do so can be costly in terms of dollars, profitability and reputation.

If businesses become overly reliant on sales growth through promotions, they can get trapped in short-term marketing thinking and forget to focus on long-term goals. If, after each sales dip, a business offers another sales promotion, it can be damaging to the long-term value of its brand.