 As-Salam-Alaikum-Khawath-e-Nuh-Hazrat. Vaseem As-Sin welcomes you to lecture number 35 of Brand Management, MKT 624 at the virtual University of Pakistan. The topic of today is sales promotions. And you will recall that sales promotions is the second, most important and dominant part of communication. Meaning one of the tools we already have talked about advertising and I started talking about sales promotion in the last lecture when the lecture came to an end. So the letters, they pick up the threads from where I left. Advertising plays a very visible role in creating awareness and comprehension. This is what we learned from the previous lectures. Knowing that advertising has done its part by creating the first two phases of the customer's response effects, meaning awareness and comprehension. We still need the support of sales promotions in order to create the final action. So in other words, advertising may be limited in creating the desired action that we have to see on part of our consumers. The meaning they should go to the market and buy our brand. It is at that point that the significance of sales promotion comes in. Knowing that advertising has created the pull to that awareness and comprehension, we now have to create the push for the customer to go to the market for the brand. So in other words, it is at this point that we like to create what you all know is trial. Through sales promotions we try to create trial especially for those products which are new because after having tried the product the customer is in a much better position to know the potential benefits which the product carries and that is a true test of a product. So sales promotions become very important coupled with advertising at this juncture. In other words, the pull and push may have to come together in order to create the desired result for a sale. To create that push what we have to keep in our minds is that the involvement of the intermediaries is of utmost importance. Unless we involve intermediaries, meaning the various members of the channel there is no way that we are going to achieve the end result. According to the one estimate one third of the communication budgets is spent on advertising and two third on promotions. This has become a very important area of the debate all over the world in western markets in particular to what extent the company should spend on promotions and to what extent the company should spend on advertising. What is happening generally is what I have told you the one third on advertising and two third on promotions because the general feeling is that advertising is expensive but you have to pay the outright to the various media, whereas in terms of promotions you do not really have to pay immediately at least that's the way it looks like. When you carry your promotions you carry those out with the help of the product which you already have manufactured and you start giving extra quantities you get into the sampling you start giving the gifts and so on and so forth so at least on the face of it it looks like that promotions are not as expensive as advertising is but the fact remains that generally companies end up spending something like two third of the total communication budgets on promotions and out of the two third of the budget spent on the promotions one third or a little more than that is spent on intermediaries meaning members of the channel and about two third on customers offer that to consumers why is it that the companies really have to spend one third on the intermediaries while it looks like they should be spending all the money on the final consumers well the reason is that the intermediaries are very well aware of the role they play in the market and the power they carry you will recall from the channels, the systems that every member of the channel is playing an important function and without that function the supply chain does not get completed and it is very difficult for the one company to start undertaking all the functions of the supply chain and therefore the role of the intermediaries that takes on importance the remaining part which is spent on the final consumers is spent basically on incentives and inducements which are offered to them in order to create a trial and this really helps especially in the case of new products like I pointed out earlier which are not yet tested in the marketplace and no matter what amount of advertising has gone into it to generate a very decent level of awareness and comprehension the final action may not be taken by the consumers because there always is the kind of hesitation on the part of all of us to try something new especially when we are satisfied with the products that we are using the meaning of the brands that we already are using so it is the help of the intermediaries retailers in particular that we offer so many different incentives and the total mechanism around which execution of such incentive schemes revolves is retailers driven in most of the cases this is not to say that the distributors are not involved but the final role in terms of the execution of the promotions is played generally at the retailers end so the retailers from that point of view take on and edit significance we can say that just like in the case of advertising we have rather we should have a mixed bag of different tools the same as the case for promotions that we should be having a kind of a promo mix in order to create an effective promotional scheme or a promotional campaign let us now talk about two different kinds of promotions that we have to carry at the same time and you know that I am referring to the trade promotions and consumer promotions trade promotions very obviously I already have told you are important because of the importance of the intermediaries it goes without saying that when we are in the midst of a campaign we have to make sure that the retailers are carrying adequate level of stocks which is to be promoted or which is being promoted retailers not only have to carry usual levels of stocks they have to carry a little more and not only that you have to convince retailers into giving you the space which is prime in their stores and not only prime space you need more space because you need to have a tremendous display of the brand which is being promoted so that it does not escape attention of any potential consumer walking into the store this is where the role of retailers comes in if retailers are viewing your campaign very positively they certainly are going to provide you with the prime space and the more space in order for your brand to be very visible within their stores and I must say that this is the prime objective which you must try to achieve