Sales Promotion Introduction Objectives Meaning and Purpose of Sales Promotion: Meaning:

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1 24 Sales Promotion 24.1 Introduction In the previous lesson, you have learnt about channels of distribution, which may be regarded as a path or route along which goods move from the producers to ultimate consumers. But channels of distribution are useful only when the consumers are informed and persuaded to buy the particular products. It is done through advertising, publicity and salesmanship. In addition to these activities some other techniques and programmes are also under taken to promote sales. In the present lesson we shall discuss sales promotion Objectives After studying this lesson you will be able to:- explain the meaning and purpose of sales promotion. describe how sales promotion objectives are set. discuss sales promotion tools and programmes Meaning and Purpose of Sales Promotion: Meaning: Sales promotion consists of all promotional activities other than advertising, personal selling and publicity that help to increase sales

2 52:: Business Studies through non repetitive and one time communication. In other words, it includes marketing activities other than personal selling, advertising, and publicity, that stimulate consumer purchasing and dealer effectiveness, such as point of purchase displays, shows and exhibitions, demonstrations and various non-recurring selling efforts not in the ordinary routine. Purpose: The ultimate aim or purpose of sales promotion is that of increasing the volume of sales and profits but it differs from advertising and personal selling both in approach and techniques. Personal selling involve face to face contact with specific individuals, while advertising is directed at a large number of potential customers. Sales promotion serves as a link between two by focussing selling efforts on selected small groups of people. Sales promotion usually involves non-recurring and no-routine methods, in contrast with the routine and recurring nature of advertising and personal selling. Under advertising, the media is not owned and controlled by the advertiser except in direct mail advertisings. But sales promotion methods are controlled by the advertiser. Sales promotion covers various stimulants directed to the consumers and dealers, that is why it is of two types-consumers sales promotion and dealers sales promotion. The former stimulates consumer s buying at the point of sale, and latter improves dealer s effectiveness at the retails outlets How Sales Promotion Objectives are set: Sales promotion has dual objective: (A) Basic objectives and (B) Other objectives. (A) Basic objectives of sales promotion are: (i) (ii) (iii) increasing the buying response of ultimate consumers. increasing the selling efforts and intensity by dealers as well as by sales personnel. supplementing and co-ordinating the efforts of advertising and personal selling

3 Sales Promotion :: 53 (B) The other objectives are: (i) (ii) (iii) calling attention to new products and product improvements. informing buyers of new brand and new packaging. improving market share. (iv) obtaining dealer outlets. (v) meeting competition. These objectives are set on the basis of following criteria. (i) Cost of reaching an audience member. (ii) Acceptability of the tools to be used. These criteria are developed taking into consideration the following variables/factors: (i) Kinds of product: The product is one of the factors determing the form of promotion. Toys, toilet soaps and cosmetics are effectively shown on television. Mass selling consumer goods can be easily promoted through radio and television. Industrial and speciality goods should be promoted through technical journals and through sales engineers. (ii) The buyer: If the marketers are to provide realistic solutions to the problem of buyers, they must know their customers, their needs and desires, their attitude, values, aspirations and expectations. Hence marketers must have up-to-date information about customer demand and customer behaviour. If the buyers are educated then demonstrations or instructions can be used as sales promotion technique. Similarly, contests and quizzes can be used if buyers are of young age and educated. (iii) Nature and size of market: The number, geographical location and purchasing power of potential

4 54:: Business Studies customers exercise a significant impact on the sales promotion. Sampling, coupon, money refund orders, premium offer, price-off and trading stamps etc., are suitable for sales promotion in local markets. On the other hand, fairs, exhibitions and fashion shows are more appropriate for sales promotion on the national level particularly for garments, books and electronic items. (iv) Stages in product life cycle: This is an important managerial tool in sales promotion. Product life cycles consists of four stages. (a) Introduction of the product require lot of energy to create awareness, acceptance and demand for the product. Introducing a new product for most companies is a costly and difficult exercise, that is why they mostly depend on middlemen, (b) Growth. It includes a fast growth both in sales volume and profit. (c) Maturity (Saturation).This stage is longer. But the speed in achieving sales volume reduces during this stage. Profit also starts declining much faster than the sales. (d) Declining. This is the last stage in product life cycle.after a period of stability, the buyers loose interest on the product, and sales start falling more quickly. At this stage either high cost sales promotion technique may be used or existing product may be improved. (v) Management policy: In the management policy, first of all, sales promotion objectives are set, then communication tools required to achieve these objectives are designed, and the third step is to determine the cost required to execute promotional activities and programmes. In short sales promotion expenditure is directly related to the objectives to be achieved. (iv) Budget allocation available: The decision on how much to spend on promotion is externally difficult on account of multitude of promotion tools, on the one hand, and varieties of products and markets on the other. For example, the greater the geographical dispersion of a target market, the greater the communication expenditure required. Similarly, if an offering is in its early life cycle, there is a greater need of expenditure. But promotion budget should always justify the tasks to be undertaken. A basic principle would be the cost and returns of sales promotion tools to be adopted.

