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Fundamentals of sales_promotions

Content:
1. How Promotions work and why we need them in the context of marketing communication mix.
2. Promotional evaluation tool – measuring effectiveness.

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Fundamentals of sales_promotions

  1. 1. Burgas Free University Business Faculty www.bfu.bg
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  3. 3. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 3 “A planned and implemented marketing activity that both enhances product or service appeal and changes consumer behavior positively in return for an additional benefit for purchase or participation.” The Institute of Sales Promotion (UK) “SP are marketing and communications activities that change the price/value relationship of a product or service perceived by the target, thereby (1) generating immediate sales and (2) altering the long-term brand value.” Schultz, Robinson and Petrison “SP is an action-focused marketing event whose purpose is to have impact on the behavior of the firm’s customers”. Blattberg and Neslin
  4. 4. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 4 1. SP are action focused. 2. SP are marketing events. 3. SP are design to have a direct impact on consumer behavior. 4. SP are designed to influence consumers or marketing intermediaries.
  5. 5. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 5
  6. 6. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 6
  7. 7. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 7
  8. 8. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 8
  9. 9. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 9 Nonuser Price buyers Switchers Competitive loyals Loyal users
  10. 10. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 10
  11. 11. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 11
  12. 12. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 12
  13. 13. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 13
  14. 14. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 14
  15. 15. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 15
  16. 16. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 16
  17. 17. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 17
  18. 18. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 18
  19. 19. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 19
  20. 20. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 20 Client : CARREFOUR Product : RETAIL HYPERMARKETS Campaign : THE MAGIC CODE Objective : RETAIL SALES Why : SIMPLE, BIG AND EFFECTIVE
  21. 21. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 21 THE MAGIC CODE What was the campaign about? • 3,500,000 prizes to be won in a chain of supermarkets. • The key to winning was a Magic Code Card – a device with an encrypted message. • Get a Magic Code Card with €5 of specific products. • Place the Code Card over a special image, broadcast within a TV show or advert to see if you have a winner.
  22. 22. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 22 THE MAGIC CODE signposting of the promotional productsMagic Code
  23. 23. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 23 THE MAGIC CODE Mini-series: ¨The Magic House¨ (25 different Chapters, one per day). Instructive video for clients (in the stores).
  24. 24. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 24 THE MAGIC CODE What was the campaign about? • More products you buy, the more codes you get. • The decoding images were shown on the Telecinco channel during a special programme called “The Magic House” • …….. a comedy about the daily lives of three young men and their shopping trips to Carrefour, the Magic Code, the prizes they won and the dreams that came true.
  25. 25. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 25 THE MAGIC CODE How successful was the campaign ? • Carrefour hit highest ever market share. • Double digit increase in sales • 3,000,000 additional customers • And 30% of all visitors visited as a result of the promotion.
  26. 26. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 26
  27. 27. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 27
  28. 28. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 28 Sales promotion effects measurement is limited in practice. Reasons: - Managers neither have time or have required skills to build models that can measure SP effects. - The software for building marketing models may not be suitable. - Managers may not want to measure SP effects. - Managers may not have access to data of acceptable quality for measurement. - Managers may decide it is too costly to collect data for measurement.
  29. 29. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 29 1. Temporary price reduction substantially increase sales. 2. Higher market-share brands are less deal elastic. 3. The frequency of deal changes the consumer’s reference price. 4. The greater the frequency of deals, the lower the height of the deal spike. 5. Cross-promotional effects are asymmetric. 6. Retailers pass less than 100 percent of trade deals through. 7. Display and feature advertising have strong effects on item sales. 8. Advertised promotion can result in increased store traffic. 9. Promotions can effect sales in complementary and substitute categories.
  30. 30. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 30
  31. 31. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 31 1. Economic – monetary and non- monetary gain derived from the nature of promotional offer. 2. Emotional – the feelings /emotions aroused by exposure to the promotional offer. 3. Informational – the communication of information about a brand.
  32. 32. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 32 Promotion makes consumer believe that the brand is overpriced
  33. 33. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 33
  34. 34. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 34
  35. 35. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 35
  36. 36. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 36 100 t q t1 t20 t q 0 t1 t2 t3 100 НП t q 0 t1 НП t2 t3 200 t4 100 100 t q 150 0 t1 НП t2 t3 A: Normal purchase pattern B: Accelerate purchase time C: Stockpiling D: Consumption increase SP SPSP
