Download sales promotion as a critical component of a small business

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SALES PROMOTION AS A CRITICAL COMPONENT OF A SMALL BUSINESS
MARKETING STRATEGY
Faitira Manuere
Lecturer Chinhoyi University of Technology, Chinhoyi, Zimbabwe
Edison Gwangwava
Lecturer Chinhoyi University of Technology, Chinhoyi, Zimbabwe
Kudakwashe Gutu
Teaching assistant Chinhoyi University of Technology, Chinhoyi, Zimbabwe
Abstract
The aim of this paper is to establish if sales promotion techniques to be adopted at any given time affect the
company’s sales volume and also to look at the effect of sales promotion on company performance. To that end, the
survey approach is adopted. The simple random technique is used to ensure that all members of the population have
an equal chance of being selected. The chi-square approach is used to test hypothesis and to establish the effect of
sales promotion on company performance. The findings of the study reveal that the majority of the respondents
agreed that sales promotion affects organisational performance and sales volume of the organisation. To that end,
organisations should make sales promotion as a critical component of
a small business marketing strategy.
Therefore the use of effective and efficient sales promotion campaign that arouses consumers’ interest to make
repeated purchases is a prerequisite.
Keywords: SALES PROMOTION ; CRITICAL COMPONENT ; SMALL BUSINESS MARKETING ;
STRATEGY
1.
The
INTRODUCTION
American
Marketing
Association
(AMA)
defines
sales
promotion
as
"media
and non media 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.
Business can target sales promotions at three different audiences: consumers, resellers and the company's own sales
force. Sales promotion acts as a competitive weapon by providing an extra" incentive for the target audience to
purchase or support one brand over another. It is particularly effective in spurring product trial and unplanned
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purchases. Most marketers believe that a given product or service has an established perceived price or value, and
they use sales promotion to change this price-value relationship by increasing the value and/or lowering the price.
Compared to the other components of the marketing mix {advertising, publicity, and personal selling), sales
promotion usually operates on a shorter time line, uses a more rational appeal, returns a tangible or real value,
fosters an immediate sale, and contributes highly to profitability.
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.
2. LITERATURE REVIEW
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(Adrian, 2004). Product managers also lend to view sales
promotion as a way to differentiate their brand from that of competitors in the short term (George, 1998 and Beri,
2006). Third, the emergence of computer technology has enabled manufacturers to get rapid feedback on the results
of promotions. Redemption sales 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 (Berenson, 2004 and
Bagavathi, 2007).
Limitations of sales promotions
Although sales promotion is an important strategy for producing quick, short term, positive, it is not a cure for a bad
product, poor advertising or an inferior sales team (Achumba,2002). 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
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promotion activities may bring several negative consequences, including "clutter" due to the number of competitive
promotions(Adereni, 2003). 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(Philip Kotler).
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(Philip Kotler, 2006 and Shira, 2003).
A consumer price deal saves the buyer money when a product is purchased. The main types of price deals include
discounts, bonus pack deals, refunds or rebates, and coupons. Price deals are usually intended to encourage trial use
of a new product or line extension, to recruit new buyers for a mature product, or to convince existing customers to
increase their purchases, accelerate their use, or purchase multiple units. Price deals work most effectively when
price is the consumer's foremost criterion or when brand loyalty is low (Kotler and Keller , 2006).
Buyers may learn about price discounts either at the point of sale or through advertising. At the point of sale, price
reductions may be posted on the package, on signs near the product, or in storefront windows. Many types of
advertisements can be used to notify consumers of' upcoming discounts, including fliers and newspaper and television
ads. Price discounts are especially common in the food industry, where local supermarkets run weekly specials. Price
discounts may be initiated by the manufacturer, the retailer, or the distributor. For instance, a manufacturer may "preprice" a product and then convince the retailer to participate in this short-term discount through extra incentives. For
price reduction strategies to be effective, they must have the support of all distributors in the channel. Existing
customers perceive discounts as rewards and often respond by buying in larger quantities. Price discounts alone,
however, usually do not induce first time buyers(Kotler and Keller, 2006).
