Download Forward Buying Diverting

Chapter Seventeen
Sales Promotion
Overview and the Role
of Trade Promotions
 2007 Thomson South-Western
Chapter Seventeen Objectives
• Understand the nature and purpose of
sales promotions.
• Know the factors that account for the
increased investment in promotions,
especially those that are trade-oriented.
• Recognize the tasks that promotions
can and cannot accomplish.
Chapter Seventeen Objectives
• Appreciate the objectives of tradeoriented promotions and the factors
critical to building a successful trade
promotion program.
• Comprehend the various forms of
trade allowances and the reasons for
their usage.
Chapter Seventeen Objectives
• Be aware of forward buying and
diverting and how they are created by
manufacturers’ use of off-invoice
allowances.
• Appreciate the role of everyday low
pricing (EDLP) and pay-for-performance
programs as means of reducing forward
buying and diverting.
Chapter Seventeen Objectives
• Recognize the concept and practice
known as efficient consumer response
(ECR).
• Appreciate the practice of category
management.
• Understand nine empirical
generalizations about promotions.
Introduction to Sales Promotion
What Exactly is Sales Promotion?
Any incentive used by manufacturers to induce
the trade and/or consumers to buy a brand
and encourage sales force to aggressively
sell it.
Introduction to Sales Promotion
What Exactly is Sales Promotion?
The incentive is additional to the basic benefits
provided by the brand and temporarily
changes its perceived price or value
Introduction to Sales Promotion
Promotion Targets
All three groups – the sales force, retailers and
consumers – are targets of sales promotional
efforts
Increased Budgetary Allocations to
Promotions
•Advertising spending as a percentage
of total marketing communications
expenditures has declined in recent
years.
•Promotional spending, however, has
steadily increased.
Factors Accounting for the Shift
Push Strategy
Using Consumer
advertising to push
product through the
channel of
distribution
Pull Strategy
Using Consumer
advertising to pull
product through the
channel of
distribution
Illustration of “Old” and “New”
Accounting Procedures
Sales Promotions – Can:
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Stimulate sales force
Invigorate mature brand sales
Facilitate introduction of new products
Increase merchandising space
Neutralize competitive ads
Obtain trail purchases
Hold current users
Increase product usage
Preempt competition
Reinforce advertising
Sales Promotions - Can’t:
• Compensate for lack of training and
advertising
• Give a long-term reason for repeat
purchases of the brand
• Permanently stop an established brand’s
declining sales or basic non-acceptance
The Role of Trade Promotion
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Introduce new or revised products
Increase distribution of new packages or sizes
Build retail inventories
Maintain/Increase manufacturer’s shelf space
Obtain displays outside shelf locations
Reduce excess inventory
Achieve product features in retailer’s ads
Counter competitive activity
Sell as much as possible to final consumers
Trade Promotion
Key Ingredients to Success
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Financial incentive
Correct timing
Minimize retailer’s effort/cost
Quick results
Improve retailer performance
Trade Allowances
Trade Allowances
Used by manufacturers to reward
wholesalers and retailers for
performing activities in support of the
manufacturer’s brand
Trade Allowances
By using trade allowances, manufacturers
hope to:
Increase purchases of the manufacturer’s
brand by wholesalers and/or retailers.
Augment consumers’ purchases of the
manufacturers’ brand from retailers.
Expectation that retailers will pass along their
savings to consumers.
Major Forms of Trade Allowances
Off-invoice allowances
Bill-back allowances
Slotting allowances
• Most frequently used form
• Deals offered periodically to trade that permit
wholesalers and retailers to deduct a fixed
amount from the invoice
• Retailers do not necessarily pass along to
consumers the discounts
Major Forms of Trade Allowances
Slotting allowances
Bill-back allowances
Off-invoice allowances
• Retailers receive allowances for featuring the
manufacturer’s brand in advertisements or for
providing special displays
Major Forms of Trade Allowances
Off-Invoice allowances
Bill-back allowances
Slotting allowances
• The fees manufacturers pay retailers for
access to the slot, or location
• Typically paid by a manufacturer to get
its new brand accepted by retailers
Exit fees
If a brand does not meet a stipulated sales
amount, the chain will issue a deslotting
charge, or exit fee to cover handling costs
for removing the item from the distribution
center.
Forward Buying and Diverting
Forward Buying
Diverting
• Retailers purchase enough products on deal to
carry them over until the manufacturer’s next
regularly scheduled deal
• Retailers’ savings from forward buying often are
not passed on to consumers
• Leads to increased distribution costs
• Manufacturers experience reduced margins due
to price discounts
Forward Buying and Diverting
Forward Buying
Diverting
• Occurs when a manufacturer restricts a deal to a
limited geographical area
• Retailers buy large quantities at the deal price
and then resell the excess quantities in other
geographical areas
• Product quality potentially suffers due to delays
and serious problem could result from product
tampering
Efforts to Rectify Trade Promotion
Problems
Efficient Consumer Response (ECR)
Category Management
Everyday Low Pricing (EDLP)
Pay-for-Performance Programs
Account-Specific Marketing
Generalizations About Promotions
1. Temporary retail price
reductions substantially
increase sales
3. The frequency of deals
changes the
consumer’s reference
price
2. The greater the
frequency of deals, the
lower the height of the
deal spike
4. Retailers pass-through
less than 100% of
trade deals
5. Higher market share brands
are less deal elastic
Generalizations About Promotions
6. Advertised promotions
can result in increased
store traffic
7. Feature advertising and
displays operate
synergistically to
influence sales of
discounted brands
8. Promotions in one
product category affect
sales of complementary
and competitive
products
9. The effects of promoting
higher-and lower-quality
brands are asymmetric