SALES PROMOTION BUDGETS
1. Direct Fixed and Variable Costs:
The direct fixed costs are costs of physically distributing samples, placing advertisements and point of purchase material, etc. Variable costs are payment made to the retailer for each coupon redeemed.
2. Likely market response:
The marketer, it is suggested should analyze six types of market responses. These are:
(a) Redemption rates
(b) Displacement rates
(c) Acquisition rates
(d) Stock up rates
(e) Conversion rates
(f) Product line effects
Let us analyze the above types of responses in a greater detail.
(a) Redemption rates This measure reflects the total number or percentage of potential / target customers responding to the sales promotion programs. Generally, this is based on how the incentive coupons have been distributed… Others factors that influence redemption rate are :
(i) Popularity of the brand.
(ii) Depth of distribution of a brand.
(iii) Number of households using the product form.
(iv) Frequency of purchase of the product form.
(v) The value of the incentive.
(b) Displacement Rates: This is a measure that helps the marketer determine the amount of lost contribution margin that results from selling to regular buyers at a discounted price. . Any sales promotion programs is bound to displace sales that would have other wise been made to regular buyers at the normal price. This rate is dependent o the method of distribution of coupons or the method by which the target market is made aware of these incentives. Generally, redemption rates will be a percentage somewhat higher than the productâ€™s market share.
(c) Acquisition Rates This reflects the addition to the customer base of the company. However, marketer should appreciate that displacement and replacement rates together may not add up to 100 percent of redemptions. There is another category also called stock up buyers.
(d) Stock up Rates: This effect is desirable when sales promotion objective is to motivate consumers to build up inventories. This will result in a decline in post promotion sales of the product. Hence, the marketer should analyze lost contribution resulting from such decline in sales.
(e) Conversion Rates Here, the marketer has to analyze the rate of penetration in the competitors market. The marketer has to also analyze penetration among the non-user group. Accordingly, the marketer should attempt to estimate the level of post-promotion sales that will come from customers acquired during the promotion period.
(f) Product Line Effects: Managers should study cross elasticity of demand between promoted product and complementary or substitute product, like in the case of shaving cream and after shave lotion. Retailers and other firms offering promotions on such products should examine increase in sales of complementary products due to increased sales in the promoted leader product.
(g) Set up control mechanisms to ensure effectiveness of the campaign.
Sales Promotion is a tool which comes after Marketing Policies, Systems and Procedures are positioned. The promotion is a continuous process. It begins with the inception of sale to attract customers, survive competition and increase sales volumes and consequently revenues. Therefore a careful planning and budgeting of expenses have to be worked out for sales promotion. No marketer can survive profitably without sales promotion. The process is outlined in the aforesaid paragraphs. The process may from company to company and product to product.