Another type of price deal is the bonus pack or banded pack. When a bonus pack is offered, an extra amount of the
product is free when a standard size of the product is bought at the regular price. This technique is routinely used in the
marketing of cleaning products, food, and health and beauty-aids to introduce a new or larger size. A bonus pack
rewards present users but may have little appeal to users of competitive brands. A banded pack offer is when two or
more units of a product are sold at a reduction of the regular single-unit price. Sometimes the products are physically
banded together, such as in toothbrush and toothpaste offers (Kotler and Keller, 2006).
.
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A refund or rebate promotion is an offer by a marketer to return a certain amount of money when the product is
purchased alone or in Combination with other products. Refunds aim to increase the quantity or frequency of
purchase, to encourage customers to "load up" on the product. This strategy dampens competition by temporarily
taking consumers out of the market, stimulates the purchase of postponable goods such as major appliances, and
creates on-she If excitement by encouraging special displays. Refunds and rebates are generally viewed as a reward for
purchase, and they appear to build brand loyally rather than diminish it(Ratimosho, 2003).
Coupons are legal certificates offered by manufacturers and retailers. They grant specified savings on selected
products when presented for redemption at the point of purchase. Manufacturers sustain the cost of advertising and
distributing their coupons, redeeming their face values, and paying retailers a handling fee. Retailers who offer
double or triple the amount of the coupon shoulder the extra cost. Retailers who offer their own coupons incur the
total cost, including paying the face value. In this way, retail coupons are equivalent to a cents-off deal (Ratimosho,
2003).
Manufacturers disseminate coupons in many ways. They may be delivered directly by mail, dropped door to door, or
distributed through a central location such as a shopping mall. Coupons may also be distributed through the media —
magazines, newspapers, Sunday supplements, or free-standing inserts (FS1) in newspapers. Coupons can be inserted
into, attached to, or printed on a package, or they may be distributed by a retailer who uses them to generate store
traffic or to tic in with a manufacturer's promotional tactic. Retailer-sponsored coupons are typically distributed
through print advertising or at the point of sale. Sometimes, though, specialty retailers or newly opened retailers will
distribute coupons door to door or through direct mail(Beri, 2006 and Shira, 2003).
The main difference between contests and sweepstakes is that contests require entrants to perform a task or
demonstrate a skill that is judged in order to be deemed a winner, while sweepstakes involve a random drawing or
chance contest that may or may not have an entry requirement. At one time, contests were more commonly used as
sales promotions, mostly due to legal restrictions on gambling that many marketers feared might apply to
sweepstakes. But the use of sweepstakes as a promotional tactic has grown dramatically in recent decades, partly
because of legal changes and partly Because of their lower cost. Administering a contest once cost about $350 per
thousand entries, compared to just $2.75 to S3.75 per thousand entries in a sweepstake. Furthermore, participation in
contests is very low compared to sweepstakes, since they require some sort of skill or ability (Philip Kotler, 2006).
According to the consulting firm International Events Group (1EG), businesses spend over $2 billion annually to
link their products with everything from jazz festivals to golf tournaments to stock car races. In fact, large
companies like RJR Nabisco and Anheuser-Busch have special divisions that handle nothing but special events.
Special events marketing offer a number of advantages. First, events tend to attract a homogeneous audience that is
very appreciative of the sponsors. Therefore, if a product fits well with the event and its audience, the impact of the
sales promotion will be high. Second, event sponsorship often builds support among employees—who may receive
acknowledgment for their participation—and within the trade. Finally, compared to producing a series of ads, even
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management is relatively simple. Many elements of event sponsorship are prepackaged and reusable, such as
booths, displays, and ads. Special events marketing is available to small businesses, as well, through sponsorship of
events on the community level (Ratimosho, 2003)..
A premium is tangible compensation that is given as incentive for performing a particular act—usually buying a
product. The premium may be given for free, or maybe offered to consumers for a significantly reduced price.
Some examples of premiums include receiving a prize in a cereal box or a free garden tool for visiting the grand
opening of a hardware store. Incentives that are given for free at the time of purchase are called direct premiums.
These offers provide instant gratification, plus there is no confusion about returning coupons or box tops, or saving
bar codes or proofs of purchase(Blattberg, 2003).
