What’s a Good Promotion?

21 Jun 09

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DEVELOPING A SINGLE QUALITY MEASURE FOR PROMOTIONS WITHIN A STRATEGIC FRAMEWORK

There are many ways of looking at a promotion and evaluating the effective and efficient use of trade funds. To address this issue we might first ask the question “why promote?” Generally, the incentive to promote is to increase the visibility and show the product in association with others which leads to new usage ideas for the consumer. There are a number of good reasons why one might choose a simple price promotion;

• Offensive sales gain – to offset competitive threats. Typically this may mean a situation where the supplier is prepared to forego short term profits.
• Recover market share – sustaining a nominated loss of contribution to gain a position over competitors
• Stimulate Sales – without a loss of contribution and hopefully an increase in overall profitability. This is probably the most common rationale for promotions. Implicit in this is that the company will increase sales revenue and thus the total profit from the promotion will be greater than if there were no promotion at all.
• Reward – for existing brand loyal users. This may be a short-term loss of profitability and may even make money if a lot of brand loyal consumers stock up.
• Switch – However, if there are a large number of promotions targeted at “deal loyal” users then they will switch brand frequently. When promoting to this group the best course of action is to make sure that the promotion is profitable as there may be no long-term future gains to be had.
• Gets new users to Trial – for new products every new trial is valuable; this incentive is premised on the assumption that the long-term value of a new user may be worth many times the cost of the initial purchase, so the supplier is prepared to invest heavily to obtain a new consumer. This may justify the high cost of a promotion. Trade promotions of new items often need to be supported by other vehicles such as demonstrations and media advertising.
• Reward to Trade. This often happens to get a buyer off your back. If however, it is viewed as being good for both parties, there should be a profit opportunity.
• Because the trade Threatens Deletion – in many instances buyers have co-op budgets to achieve. There is pressure on suppliers to maintain ranging and promotion of your products in the category ensures support for your brand.

Each of these scenarios has different parameters of cost, price point, mechanic, vehicle and incremental volume gain. In reality the sales team gets a certain amount of money to spend on promotions, some say that these funds are a “cost of doing business”. The more money that is provided the more we will sell. If only this were true! We really need to understand how we can effectively apply the limited trade funds to maximise their efficiency.