Sales Promotion Programs
Sales promotion programs are used by product resellers to attract business from price-conscious customers. The idea is that when a company offers a reduced price, the customer will perceive a greater value proposition from a purchase. Companies use a wide array of promotion methods to generate revenue and cash flow, clear out merchandise and increase traffic quickly.
The most simple sales promotion format is a percentage or dollar-off discount. This is where you offer a product for something like 20 percent off or $2 off the original price. A customer may perceive the product as more worthwhile at the reduced price. The use of eye-catching red or yellow shelf signage to clearly designate a product as on sale can psychologically convey a better deal.
Coupons are similar to discounts in that you offer a customer a reduced price for redeeming the coupon. The biggest difference is that only coupon holders have access to the discount opportunity. This particular promotional tool is most useful when you have a large base of customers willing to pay a premium regular price, yet you also want to attract customers who are more price-sensitive with a coupon. This tool is also used to motivate a customer to try your product or switch from another brand.
Loyalty or frequency programs are a very unique type of sales promotion in that they have a long-term focus. Most sales promotions are intended to create near-term sales. Loyalty programs are ongoing incentives to loyal customers who purchase at certain levels. Typically, customers receive points or bonus coupons when they reach certain spending increments. Frequent-flier airline programs and hotel rewards are examples.
A number of sales promotional programs include a mix of free promotional inducements. One type is a product premium. This is where you get a free gift or additional item with a purchase. Buying a carton of eggs at Easter and getting a coloring kit is an example. Free product samples and trial offers are used to take the risk out of trying a new product. They are used to attract customers with the hope that the product or service experience will get them to become new customers.
Rebates are a unique promotional tool where a customer receives a check or payment from a manufacturer or reseller after a purchase. Electronics retailers, for instance, often offer big-ticket items that come up with manufacturer or retailer rebates. Normally, you have to submit a receipt, UPC label and application, and the rebate takes several weeks to process and pay out. Redemption rates overall are low, because customers don't always redeem small offers.
Business and trade market promotions are deals offered to business buyers and trade resellers. Businesses receive many of the same types of promotional offers as consumers with the objective of luring them into buying. Trade resellers are offered promotional incentives so manufacturers and wholesalers can get their immediate customer to buy and carry products. Simple discounts, promotional allowances and refunds are examples of trade promotions.