Other types of direct premiums include traffic builders, door openers, and referral premiums. The garden tool is an
example of a traffic-builder premium—an incentive to lure a prospective buyer to a store. A door-opener premium
is directed to customers at home or to business people in their offices. For example, a homeowner may receive a
free clock radio for allowing an insurance agent to enter their home and listening to his sales pitch. Similarly, an
electronics manufacturer might offer free software to an office manager who agrees to an on-site demonstration.
The final category of direct premiums, referral premiums, rewards the purchaser for referring the seller to other
possible customers (Blattberg, 2003 and Beri, 2006).
Mail premiums, unlike direct premiums, require the customer to perform some act in order to obtain a premium
through return mail. An example might be a limited edition toy car offered by a marketer in exchange for one or
more proofs-of-purchase and a payment covering the cost of the item plus handling. The premium is still valuable
to the consumer because they cannot readily buy the item for the same amount (Beri, 2006).
Continuity programs retain brand users over a long time period by offering ongoing motivation or incentives.
Continuity programs demand that consumers keep buying the product in order to get the premium in the future.
Trading stamps, popularized in the 1950s and 1960s, are prime examples. Consumers usually received one stamp
for every dime spent at a participating store. The stamp company provided redemption centers where the stamps
were traded for merchandise, A catalog listing the quantity of stamps required for each item was available at the
participating stores. Today, airlines' frequent-flyer clubs, hotels' frequent-traveler plans, retailers' frequent-shopper
programs, and bonus-paying credit cards are common continuity programs. When competing brands have reached
parity in terms of price and service, continuity programs sometimes prove a deciding factor among those
competitors. By rewarding long-standing customers for their loyalty, continuity programs also reduce the threat of
new competitors entering a market(Lodish, 1986 and Quelch, 1989 and Tellis, 1997).
SAMPLING
A sign of a successful marketer is getting the product into the hands of the consumer. Sometimes, particularly
when a product is new or is not a market leader, an effective strategy is giving a sample product to the consumer,
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either free or for a small fee. Bui in order for sampling to change people's future purchase decisions, the product
must have benefits or features that will be obvious during the trial.
There are several means of disseminating samples to consumers. The most popular has been through the mail, but
increases in postage costs and packaging requirements have made this method less attractive. An alternative is
door-to-door distribution, particularly when the items are bulky and when reputable distribution organizations
exist. This method permits selective sampling of neighborhoods, dwellings, or even people. Another method is
distributing samples in conjunction with advertising. An ad may include a coupon that the consumer can mail in for
the product, or it may include an address or phone number for ordering. Direct sampling can be achieved through
prime media using scratch-and-sniff cards and slim foil pouches, or through retailers using special displays or a
person hired to hand out samples to passing customers. Though this last technique may build goodwill for the
retailer, some retailers resent the inconvenience and require high payments for their cooperation.
A final form of sample distribution deals with specialty types of sampling. For instance, some companies specialize
in packing samples together for delivery to homogeneous consumer groups, such as newlyweds, new parents,
students, or tourists. Such packages may be delivered at hospitals, hotels, or dormitories and include a number of
different types of products
2.1 EFFECT OF SALES PROMOTION ON ORGANIZATIONAL PERFORMANCE
The effect that sales promotions have on the organizational performance are:
1.
Encouraging purchase of large size unit
Sales promotion consists
of diverse collection of incentive tools, mostly short term designed to stimulate
quicker or greater purchase of products or service by consumer e.g.
The use of premiums, product
warranties etc. stimulate consumer purchase in larger quantities. Rotimosho (2003)
2.
Generating trials among non-users
Trials among non-users of a product is generated through invitation of prospective purchasers to try the product
without cost or little cost with the hope that they will buy the product.
3.
Persuading retailers to carry new items and higher level of inventory.
Sales promotion encourages retailers to give shelf space to new products. Manufacturers provide retailers with
financial incentives to stock new products.
4.
Encouraging off-season buying
Sales promotion has also encouraged off-season buying especially during the festive periods, people tend to buy
more of a particular product because of the added value, compared to normal season.
5.
Building brand loyalty
Sales promotion helps to build brand loyalty by giving the seller the opportunity to attract a loyal and profitable set
of customers which provides sellers some protections from competition and greater control in planning their
marketing mix, Shira (2003)
Conclusively, sales promotion has been seen to focus on customer relationship management, free gifts, free sample, price
discount, etc. If an organization effectively implement sales promotion techniques, it will not only encourage large
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purchase but it will also increase the sales performance of an organization, invariably leading to the achievement of the
stated objectives.