and this is where the role of your sales staff also comes in whenever you are carrying out these kinds of campaigns you must take into the importance of your sales staff so in other words that is a very important touch point and without the input of the sales people I would say that you should not be finalizing any promotional campaign sales people are the ones who are in contact with not only your final consumers but also with the trade members the meaning distributors and retailers in particular and therefore are the ones who develop the sales forecasts and they are the ones who give you insights into the buying patterns and the buying criteria on part of the final consumers so they are aware of not only that they are also aware of the buying patterns of the intermediaries so in other words if you are to carry out certain campaigns which are directed toward the trade members it just cannot be effective unless your sales staff are involved into it and do not forget these are the people who also play the role of CRM Customer Relationship Management they are not only into sales they are also into relationship marketing and hence relationship management you have to take their view into consideration just like the way you took that into consideration while you were developing the brand picture you were assessing the buying criteria for the why customers could buy one brand in preference to the other and the inputs at that stage were taken into serious consideration given by the sales people so their importance can be hardly overemphasized let us now talk about the other dimension of the promotions which is consumer promotions there are so many different tools which you are going to have at your disposal while putting together a mixed bag of promotions and the tools which are generally used by brand managers are like price reductions to the multi buy and the multi save additional quantity and pack manufacturers price reduction coupons rewards and gifts free items in the form of free sampling and so on and so forth now let us try to take a look at all these one by one just to see the nature which they all have the basic objective of giving these incentives is to generate a higher level of trial because we know that the awareness is there and comprehension also is there so we have to generate the final action and nothing could serve better of a purpose than the fact that we offer something extra or something free only to have your customers try the product and like it is said in terms of most of the FMCGs and in particular the food items nothing works as well as the free items or for that matter sampling because once you have tested a product or used a product you are in a good position to decide whether it is worth buying or not and whenever you carry out campaigns you are convinced that your product or your brand is worth buying so you try to convince customers that they should switch to your brand let us talk about these inducements one by one I talked about the multi buy and multi save this is a general practice on the part of so many different companies to offer things like buy six and get so many free buy two get one free buy one get one free depending upon the objectives that you have in relation to the promotional campaign you come up with the level and intensity of the campaign the other tool that I talked about was additional quantity impacts this is also something which is not really strange to you you see so many different products with the 10% extra content or 20% extra content so whatever extra is given is an inducement for the customer or for the potential customer to buy that product and to use it and then get convinced that the promise it carries is deliverable the other tool which you have at your disposal is the manufacturer's price production now this is something which they should why I would say because this has a lot of built in inherent kind of complications your brand is subjected to the low price for all times to come in most of the cases and therefore you should try to avoid that but this is again something that you have to decide in line with your goals and objectives that you have at one particular point in time when you reduce the price it sends its ripple effects all along the chain of the channel the meaning you have to revise the price for your distributors, retailers and also for your customers this is a comprehensive mechanism for which you have to seek support of your colleagues from accounting and finance and of course sales people whose support is a given and you just cannot move in the marketplace without the support of your sales people and without their input so if you reduce the price only because you want potential customers to be attracted towards your brand and then buy it the basic objective remains the same that you are out there trying to generate trial of the product in the hope that the customers get hooked on to your brand another tool of communication which is gaining a lot of popularity nowadays is coupons you know basically what coupons are and the coupons are distributed to potential customers again in the hope that they will exercise their option to use those coupons when they come to the retail outlets give those coupons and get something in return the basic idea and objective remain the same that you have to generate trial by offering something extra whether it is the price discount or something else that is part of the mechanism which defines that particular coupon the challenge here is to distribute those coupons and to make sure that the use of coupons is very much in line with the objectives the meaning coupons should not be abused because if coupons are abused and you do not end up generating the level of trial for which the coupons were designed then the exercise becomes self defeating distribution of coupons can take place through newspapers which is the practice and the many markets of the world especially the developed world you can also insert coupons inside of the magazines you can also mail coupons to your potential customers it all depends on the kind of product that you are selling and the outreach that you have for that product those are the kind of things of which distribution of coupons should be a function of if you are selling a product it is very exclusive and you are selling that one just about 10% of the total retail population of the market it is one particular situation which is very different from the one in which you may have to distribute your product through thousands and thousands of retailers which generally is the case with so many FMCGs so depending on the nature of your product the volumes that you are dealing in and the goals and objectives that