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While the two terms are often used interchangeably, advertising and sales promotion designate different parts of a business's marketing strategy. Advertising has to do with building brand recognition and taking measures to build long-term profitability, whereas sales promotions are shorter-term strategies that infuse immediate revenue into a business by directly affecting the price of goods or services. While both can potentially affect revenue, sales promotions have a direct connection to the amount of money your business brings in.
Sales promotion is one of the five aspects of the promotional mix. (The other4 parts of the promotional mix are advertising, personal selling, direct marketing and publicity/public relations.) Media and non-media marketing communication are employed for a pre-determined, limited time to increase consumer demand, stimulate market demand or improve product availability. Examples include contests, coupons, freebies, loss leaders, point of purchase displays, premiums, prizes, product samples, and rebates
Sales promotions can be directed at either the customer, sales staff, or distribution channel members (such as retailers). Sales promotions targeted at the consumer are called consumer sales promotions. Sales promotions targeted at retailers and wholesale are called trade sales promotions. Some sale promotions, particularly ones with unusual methods, are considered gimmicks by many.
Sales promotion includes several communications activities that attempt to provide added value or incentives to consumers, wholesalers, retailers, or other organizational customers to stimulate immediate sales. These efforts can attempt to stimulate product interest, trial, or purchase. Examples of devices used in sales promotion include coupons, samples, premiums, point-of-purchase (POP) displays, contests, rebates, and sweepstakes.
Sales promotion is needed to attract new customers, to hold present customers, to counteract competition, and to take advantage of opportunities that are revealed by market research. It is made up of activities, both outside and inside activities, to enhance company sales. Outside sales promotion activities include advertising, publicity, public relations activities, and special sales events. Inside sales promotion activities includes window displays, product and promotional material display and promotional programs such as premium awards and contests.
Sale promotions often come in the form of discounts. Discounts impact the way consumers think and behave when shopping. The type of savings and its location can affect the way consumers view a product and affect their purchase decision.The two most common discounts are price discounts (“on sale items”) and bonus packs (“bulk items”) Price discounts are the reduction of an original sale by a certain percentage while bonus packs are deals in which the consumer receives more for the original price.Many companies present different forms of discounts in advertisements, hoping to convince consumers to buy their products.
This study examines the allocation of funds between advertising and sales promotion. In recent years, marketers have been increasingly turning to sales promotion as a seemingly attractive strategy.
Although many marketers agree that resource allocated to advertising is an investment in long-term brand building, there is far less confidence that advertising is an effective tool in the short or intermediate term. While it is generally accepted that promotions generate short-term sales, some of those sales are simply ‘stolen’ from future purchases by the same consumer.
I am concerned that this short-term orientation has destructive longer term effects. A major question which marketers must confront is whether excessive emphasis on promotion actually erodes perceived brand value.
If a brand is on ‘special’ price too frequently, consumers are likely to start to think of the ‘special’ price as the normal price for the brand – and learn never to buy the brand unless it is discounted. Clearly, we need to pin down the benefits of sales promotion: Does it really build profits for a marketer, as conventional wisdom suggests? Or does it have a negative impact on earnings?
Those questions led to the second collaborative study between the Center for Research & Development and SPI.1 This time the SPI investigative team was headed by Robert D. Buzzell, Professor of Marketing at Harvard Business School. Again, the PIMS database was used.
For this second study, we further refined the database of749 consumer businesses to examine businesses with basically similar promotional mechanisms. This led us to examine a group of314 consumer non-durable businesses – the fast-moving consumer goods (fmcg) businesses included in PIMS, and on which we had both advertising and promotion spending data. Sales promotion, as defined in PIMS, includes both trade and consumer activities (the average US package goods marketer spends60% of his below-the-line money on trade promotions, and40% on consumer promotions); most consumer promotions relate to price: temporary cut-price offers, premiums, direct couponing and money-back deals. Contests, games and sweepstakes are also included in this category.
To examine the relationship between various strategies on the one hand and payout on the other, the sample of business units was divided into three approximately equal parts, based on a frequency distribution of their allocation patterns:
vehicle.Businesses using promotion as the dominant strategy were defined as all businesses spending less than36% of their marketing funds in advertising. The average business in this group spent only23% of their marketing money on advertising and77% on sales promotion.
The group using the ‘mixed strategy’ actually skewed slightly towards promotions. This segment of PIMS fmcg businesses spent between36% and50% of their marketing money on advertising. On average, they placed about44% of their marketing expenditures in advertising, and56% in promotions.