3.
METHODOLOGY
The method of data collection includes a combination of both the primary (questionnaires) and the secondary
method (this includes periodicals, journals and other related materials). Survey research approach will be used,
using questionnaires, and it will be analyses using percentages which is descriptive while the hypothesis will
be tested using c hi -square method. The researcher administered questionnaires on 100 employees of Sunshine
Plastic Company out of these, 82 were/ dully filled and returned.
4.
RESULTS
Table VI: Respondents view; Sales Promotion affects company sales volume
Frequency %
Valid %
Communicative percent
Strongly
agreed
Agreed
32
39.0%
41.0 %
41%
42
51.2 %
53.8%
94.9
Undecided
4
4.9 %
5.1%
100
Total
78
95.1 %
100%
Missing
4
4.9 %
Total
82
100 %
Source: (Field survey, 2010)
Analysis: The table above indicates that 39% of respondent strongly agreed, 51.2% agreed while 4.9% are
undecided. This implies that sales promotion affect company's sale volume.
Table VII: Degree of competition determines the sales promotion of the organization.
Frequency
%
Valid %
Communicative Percent
Strongly Agreed
29
35.4%
35.8%
35.8%
Agreed
50
61%
61.7%
97.5%
Undecided
2
2.4%
2.5%
100%
Total
81
98.8%
100%
Missing
1
1.2%
Total
82
100%
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Analysis: The table above affirms that 35.4% strongly agreed, 61% agreed while 2.4% were
undecided. This indicates that the degree of competition in the market determines the sales promotion
of the organization
Table VIII: Sales Promotion affects company sales volume
Frequency
Percent
Valid percent
Communicative
Strongly-
30
36.6%
36.6%
36.6%
agreed
45
54.9%
54.9%
91.5%
Agreed
6
7.3%
7.3%
98.8%
Undecided
1
1.2%
1.2%
100%
Disagree
82
100%
100%
Total
Source: Field survey 2010
Analysis :The table above reveals that 36.6% of the respondents strongly agreed, 54.9% agreed, 7.3% were
undecided while 1.2% disagreed. This is to say that the nature of products determine the type of sales'
promotion techniques to be used in the organization.
Table IX: Sales promotion helps in increasing sales volume and the market share of the company.
Frequency
Strongly agreed
Agreed
Undecided
Disagree
Total
Valid %
%
34
45.5%
44
2
2
82
53.7%
2.4%
2.4%
100%
41.5%
53.7%
2.4%
2.4%
100%
Communicative percent
41.5%
95.1%
97.6%
100%
Source: Field survey 2010
Analysis : In view of the above, 41.5% of the respondents strongly agreed, 53.7% agreed, 2,4% were
undecided while 2.4% disagreed. This implies that sales promotion helps to increase the profitability of the organization.
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Table X: Sales promotion enhances the purchase of organizational products by the consumer.
Frequency
Percent
Strongly-agreed
Agreed
Undecided
Disagree
Total
24
48
6
2
80
29.3%
58.5%
7.3%
2.4%
97.6%
Missing system
2
2.4%
Total
82
100
Valid percent
30%
60%
7.5%
2.5%
100%
Communicative
percent
30%
90%
97.5%
100%
Source: Field survey 2010
Analysis: It could be seen from the table above that 29.3% strongly agreed, 58.5% agreed, 7.3% were
undecided while 2,4% disagreed. This means that sales promotion
enhances the purchase
of
organizational products
Table XI: Sales promotion helps in increasing sales volume and the market share of the company
Frequency
%
Valid %
Strongly
agreed
Agreed
Undecided
Total
23
28.0%
29.1%
43
13
79
52.4%
15.9%
96.3%
54.4%
16.5%
100%
Missing
system
Total
3
3.7%
82
2.4%
Communicative
percent
29.1%
83.5%
100%
Source: Field survey 2010
Analysis: The table reveals that 28% strongly agreed, 52.4% agreed, 15.9% were undecided. This tells us that
sales promotion helps in increasing sales volume and the market share of the organization.
