Sales Promotion and Management - Essay Example

Sales Promotion Portfolio Insert Insert Grade Insert Introduction Today’s globalised business environment has resulted in high competition among business enterprises that deal in same products. Industry rivalry has been denoted by a number of strategies aimed at convincing prospective customers to purchase highly differentiated by potentially similar products (Meade et al, 2009). As a result, sales promotion is becoming a great factor to consider if enterprises are to attain their goals regarding to sales volumes. One of the trading commodities in the world is coffee due to the unmatched demand for consumption all over the world. For instance, coffee is one of the most valuable import commodities in the whole of the United States of America. To be able to cope with the demand resulting from the popularity of coffee as the most preferred beverage in the world, there have been numerous retail chains that have been established. There has been a remarkable and continued expansion of their operations in the sector. This paper will analyze and critically evaluate the various promotional techniques used in the sector and further evaluate their effectiveness. In addition, the issue of budgeting for the chosen promotional activities and the respective returns will also be discussed. Promotional Overview Large self-service retail chains or coffee shops have always provided customers with an experience. This is by the way they provide a wide range of innovative products and services, through well-targeted promotions that have an impact on their buying decisions. Some of the most common promotional techniques that are closely related to product trial include the use of free samples, bonuses, coupons, and discount on purchases and in the shop display. The main reason behind the use of trials is that they determine repurchase behaviour among consumers. In addition, they also mediate in the relationship between sales promotions and repeat-buying behaviour. Repeat-buying behaviour of customers is widely influenced by the values or tastes obtained and perceived on the product or the taste of the coffee in a given retail chain as commonly stated by many. Additionally, the product characteristics, knowledge, trial, availability and subsequent purchase factors influence the customers towards making re-buying decisions in relation to the type of promotional technique employed by the coffee chains. Moreover, the decision by consumers to re-purchase the products on offer or in this case, revisit the retail chains is largely affected by customers’ level of satisfaction that is obtained from the products. It is also important to note that the number of customers that have been influenced to purchase a similar product or visit the same shop for the product is of a great impact on the popularity of the brand as well as consumer behaviour. Among growing competition in the coffee retail chains, it is remarkable that innovative point-of-sales or in-shop promotions offered by coffee retail chains are always geared at increasing the number of sales and further boosting the store-brand value and identity, which is healthy for the retail chains. Consequently, increasing the intensity of purchases and product trial are visibly the most important determinants of sales promotion in the said industry especially through point-of-sales promotions. Additionally, it has been noted that there might be a significant correlation between the four consumer promotion strategies employed by the chains, use of coupons, purchase discounts, free samples and buy-one-get-one-free, and on the other hand; compulsive buying behaviour (Montaner et al, 2011). The promotion techniques in the sector are therefore deployed to ensure that customers or prospective ones always find themselves in the coffee shops or restaurants drinking the same cup every day. However, each of the promotional technique has its strengths and weaknesses. To begin, price related promotions like the discounts are bound to attract many customers and hence raise the number of sales, which is good for revenue and competition in the sector. However, sometimes it is bound to be a weakness when customers perceive cheaper coffee to be of low quality. In addition, giving discounts in an unchecked way may result in the overall reduction of the expected revenue, which may hinder the development of the chain in the short run. Secondly, in store related promotions like the display and set up of the shop may be a good way of attracting customers and retaining the regular ones. However, they depend much on the customer to appear at the restaurant or shop, which may need other methods of promoting sales to be successful. In addition, the coffee shops also deploy a self-liquidating premium models whereby another product is offered at a lower price with the coffee. This is good in promoting the purchase of two products at the same purchase and hence increased sales in both products. However, sometimes customer may only need one product, which may discourage them in buying the other in that arrangement. Lastly, the use of advertising is also a good promotional tool in the sector. Advertising is widely used in promotion of the product in the various media platforms as well as the use of billboards. Today, social media platforms are fast growing and the coffee sector has also not been left behind. A great strength of advertising is that it enables the chains to present their products to customers that might not have any idea of where their shops are or how they present their coffee to the customer. This is therefore a good way of making the masses aware given that the coffee retail sector is also highly globalised. However, the sunken costs associated with advertising is still an issue in the sector because the costs of advertising may not be catered for by the revenue attained in the short run. The nature and the choice of applicable retail coffee sales promotion approaches are some of the most important factors to be considered by the enterprises. It is essential that the various coffee retailing chains are able to conform to the various mechanisms employed at the consumer level concerning sales promotions. Determinants such as the need for variety, perceived health