you have set yourselves you are going to make your decision about the number of coupons and the distribution of coupons and so on and so forth another tool which again has become very popular nowadays is rewards and the gifts rewards and gifts are offered by companies that basically are into service selling take a good look at airlines and banks and you will know what I am talking about airlines can offer the reward points if you fly a certain number of hours or you fly a certain route and the more you fly the more points you accumulate the more entitled you are to number of points and the process goes on and on the basic objective is not only to generate trial it also is to keep you attracted to that particular airline and to keep you a loyal customer because the companies are very much aware of the fact that keeping their customers loyal toward the brand is one of the major goals of the brand management we are going to talk about all this while we discuss pricing but in the context of the communications I think it is important to know that one of the objectives of communication is to create loyal customers rewards are also offered by different credit cards the objective there is to the actual tube into shopping the more and more so that you use that card more and more and in return you accumulate a certain number of points by a certain mechanism as put forth by the credit card company meaning the bank and the more you shop the more points you accumulate and more points you accumulate the more gifts you receive there is a whole long list of products which are offered to you as the gifts against the level of inflation which you have to yourself so rewards and gifts are amplified by the examples that I have given in relation to the airlines and credit cards you can get into these kind of practices if you are into services and if you think that the rewards and gifts could apply equally well to the products that you are selling there is nothing stopping you from doing that the last tool which I would like to talk about as a very important tool of communication is sampling the sampling is generally undertaken when you have introduced a new brand and again you are out of the market to make sure that more and more people try that product because the trial is a reflection of the action which is the the last stage of the customer's response and you like to make sure that if customers are not going to get into that action stage by themselves you have to trigger that action by offering something which may be free of cost but at least the customer is going to test the product and once the product is tested then the chances of that customer becoming a loyal customer are strong and if the customer does not try because the customer is hesitant the customer lacks initiative to try new products you have to take the process into your own hands and at a certain cost you have to start distributing your product by way of sampling it is said mostly in cases of the food items what sampling does no other tool of communications does because you really make your customers that test the product and once that test profile is approved by the customer the end result is pretty well can be guessed as much by you as by me so sampling takes on edit importance when it comes to those products which can be tested then and there and it has been seen that when you have put up those small stalls outside of the retail outlets or inside of the big supermarkets the way it is in the developed markets and customers generally buy that product immediately after the testing that so by the same token if you are dealing in the kinds of products which cannot be tested but can be used immediately upon customer getting home they do not hesitate to get into sampling because that is the one tool which is going to make sure that trial is going to take place and as a result of that trial the chances of that customer getting back to the outlet and buying your brand are bright what is very important because while you undertake the different tools of the promotions and create a mixed bag you are taking into confidence and into coordination very close coordination with other departments the meaning your colleagues who are working in areas across your functional boundaries they have got to be taken into confidence because they also form part of your overall team there is just no way that the marketing people the meaning marketing managers and brand managers by just being very philosophical they can go ahead with the exercise by not taking into confidence people from accounting and finance and people from sales and people from production and people from information systems so to say because the promotions do affect the complete line of the supply chain the meaning not only starting from the manufacturing process starting from the purchasing of raw materials and so on and so forth just look at the one example of extra content by 10 to 15 percent it is going to change the package it is going to change your purchasing and it is going to change your production process and it is going to create an impact in the marketplace about which your sales people have got to be prepared and they cannot prepare themselves unless they know what is going on inside of the brand management function so you have to take them on board so that they can inform your customers meaning all the intermediaries at the most opportune time about the campaign which is in the offering and that is how the intermediaries also get themselves prepared for the campaign which you are wanting to kick off so never forget to take into confidence those people accounting and finance people are very important because they are the ones who are going to look into the impact of the promotion in terms of the bottom line and the total cost which the campaign is going to incur and they are the ones who are going to work out the modalities as to when you should be informing all the intermediaries and what are going to be the mechanics of the discounts and the extra offerings in terms of contents and the new pricing tactics and the new pricing strategy if you are changing the strategy as a result of your promotional campaign so these are the kinds of strategic elements and all the workings within the various departments of the company that you have to make sure that you are in coordination with each other let these accounting and finance people tell you the mechanics so that those the mechanics are communicated by the sales people at just about the right most time so that the campaign is a success and that is what you as marketing people want we have talked about the way we talked about advertising and we know that we have to have the mix of