Table XII: Sales promotion can enhance the organization relationship with its customers
Communicative
Valid %
Frequency
Percent
percent
Strongly agreed
16
19.5%
19.8%
19.8%
Agreed
27
32.9%
33.3%
53.1%
Undecided
23
28%
28.4%
81.5%
Disagree
10
12.2%
12.3%
93.8%
Strongly
5
6.1%
6.2%
disagreed
Total
SI
98.8%
100%
100%
Missing
1
1.2%
system
Total
82
100%
Source: Field survey 2010
Analysis: This table shows that 19.5% strongly agreed, 32.9% agreed. 28.0% were undecided, 12.2%
disagreed while 6.1% strongly disagreed. This implies that sales promotion can enhance the organizational
relationship with its customers
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Testing of Hypothesis
In order to test the hypothesis, the non-parametric test method (chi -square) is used.
Steps required for testing chi-square
1.
State the null hypothesis and alternative hypothesis
2.
Determine the level of significance
3.
Calculate the chi-square test.
Where 0 is the observed value
E is the expected value
4.
Determine the degree of freedom (df), depending on the number of rows and
columns.
Df=(r-l)(c-l)
Where
R = number of rows
C = numbers of columns
5. Result: Having calculated the chi-square value, what is obtained is referred to as calculated value
chi-square. This value is then compared against the tabulated value of chi-square
Where 0= 19
32 x 31
82
= 12.09
Where 0= 13
51 x 32
82
= 19.9
Where 0 =5
41 x 31
82
= 15.5
Where 0 = 36
41 x 51
82
= 25.5
Where 0 = 4
4 x 31
82
= 1.5
Where 0 =
4 x 51
82
=2.99
Where 0 = 3
5 x 31
82
= 1.89
Where 0 = 2
5 x 51
82
=3.11
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Step III
0
19
13
5
36
4
0
3
1
E
12.09
19.9
15.5
25.5
1.51
2.49
1.89
3.11
(0-e)2
0-e
6.91
-6.9
-10.5
10.5
2.49
-2.49
1.11
-2.11
47.75
47.61
110.25
110.25
6.200
6.200
1.23
4.45
(0 -_E)2
e
3.95
2.39
7.11
4.32
4.11
2.49
6.50
1.43
X2= 32.3
Degree of freedom
= (r- I) (c- I)
(2-l)(4-l)
(1)(3) = 3
Level of significance is chosen to be 5% i.e. 0.05 X 23 at 0.05 on the chi-square distribution table is 7,815.
Step IV
The result shows that the calculated chi-square value is 32.3 which is greater than the table value 7.815.
Therefore, we will reject the null hypothesis (Ho) and accept the alternative hypothesis (Hi).
This implies that
there is a significant relationship between sales promotion and company's sales volume.
Hypothesis II
Ho: There is no significant relationship between the degree
of
competition
and
sales
promotional
technique to be adopted.
Hi: There is a significant relationship between the degree of competition and sales promotion technique to be
adopted.
4.CONCLUSION
From the findings, sales promotion is said to have significant effect on organizational performance. Sales
promotion is any initiative undertaken by an organization to promote an increase in sales, usage or trial of a product
or service (i.e. initiative that are not covered by other elements of the marketing communications or promotional
mix.
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Majority of the respondents accepted the facts that sales promotion affects company's sales volume. This is
found in table VI where 41% strongly agreed, 53.8% agreed, 5,1% undecided while nobody disagreed. Table VI
reveals that 35,8% strongly agreed. 6\.1% agreed, 2.5% were undecided while nobody disagree that the degree
of competition determines the sales promotion of the organization. The degree of competition also determine the
sales promotion techniques to be adopted. The researcher concluded by listing the following:
1.
That effective implementation of sales promotion tools lead to increase in sales volume and
invariably higher profit.
2.
The effectiveness of sales promotion can sustain the life of a failing product sufficiently to
enable it recover from its decline.
3.
Sales promotion is important at all level of product life cycle but it is more important at the introductory
and growth stage.
Lastly, the effects of sales promotion on organizational performance have been positive and have resulted in
increased organizations sales volume and profitability in terms of purchase of larger size unit of products by
consumers which will in turn lead to higher sales and profitability,
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