  37. 37. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 37 The Baseline sales … an estimate of sales in absence of specific promotional activity for specific product and for determined time period. Incremental sales … these are sales that are directly attributable to the promotion during the period.
  38. 38. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 38 Baseline sales Incremental sales Post-promotion deep Sales Total sales = Baseline sales + Immediate incremental sales Incremental sales = f (temporary price reduction, displays, features, …) Baseline sales = f (regular shelf price, advertising stock, distribution, competitive activity, seasonality, …)
  39. 39. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 39
  40. 40. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 40
  41. 41. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 41 1. The immediate effects of promotions are reflected in short- term changes in sales. 2. The adjustment effects of promotions refer to the transition period between the short-term response and the resulting equilibrium, which be either means reversion or a new sales level. 3. The permanent effects of promotions require that a proportion of the event’s impact is carried forward and sets a new trend.
  42. 42. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 42
  43. 43. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 43 Incremental Units Sold on Deal x (Margin – Discount) Undiscounted Incremental Units x Margin Base Units Sold on Deal x Margin Promo Costs Carryover Effects (positive and negative) Promotional Profit
  44. 44. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 44 Time series quasi-experiments Time series quasi-experimental deign can be diagrammed as follows: O1 O2 O3 O4 X5 O6 O7 O8 O9 The estimation for the promotion effect is: Op- Opre
  45. 45. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 45 10 20 30 40 50 90 Op- Opre = 90 – 30 = 60 Op- Opre = 90 – 60 = 30
  46. 46. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 46 Two-group pre-post experiments The two-group pre-post experiment can be diagrammed as follows: The estimation for the promotion effect is: (Op – Cp) -(Opre – Cpre)=( Op- Opre)-( Cp- Cpre)
  47. 47. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 47 Pre-promotion Promotion Post-promotion Promotion group 100 105 110 105 170 140 120 110 100 Control group 90 95 100 95 120 130 110 100 90
  48. 48. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 48 Period Category sales Brand sales 1 1000 300 2 1000 300 3 1000 300 4 (promotion) 1200 600 5 850 200 6 1000 300 7 1000 300 8 1000 300
  49. 49. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 49 Duration of the promotion: 1 week Regular price: 1.09 euro Promotional price: 0.89 euro Sales for the 4 week prior the promotion averaged 960 units at 1.09 euro. Sales during the week of the promotion were 2640 units at 0.89 euro. Sales the week following the promotion were 720 units at 1.09 euro. Advertising space costs for the future ad were estimated to be 300 euro, and the cost to set up a display was 18 euro. The regular case cost of the item was 21.50 euro. A trade deal was offered by the manufacturer. The discount per case was 2 euro, the advertising allowance was 1 euro per case along with a display allowance of 0.50 euro per case. The case contained 24 units.
  50. 50. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 50 960 960 2640 720 1,09 0,89 1,09
  51. 51. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 51 1. The revenue expected during the promotion if no deal is offered was 960 units times 1,09 equals 1046,40 euro. The 960 is baseline sales. 2. If no deal were run, profits would have been one week’s revenue, 1046,40 minus the cost of goods which was 40 cases (960 divided by 24) times 21,50 euro, which equals 860 euro. The profit was then 186,40 euro. 3. The actual revenue during the deal was 2640 units (110 cases) times 0,89 euro, 2349,60 euro. The cost per case was 21,50 euro minus the trade allowance and advertising and display allowance, which was 2+1,50+0,50 or 3,50 euro resulting in a cost per case of 18,0 euro. The total cost during the promotion was 110*18,00=1980,00 euro. The profit was the revenue minus the cost per case. This is 369,60 euro. 4. There is one other cost. The sales after the promotion were less than expected. The normal sales level would have been 960 units, but it fell to 720 units. The retailer’s sales decreased by 240 units. The lost profits 240 units times 1,09 minus 21,50 times 10 (240 divided by 24 units per case), which equals 46,60 euro. 5. Combining all the calculations one sees that the profit from the promotion is 369,60 – 186,40 – 46,60 = 136,60 in profits before advertising and display costs. These cost were 300 + 18 = 318 euro. The net loss after advertising and display costs is 181,60 euro.
  52. 52. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 52 960 960 2640 720 1,09 0,89 1,09 Weekly profit before SP = 186,40 Euro Loss (post promotion deep) = -46,60 Euro Profit (incremental sales) = 369,60 Euro Profit (before ad cost) = 369,60 – 186,40 – 46,60 = 136,60 Euro Net profit = 136,60 – 318 = - 181,40 Euro
  53. 53. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 53 Data are adjusted for seasonality, trend, and any factors whose effects are known a priori. An initial baseline is estimated. Clearly “contaminated” promotion periods are removed from the data. “Abnormal” outlier sales periods are identified and weighted to reflect how much influence they should have in computing the baseline. A new baseline is computed. If the new baseline is theoretically unreasonable, corrective action is taken. Is the new baseline close to the previously calculated baseline? The baseline is readjusted for seasonality, etc. and these data are compared to the actual to ascertain the effects of promotion.
  54. 54. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 54 Data Experimental vs. nonexperimental Panel vs. store Consumer sales vs. warehouse withdraws Level of aggregation Temporal Across stores Across brand size/style/flavor Across consumer Dependent variables Category sales Brand sales Market share Independent variables Promotion Advertising Distribution Price Lags Interactions Competition Other variables (seasonality, weather Functional form Linear Multiplicative Attraction Semilog
  55. 55. F u n d a m e n t a l s o f S a l e s P r o m o t i o n 55
  56. 56. 56 Thank you! Atanas Luizov, PhD luizov@bfu.bg

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