promotional tools in order to have an effective campaign given that let us take a look at the effects which all those campaigns and tools have upon the health of the companies because everything that we do has a cost and that goes without saying that we do all those things in order to increase sales and when we increase sales the underlying objective is to improve our profitability and offer the value to customer so that the customer really stays loyal to our brands and given that we have to look into the impacts of the promotional campaigns that we have talked about first of all it is generally argued that the promotions increase sales but the increase sales in the short run according to one source the elasticity of sales through promotions is much greater than it is for advertising the elasticity of sales is the increase in sales which takes place in response to a promotional campaign it is much greater in case of promotions and it is also said it is greater by 20 times the meaning the elasticity of sales is 20 times as much in response to promotions as it is to advertising and we also know that advertising is very expensive because we have to pay upfront for going into papers for going into television which is a very expensive medium and the promotions are things which do not on the face of it at least look like incurring very high costs because we are basically dealing with inducements and we are offering those inducements by way of offering either more product or free product so companies could generally have this feeling that the amount of money which already has gone into working capital may not be as huge as it otherwise would be if it engaged into advertising and that is the prime reason that companies like to get into promotions but then we are talking about the effect which is generally short lived and short termed not withstanding 20 times as much as it is in case of advertising it does not really last beyond a certain promotional cycle and the promotional cycle is defined by the time that your promotion keeps on taking place if the promotion goes on for one month that is the promotional cycle and beyond that cycle the sales have a tendency to go back down and that is not a good effect another thing that takes place is because of the inducements the customers can generally end up buying more you do feel very happy and satisfied about that happening but that is kind of a syndrome which the companies also like to avoid at the same time because when customers get into buying extra during one promotional cycle they are buying for the next cycle which is without a promotion naturally goes down especially if elasticity of demand is not that great if it is the food item which is being consumed then there is something else they might get back to your food outlet or the retail outlet which is selling prepared food or whatever but if it is kind of an item which does not really have a great elasticity then sales will really go down and that is what you may call the borrowed sales syndrome because in actuality what you are doing is you are borrowing sales from a future period and you have created those sales during the present time at the cost of your future cycle which is without any promotional support another argument which is given against promotions meaning another effect of promotions is that the promotions may be unprofitable well because of the fact that everything adds up in terms of costs promotions also carry a lot of cost cost not only in terms of giving extra product but also in terms of disruption which is cost during your production processes and the distribution in sales and logistics with the inventory management with your information systems because you are dealing with something which is out of the ordinary you are not dealing with the systems which are in place as a routine you are dealing with something which is away from the routine and therefore it requires more time and it also is prone to the more mistakes which people might make it also is prone to different complexities because there is a cut off date a normal buying cycle ends and a promotional buying cycle starts off and by the same token the promotional cycle ends off at a certain point and again the normal buying cycle starts off so that process goes on in an iterative fashion so whenever there is a break and there is a change it is not free of complexity and the people are prone to making mistakes and those situations develop so many conflicts inter channel conflicts and intra company conflicts which could surface among various departments so this is another negative impact of promotions and it also is said that during promotions the businesses generally exchange profits with high volumes in other words marketing and sales departments in particular are oriented to have higher volumes of sales which they register as a response to one particular promotional campaign not being mindful of the fact that it costs money and it may cost money to the point that it starts eating into your profits and it may cost to the point where it becomes kind of an unprofitable venture and when you run into that kind of unprofitable situation it is not a good situation as you will agree with me so you must see to it that there is a balance between profits and the profitability which is the objective of the company and it is because of this reason that the marketing people must see to it that the extra volumes that you are generating must also offset the extra costs which you are incurring and it is because of that reason also that promotions should be short lived I am not saying that the promotions should be short lived only going to that particular reason that promotions are very expensive promotions have got to be short lived also from the standpoint that if you prolong your promotional campaign the customers are going to get used to those and your brand is going to be known as the one which cannot live on its own independently in the marketplace without those crutches and you have got to develop a reputation for your brand that it is free of any props and free of any artificial kind of supports which in the long run are not going to be positive for the brand instead of the fact that the brand should generate the value and thereby charge premium it gets into price cutting and discount offers which the devalued the brand and it is devalued only if the promotions are prolonged so that is why keeping keeping the duration of a promotion short is very important another thing which we have to consider of the while coming up with a promotional campaign is again the response effects we must know where the brand lies in terms of customers response effects and accordingly we should