and nutritional benefits, brand loyalty and other shop associated loyalties towards point-of-sales promotions have certain influences on the buying behaviour and number of retail sales or cups sold in that matter. Comparative Analysis The coffee retail chain leaders in the country include the McDonalds, Starbucks, Nescafe, Caffe Nero and Costa. McDonalds has been a leader in the market because it has largely deployed a price promotion strategy. The corporation has been good at attracting customers especially during the times of economic turbulence. However, it is also notable that the coffee chains have always employed the same strategy in promotion of sales in their retail shops. First, owing to the sensation of consumers and the coffee drinking tradition, the companies have always taken the advantage of branding their products. This is through use of specialty products or blended products that are unique to the shops. Examples here include drinks like “caffe latte, cappuccino, and espresso”. They are popular with customers because they are not able to make them on their own while at home. Another major promotional feature that cuts across the coffee retail chains is the use of a “buy one get another free” arrangement. It is therefore common to have posters and flyers around the streets that say, a mug of espresso coffee at one of the joints would attract a bonus of another one free. In addition to this promotional technique, another innovative modification of this has been that of a free refill after every purchase or on a repeat of purchase. In turn, this technique ensures that the customers are able to purchase in large quantities. The chains have also employed the use of online advertising and have largely taken advantage of the social media platforms. The global brands like Starbucks and McDonalds have fully functional websites with all the information on their products and services. There is also the use of promotions in the market. Marketers in the sector commonly use sports celebrity endorsements to heighten the appeal of advertisements. Sports celebrity endorsers are expected to give an advertising message credibility, increase product attractiveness, increase liking and recall of the ad, and the likelihood of purchase (Pahl, 2009). Moreover, the retail chains have also taken advantage of fair trade practices in the sector. Fair trade in international commerce has two distinct meanings. In trade negotiations, the term is used broadly to argue that subsidies and disguised barriers skew the global trade system against developing countries and commodity producers (Pride et al, 2006). “Retailers may take advantage of consumers social conscience.” After looking at prices in his local coffee bar where fair trade cups of coffee are sold at a premium, the customer is likely to favour that shop. Success of Promotional Activities Looking at the promotional techniques used, it is evident that they have been largely successful because of the nature of product in this sector. This has been attributed to the issue of compulsive buying among the consumers. In addition to in-store marketing efforts, such as labels on products, the attractiveness of ethical products will also be determined by the promotion, distribution, and branding strategy used to market them. Many authors agree that ethical products would benefit from more awareness building and promotion. It is therefore true to state that business will only benefit from their CSR efforts if they communicate intelligently. Committed fair trade buyers admitted that they needed regular promotional reminders to remain motivated to buy these products. Consumers express a clear preference for less hard-boiled (marketing) communications techniques, such as package information, leaflets and brochures, and television documentaries. They seem to perceive mass media advertising as less compatible with the idea of ethical products. This suggests that the way in which ethical products are promoted may have a relevant impact on their attractiveness. A marketing factor that has seldom been explored is the effort that it takes for consumers to locate and buy ethical products. Sometimes ethical products have their own "shop in the shop", but often they are not presented separately by product category (Aertsens et al, 2009). Ethically labelled products are often mixed with brands of the same product category, or hidden away on supermarket shelves with a very limited amount of shelf space. Furthermore, some types of ethical products (such as fair-trade products and to a certain extent bio-products) are primarily sold in specialty shops (Carrigan and Attalla, 2001). Consumers who are pressed for time find it inconvenient to buy their fair-trade coffee or bio-vegetables in different shops from their other groceries. However, in the long run, it is feared that sales promotions increase price sensitivity and destroy brand equity-both with retailers and consumers. As a result, many industry experts are calling for more effective and cost-efficient promotions that rely less on price, and some go so far as to recommend eliminating most promotions by switching to an everyday-low-price policy. Analysis of aggregate level sales data generally suggests no negative after-effect on brand sales from promotions, although it has recently been shown that more sophisticated analysis can uncover such effects, particularly in categories in which it is easy for consumers to stockpile (Preeta, 2005). The reason for generally expecting no negative after-effect is that most buyers of a brand buy it only infrequently. The promotion induces some of these buyers to buy the promoted brand on that occasion, rather than a competitor brand. The brand is also bought during the promotion by consumers who would have otherwise bought it at regular price. However, most buyers are also rather infrequent purchasers of a given category, and promotions have comparatively minor effects on purchase acceleration or stockpiling compared to brand switching. This means there are approximately as many buyers in the market for the category and the brand in the following period as would have been the case if the promotion had not occurred. Therefore, demand for the promoted brand is generally not negated in the weeks following