Sales promotion having greater impact on distribution channels

Sales promotion has become a common element of the marketing strategy of all channel members. While the exact dollar figure for expenditure on sales promotion efforts is unknown, there is considerable evidence that the financial commitment is larger than for advertising. While there are numerous specific forms of sales promotion, those considered below have the greatest impact on distribution channels. For the sake of convenience these are divided into categories of consumer oriented promotion and trade oriented promotion.

Consumer Promotion: When used by manufacturers, consumer promotions are an integral part of an overall ‘pull’ strategy. The intent is to stimulate immediately the consumers’ interest in the manufacturer’s product. The most common (but certainly not the only) forms of consumers promotions are coupon, bonus packs, and tie in arrangements.

Coupons: In 1989, package goods manufacturers alone distributed over 221 billion coupons to consumers. These coupons were distributed by mass media direct mail, or on packages. These figures do not include coupons distributed by retailers themselves. Coupons generally provide consumers with a price discount when redeemed at the time of purchase. The retailer is then reimbursed by the supplier for the amount of the discount plus an agreed-to handling charge. The objective is generally to stimulate immediate sales by attracting new users, brand switchers, and price sensitive consumers, or by increasing repeat purchase rates. Frequently, such coupons also provide incentive for wholesalers and retailers to add the coupons item to their assortment.

While coupons have an important role in pull strategies, they also have implications for channel design and coordination. A mechanism must be developed to provide for reimbursement for the retailer. Special institutions have evolved specifically to facilitate this process. Also, couponing activities must be coordinated with channel member. A frequent retailer’s complaint is that manufacturers distribute coupons without providing notice to the retailer. Consumers bring these coupons to the store for redemption and consequently the retailer my run out of the featured product. The result is that other consumers are not able to redeem their coupons. This generates considerable ill will throughout the channel. With notification in advance, the retailer could have built levels in anticipation of the manufacturer’s coupon distribution.

A second administrative problem associated with coupons is potential mis-redemption and counterfeiting, the costs of which can be quite high. Situations in which thousands of coupons are clipped by an individual or an organized group and then submitted to the manufacturer or the clearing house for payment have been documented. Manufacturers must be careful to assure that each redeemed coupon in fact corresponds to an actual sale of a product.

Bonus packs and Tie-Ins: Another common consumer oriented promotion involves the development of special of special packaging to create a particular value for consumers, or a tie in package of two separate products. For example, Ralston-Purina may develop a special package of its Dog Chow in which 30 ponds of chow are sold rather than the normal 25 pounds. The intent is to give the consumer 5 pounds ‘free’ as a bonus for purchasing. These special bonus packs frequently cause problems in the distribution channel because wholesalers and retailers must handle the new package as if it were a new or unique product — stock it, track it, and then dispose of it when the promotion ends. Some wholesalers and retailers frequently refuse to participate in such promotions because of the extra expense involved with handling the item for a short time period. Similarly, some intermediaries are reluctant the handle tie-in promotions where two separate products are combined into one package. This reluctance may defeat the best intentional promotional strategy of the manufacturer.

Trade Promotion: Trade promotion represents a supplier’s attempt to induce wholesalers or retailers to purchase, promote, discount and/or display a particular product. Most trade promotions actually some sort of price discount for the retailer as an inducement. The discount may be allowed as an off invoice deduction or may be billed back to the supplier by the retailer based on the number of items purchased during the promotional period. Trade promotions generally have a set time period during which the deal is in effect and frequently require specific behavior on the part of the retailer. For example the retailer may be required to purchase a minimum quantity, provide special display or promotion of the product, or pass through part of the discount to the consumer. Such promotions have become so common as a competitive device in some consumer goods industries that some manufacturers sell 90 to 95 percent of all their production, ‘on deal’.