5 Sales Promotion :: 55 Hindustan Lever has its well drawn up sales promotion budget. If any business house does not have its promotion budget fixed, then promotion programmes will have to be designed to support the marketing plan. (v) Government regulations: Government has passed various laws and made rules to protect the consumer interest, such as the prevention of Food Adulteration Act, the Drugs and Magic Remedies (Objectionable Advertisements) Act, and Drugs and Cosmetics Act etc. Sales promotion policy must take into consideration the government regulations relating to the particular product, e.g. the commodity rates must be specified on the package and in case of medicines drug contents and date of manufacturing, date of expire, and price must be specified. Intext Questions 24.1 Fill in the blanks. (i) (ii) (iii) Sales promotion includes all promotional activities other than advertising, personal selling and The basic object of sales promotion is to increase the buying response of ultimate The object of sales promotion is to improve share. (iv) Sales promotion objective is to supplement and co-ordinate the efforts of advertising and selling. (v) Informing buyers of new brand and new package is the of sales promotion Sales Promotion Tools and Programmes: Sales promotion techniques are know as promotion tools and the mode of their application is know as sales programme. These tools and programmes are divided under two heads: 1. Tools and programmes for consumers sales promotion. 2. Tools and programmes for dealer / distributor sales promotion

6 56:: Business Studies Tools and programmes for consumers sales promotion: These tools and programmes are as follow: (i) Sample: Usually called consumer sample, free samples and given to consumers to introduce a new product or to expand the market. The consumers can try the product. (ii) Demonstrations or instructions: These are instructions given to educate the consumers about using the product. This method may be used in products like Vacuum cleaner. (iii) Coupon: It is a certificate that reduces the price. When a buyer gives a coupon to the dealer or retailer he gets the product at lower price. For example in DCM coupon system if regular price is Rs.20, with a coupon it is Rs.18. These are also known as discount coupons. Coupons are also accepted as cash by retailers. (iv) Money-refund orders: The technique indicates refund of full purchase price if the buyer so wants. It is helpful in the introduction of a new product. Refund offer creates additional interest and increases sales considerably. It is a good device for creating new user and to strengthen the brand loyalty. (v) Premium (gift) offers: These are temporary price reductions, which appeal to bargain instinct, e.g., instant coffee sold in carafes by one company was very successful. Towels, dinner ware, hair-brushes, keychains, artificial flowers, ball pens, toilet soaps, blades, were given as inpack premiums. Attractive reusable jars costing separately say Rs. 12 may be given as at an extra charge of Rs. 4 only. Liril gave a soap box almost free with two soap cakes. (vi) Price-off: The price off label is printed on the package, e.g.,rs. 4 offer a Brooke

7 Sales Promotion :: 57 Bond tea pack of 500 grams. It gives a temporary discount to the consumers. (vii) Contests or quizzes: These are held to stimulate consumer s interest in the product. In these contests, and quizzers, participants compete for prizes on the basis of their skill or creative ideas. In Sweepstakes, they submit their names to be included in a draw of prize winners. This type of sales promotion is not a lottery because there is chance or luck, prizes are offered and a payment to participant is there. (viii) Trading stamps: Trading or Bonus stamps are issued by retailers to customers who buy goods from there. The number of stamp given to a buyer depends upon the amount of purchases made by him. For instance, in India Roman Bonus Stamps are issued at the rate of 2-1/2 percent of the purchase amount. These stamps are given free of charge and the customers can redeem them to obtain products out of the specified list. This technique induces customer to buy their requirements from the retailers who offer such stamps. The purpose is to increase customer loyalty. (ix) Fairs and exhibitions: Trade shows, fashion shows or parades, fairs and exhibitions are important technique/tools of sales promotion. They provide a forum for the exhibitions or demonstration of products. Free literature can be distributed to introduce the firm and its products to the public. Fairs and exhibitions are organized usually by big firms or trade associations. At these fairs and exhibitions, business firms are allotted stalls where in they display their products. Fairs and exhibitions have wide appeal as several people visit there. Customer can be attracted through gifts, special concessions and free demonstrations of technical and speciality products. They provide an opportunity to the visitors to observe the competing products and help to promote sales. For instance, the Trade Fair Authority of India organises Trade Fairs of various types in New Delhi. The National Book Trust organises World Book Fair, where publishers of all over the world are invited to display their publications. Sometimes sales conventions or conferences of dealers are held.