the promotion. Budgets and the Determination of ROI The relative allocation issue is critical for many brand managers today whose budgets are flat or declining, and who must make trade-offs in deciding how to best allocate scarce marketing communications resources suggest that sales and profit are more sensitive to the way a budget is allocated than to its overall level. "More behavioural research on how marketing organizations approach allocation decisions as opposed to investment-level decisions is needed". Surprisingly, this call for research on allocation decisions has gone largely unheeded (West et al, 2009). Two Significant Issues As stated earlier, most prior research on the advertising and sales promotion budget issue has focused on understanding factors that are related to the ratio of marketing communications spending to sales. In our analysis of this research, two significant issues arose. First, many extant advertising and sales promotion studies have emphasized market growth rates and market share as predictors of advertising and sales promotion spending. A second crucial issue in understanding brand-level advertising and sales promotion budgets is the fact that the perspective of the people who make the allocation decision - brand managers - has mostly been left out of prior research. An understanding of the factors that influence brand managers decision-making processes as they balance a complex set of decision variables in allocating marketing communications budgets would be an important research contribution. In addition, their perceptions of outcomes arising from the relative allocation are also important, given the current trend for greater marketing communications efficiency and accountability. Conclusion The coffee industry is not only interesting but also offers many challenges as it has become increasingly competitive, demanding efficiency in all areas of operations for success. Measuring and benchmarking the performance or efficiency of coffee stores using various factors, which is an important part of the managerial process, may not be simple and consequently requires a very high level of effort (Alfranca et al, 2002). The use of conventional efficiency measures and financial ratios will provide simple and straightforward results. The advantages of these measures are that they are readily available and easy to use and understand. However, they provide only a partial picture of performance and are unable to incorporate multivariate aspects of performance measures. In fact, when we measure and benchmark the performance of organizations, we need to include multiple factors such as purchasing, labour, building and markets for their individual effects and, at the same time, for their overall effects. Managers will want to know the comparative performance of the stores determining which factors are more influential for the profitability of a store and/or which factors should be improved to increase profitability. We demonstrate an approach for measuring and benchmarking multivariate aspects of performance using actual data from a coffee company. Next is the issue of awareness. Awareness can be achieved through the selective use of premiums. For example, premiums that hold the ability to be used (and, therefore, seen) on a regular basis are appropriate. They are particularly suitable to help stimulate deferred purchases, or where the opportunity of cross-selling is high. Examples are calendars and table clocks. The quality of the premium can also reinforce or sharpen the intended positioning of a company or brand name, or stimulate additional usage. A clever promotion by the Milk Marketing Board is a diary containing many milk recipes, designed to increase and spread milk consumption over a regular period. Awareness is much more effective to the long-term value of the brand if it can be prolonged. Promotions offering involvement help. Cereal manufacturers offer childrens games, which enables brand awareness to remain long after any advertisements are off air (Yeshin, 2012). They key in sustaining a competitive advantage is to have a concerted, planned stream of promotions, which are consistent with the firms intended positioning. Personalities and trade characters can help provide a consistent theme, and keep the name active in the minds of the target audience. Furthermore, retention of top staff was improved, traditionally; this is an important barrier against achieving a consistent standard of service. In the past, retention had been a problem due to remuneration being geared heavily towards commission based on individual performance. However, performance related to branches and individuals injected a teamwork spirit that was previously lacking. By gaining total commitment in such schemes, reliability, and responsiveness to customers, and competence in handling sales enquiries increase, these are all indicators of reputation for quality, as a means for differentiation, leading to even greater sales. Bibliography Aertsens, J et al. 2009. Differences in Retail Strategies on the Emerging Organic Market. British Food Journal, issue 111 No. 2 p138-154. Alfranca, O et al. 2002. A Patent Analysis of Global Food and Beverage Firms: The Persistence of Innovation. Agribusiness, issue18 No. 3 p349-368. Carrigan, M and Attalla, A. 2001. The Myth Of The Ethical Consumer - Do Ethics Matter In Purchase Behaviour?. The Journal of Consumer Marketing, issue 18 No. 7 p560-577. Meade, W et al. 2009. Promotions as Competition in the Soft Drink Industry. Academy of Marketing Studies Journal, Issue 13 No. 1 p105-133. Montaner, T et al. 2011. Consumer response to gift promotions. The Journal of Product and Brand Management, issue20 No. 2 p101-110. Pahl, N., 2009. The Idea behind the Starbucks Experience. London: GRIN Verlag. Preeta, H., 2005. Measuring Consumer Preferences for Sales Promotion Schemes in FMCG Sector in an emerging market: India. The Business Review, Cambridge issue 4. No 2 p231-238. Pride, W et a. 2006. Marketing: Concepts and Strategies. London: Cengage Learning. West, D et al. 2009. Advertising and promotions budgeting and the role of risk. European Journal of Marketing, issue 43 No. 11/12 p1457-1476. Yeshin, T. 2012. Integrated Marketing Communications. London: Routledge Publishers. Read More