The final group comprised that set of businesses which used advertising as their dominant spending strategy. To be included in this group, businesses had to place over50% of marketingINVESTMENT in advertising. The average business in this group allocated two-thirds of its marketing funds to media advertising, and the rest to promotion. Table1 gives the performance of each group.
Those companies spending the bulk of their funds –76% – on promotion, achieved an average return of18.1% (pre-tax and pre-interest charges).
Those employing the mixed strategy, where on average44% went to advertising and56% went to promotions, earned a considerably more respectable average return onINVESTMENT of27.3%.
The group of marketers using advertising as their dominant strategy – that is, businesses investing more than50% of their marketing resources in advertising – registered the healthiest return onINVESTMENTS of all, averaging30.5%.
The other measures of performance included in the analysis, such as return on sales and share of market, all showed similar patterns; but as might be expected, the magnitude of the differences varied. It is clear that there is a positive relationship between the emphasis onINVESTMENT in advertising and profitability. Conversely, those businesses that allocate most of their marketing budgets to promotion tend to have lower profit margins and rates of return on investment.
One final piece of evidence comes from another source. These other data were developed by Information Resources Incorporated, a leading US research firm. They studied the impact of extra advertising spending on sales for15 fmcg brands in a highly controlled experiment. The average brand they studied increased its advertising spending by70% during the one-year test.2
The IRI measurement system, ‘BehaviorScan’, is state-of-the-art, and quite high tech. It controls the advertising reaching test homes and measures what members of these households purchase through scanners at the checkout counters of stores in the market. This makes it possible to compare households receiving the extra advertising with a matched control group receiving only the normal advertising spend.
As Table2 shows, the average increase in sales among those receiving the additional advertising pressure during the year of the test was22%. Not bad, but the story does not end there.
At the end of the one-year test, the extra advertising completely stopped. Both groups of households – the test group that had previously received the higher level of advertising, and the control group – received exactly the same level of advertising pressure over the next year for the test brands.
One year after the test, there continued to be higher sales among those households which had received the heavier advertising weight. These on average bought17% more than those receiving the base level advertising. In year three – two years after the heavy spending test – those who had received the higher weight during the test continued to purchase6% more of the average test brand than those in the control group. So it seems that additional advertising pressure has an enduring effect in addition to its immediate effect.
In another analysis of the profitability of more than60 trade promotions using the same technology for data collection, IRI found that overall only16% of the promotions paid out. In addition, for established brands, the long-term effects were likely to be negative due to stockpiling by loyal buyers on the one hand and ‘training’ buyers to wait for deals on the other.
I will summarise what these various PIMS and IRI studies are telling us.
First, when we look at advertising alone, it makes a measurable direct contribution to perceived quality, and share of market, which leads to profitability.
Second, advertising appears to have a carry-over sales effect that extends beyond the period during which it is actually running.
Third, when we separately examine the way in which businesses allocate their expenditures to sales promotion and to advertising, we see that those businesses emphasising advertising enjoy a higher return onINVESTED capital.
Finally, we see a significant relationship between changes in market share and changes in advertising spending, but not between share changes and promotional changes. Clearly, moneyINVESTED in advertising not only drives profits on a yearly basis, but also builds strong brands.
Design, packaging, public relations, sales promotion, experience with the brand and word-of-mouth all contribute to – or, in some cases, detract from – these values. But advertising has traditionally played the leading role in shaping and defining the image of strong brands.
In this reading I have presented evidence from PIMS showing that advertising makes a measurable, significant contribution to brand profitability. It does this in the year in which the advertising budget is spent, so there is an attractive short-term payout.
Data from IRI were also presented, however, illustrating that the carry-over effect of advertising continues to produce higher sales in the years immediately following the expenditure: a longer term payout, and a welcome additional benefit.
Advertising produces these results by adding value to products and services. It produces these results by turning products and services into strong brands that have more leverage with middlemen; brands that can credibly pre-empt the truth; brands that enjoy higher loyalty; brands that are more forgiving of owners who occasionally stumble; brands that command better margins and are more resistant to price competition; brands that can be extended.
Advertising builds brands that mean more to the consumer. These brands can, in principle, live forever. In other words, advertising works by building strong brands
Fully endorse the answer been added by Mr. khaled elkholy. Thanks for the contribution Mr. Khaled.