8 58:: Business Studies Producers of garments often organise fashion shows to promote their products. (x) Public relations activities: These include greetings or thanks in newspapers, donating space for noble causes, offer of Privileged Citizen Card, etc. Their purpose is not to create immediate demand or to increase sales. They are designed to create a good image of the firm in the society. (xi) Exchange scheme: This technique offers to exchange the old product with new in payment of a fixed amount which is less than the original price for example, exchange of old Black & White Television for Colour Television by paying rupees 8000 only (original price is rupees 10000) was offered by a particular producer of colour TV sets. Tools and programmes for dealers/distributors sales promotion: These tools and programmes are: (i) (ii) (iii) (iv) (v) Free display : There is provision of free display of material either at the point of purchase (POP) or at the point of sale(pos), depending on one s view point. Display reaches consumers when they are buying and actually spending their money. Retail demonstrations: These are arranged by manufactures for preparing and distributing the products as a retail sample, for example, Nescafe Instant Coffee was served to consumers for trying the sample on the spot of demonstration regarding the method of using the product. Trade deals: These are offered to encourage retailers to give additional selling support to the product, e.g., tooth paste sold with 30% to 40% margin. Buying allowance: Sellers give buying allowance of a certain amount of money for a product bought. Buy-back allowance: It is offered to encourage repurchase of a product immediately after another trade deal. A buy back is a

9 Sales Promotion :: 59 resale opportunity. (vi) (vii) Free goods : Seller gives free goods, e.g., one piece free with two, or two pieces free with 10, are common free deals. Advertising and display allowance : These are also offered to retailers to popularise the product and brand name of the manufacturer. (viii) Contents : Sales contests are held for salesmen. (ix) (x) Dealer loader : A gift for an order is a premium given to the retailer for buying certain quantities of goods or for special display done by the retailer. Training for salesmen : Dealer and distributor training for salesmen, which may be provided to give them a better knowledge of a product and how to use it. Dealer sales promotion provides the selling devices. Sales promotion devices at the point of purchase inform, remind, and stimulate buyers to purchase products. People who see these devices are in a buying mood and thus they can be easily persuaded to buy those products. Tell tags are informative labels affixed on the product, describing in detail the features of the product and its unique selling points. Counter, top racks, posters, mechanised signs are other point-ofpurchase displays. Intext Questions 24.2 Fill in the blanks: (i) (ii) (iii) (iv) (v) Free samples are given to customers to introduce a new Coupon is a certificate that reduces the of the product. Price-off gives a temporary to the consumers. Producers of garments often organise shows to promote their products. Retail demonstrations are supplied by manufactures for preparing

10 60:: Business Studies and distributing the products as retail What you have learnt: Sales promotion includes all those activities which help to promote/increase sales except advertising, personal selling and publicity. The purpose of sales promotion is to increase the sales and profits of the organisation / business house. Sales promotion objectives are divided into two groups (i) Basic objectives (ii) Other objectives Basis of setting sales promotion objectives: The objectives are set on basis of following criteria. (i) Cost of reaching an audience member. (ii) Acceptability of the tool to be used. Fortors to be considered in developing the criteria: The following variables are considered in developing the criteria of sales promotion. (i) Kinds of product, (ii) The buyer, (iii) Nature and size of market, (iv) Stages in product life cycle, (v) Management policy, (vi) Budget allocation available, (vii) Government regulations. Sales promotion tools and programmes: Sales promotion techniques are known as sales promotion tools and the mode of their implementation is known as programme. These are divided under two heads: (i) (ii) Tools and programmes for consumers sales promotion. Tools and programmes for dealers/distributors sales promotion. (1) Tools and programmes for consumers sales promotion:

11 Sales Promotion :: 61 (i) Sample (ii) Demonstration or instructions (iii) Coupon (iv) Money-refund orders (v) Premium (gift) offers, (vi) Price-off, (vi) Contest or quizzes, (viii) Trading stamps, (ix) Fairs and exhibitions, (x) Public relation activities,, (xi) Exchange schemes. (2) Tools and programmes for dealer/distributor sales promotion: (i) Free display, (ii) Retail demonstrations, (iii) Trade deals, (iv) Buying allowance, (v) Buy-back allowance, (vi) Free goods, (vii) Advertising and display allowance, (viii) Contests, (ix) Dealers loader, (x) Training for salesmen Terminal Exercise: 1. Explain sales promotion. Describe the purpose served by sale promotion 2. Explain briefly the objectives of sales promotion. 3. What are the criteria for setting the objectives of sales promotion. Explain the factors to be considered in developing these criteria. 4. Explain various sales promotion tools and programmes for consumers sales promotion. 5. Explain various sales promotions tools and programmes for dealer/ distributor sales promotion. Short Question: 1. State any two purpose of sales promotion. 2. State any two basis of setting sales promotion objectives. 3. Define sales promotion tool and programme. 4. Explain the nature of product as a variable considered for developing sales promotion criteria. 5. State the object of providing training for salesmen.

12 62:: Business Studies 24.8 Answer to Intext Questions: 24.1 (i) Publicity (ii) Consumers (iii) Market (iv) Personal (v) Objective (i) Product (ii) Price (iii) Discount (iv) Fashion (v) Sample