come up with a campaign that has compatibility with the stage of the response effects in light of our objectives because you may not get into the sampling unnecessarily and you may not get into extra product offering unnecessarily what it means is that you have to be in a position to develop the right most relationship of the promotional campaign just like you did in case of advertising with the phase of the customer response effects and in most of the cases it is the generating trial and when you are generating trial you have got to be very clear about to what extent you would like to go in terms of offering the product because it is all cost so that is what I was talking about it also takes place meaning a promotional campaign alongside an advertising campaign which has just kicked off in order to create awareness level because you are dealing with a new product so in that case the promotional campaign is not only generating trial it also is creating awareness because when customers see that product for the first time with it being offered and one of the ways I mean in one of the promotional ways first it creates awareness and at the same time it generates trial so what happens is that all the phases starting with awareness to comprehension to retention and then intention and action they all get compressed into the one phase which is the action and that is the beauty of the promotions but I would again say you have got to be very clear about the objectives so that you do not end up wasting your promotional money that is my point and you have to keep your brand from getting devalued because one of the prime objectives of the brand is to create value for the company and to offer value to customer so a prolonged promotion which you may call kind of a mindless promotion may also devalue the brand in the eyes of the customer who may start thinking that the brand is not really worth the regular original price and that is why the company is offering so many inducements to be prepared to maintain a balance when it comes to creating and the kicking of these campaigns another effect that the promotions create is that of the imitation on part of your competitors because promotions are not very difficult to follow, competitors can follow suit and they also start offering the kind of inducements which you offer to your customers and a point comes when inducements the offering gets translated into the kind of a war and everyone likes to excel by offering more in order to win the war and that is where the price level really drops and the whole category suffers the price force are never good for any brands and it is therefore the duty of the good brand managers to see to it that the promotions are not created and executed in a way that they attract the competitors in a way that escalates that cycle of price cutting because the basic objective I would again say of any brand is to create value and together not to get into price cuts there are other effects also I mean it is not only that the promotions create negative effects, promotions also create positive effects and one of the most important effects is that promotions create trial and achieving trial in itself is an achievement because you have landed the product into the hands of the final consumer and if the product is good the consumer is going to use your brand so it can be summarized in these words that it all depends on the promise which your product carries and if the promise is good if the positioning is very sensible and the promises delivered very effectively then the promotions are going to be of tremendous help but if the promise is not really very good and the positioning is not very effective then promotions may not be as effective as they are in case of those brands which are very well positioned so it is again one of the responsibilities of the brand managers to see to it that when brands are subjected to promotions they have got to be very clear about the goals and objectives relating to those brands because they are very clear about the picture about the promise the contract the ability to deliver all that and therefore they should know the kinds of promotions which need to be carried out in relation to all that the meaning brand managers must never deceive themselves by getting into unnecessary promotions which end up consuming a lot of money and not giving you the end result let's say all over again that you have got to make sure that all the expenditure which you incur has got to at least be equal to the extra sales which you generate with the help of promotions if the expenditure is on the lower side nothing like it but it has to be at least equal to that if expenditure exceeds and you do not get the desired result then it is not a good situation we can conclude by saying that effective promotions drive traffic increase awareness just like the advertising does and increase trial and build the brand we only have to be very careful about creating the right most promotions because the objective is to the gain customers and to retain those customers and enhance the brand's image and not get into unnecessary price cuts so much for the promotions and I would like to give you a recap of what I talked about the promotions during this lecture I told you that the promotions work hand in hand with advertising and when you are carrying out your advertising it has to be complemented by a certain level of promotions because the advertising medium helps the brand to a certain level and that level generally is the level of awareness and comprehension it also actuates consumers to go for the final action but it may not do that in all the cases so in order to make sure that action does take place in most of the cases we bring promotions into the game and we bring promotions into the game by supplementing and by complementing our advertising effort we have so many different tools at our disposal to come up with the most practical the mixed bag of promotions which is not very expensive not very expensive in the sense which does not really exceed in terms of expenses the extra volumes which promotions are going to bring to the company generally a debate goes on in almost all the companies that even if we have spent a little more it shouldn't really matter because it is going to build up comprehension and retention in terms of brand over a longer period and therefore it will create the desired effect meaning the action but that is something in which companies should avoid and the balance has got to be maintained I would continue in my next lecture with other tools of advertising that may be discussed so much for promotions and Allah Hafiz I look forward to talking with you in the next lecture