Tuesday, February 18, 2025 | 07:41 PM ISTहिंदी में पढें
Business Standard
Notification Icon
userprofile IconSearch

High-stakes promotions

Sales promotions are back in business. But how does a promotion plan cross the line from ho-hum to heaven-sent?

Rohit Nautiyal New Delhi
Marketing lore has it that back in the seventies when fast food giant McDonald's was looking to increase its appeal among kids it struck upon a new idea - it gave away a different toy every week with the meal that customers ordered under the promo 'Treat of the Week'. This was first tried out in Canada and in 1979 McDonald's introduced it in its other markets with new toys entering the rotation on a regular basis. While the company refuses to call it a 'promotion', the idea of a Happy Meal, toy included, has stood the test of time, and contributed 10 per cent to McDonald's $30 billion worldwide sales during the 2009 recession in the US (AdAge).
 
More creative kinds of sales promotion are limited only by your imagination. But only few promotion offers can make the cut. Marketers anyway have a love-hate relationship with this tool. They don't like the attendant costs but go with them largely when the chips are down - either to liquidate unsold stocks or create some excitement around their offerings or when they want to stand out with a new launch in a highly competitive category.

In fact, consumer sales promotions have seen a renaissance of sorts in India as a sluggish economy cools down sales across categories. Analysts say that even until five years ago sales promotions contributed less than 10 per cent of a marketer's budget; now the figure is as high as 35-40 per cent in some categories.

While things may be shifting on the ground, management discourses in recent years are largely silent on how sales promotions can work in times of volatility or what sort of impact they have on long-term brand building. Understandably, managers have stuck to the trial and error method in devising their promo plans and the tools used to gauge their success. Typically, consumer sales promotions include discounts, contests, lucky draws, quantity gifts, financing at low interest rates, surprise gifts etc. Sometimes marketers have tried combinations of these activities to lure consumers into making instant purchase decisions. If you have been following the ads in print or those screaming down from hoardings, you will see how the global slowdown and a fast-changing retail landscape in India has forced many marketers to push the envelope even at the risk of lower profitability.

So how does a promotion plan cross the line from ho-hum to heaven-sent, to be one that customers will champion? Indeed, should sales promotions be part of every marketer's playbook? What are the pleasures and perils of high-value promotions? Above all, where should marketers draw the line to ensure they don't lose more than they actually gain?

Know how much to stretch
Needless to say, sales promotions have a direct relation to the health of a market. Look at the country's automobile market, for instance. The demand for passenger vehicles has crashed over the last year and a half owing to high financing costs and fuel expenses. Leading players including Maruti Suzuki, Hyundai, Mahindra & Mahindra and Honda have all offered heavy discounts on their cars but have seen very little impact on sales volumes.

Now some of them have resorted to innovative sales promotions that are likely to boggle your mind.

For five days starting February 27 this year, Torque Auto, a Skoda dealer in Ahmedabad, became a talking point by promising a free Fabia hatchback to customers who bought a Rapid sedan. The catch: the customer will get the hatchback only after five years, in 2018. After five years, the buyer can either take Fabia or accept cash of Rs 3.5 lakh. A spokesperson for the dealer claims Torque Auto logged 700 bookings during those five days. He adds that the promotion did what the dealer had set out to achieve without the company's involvement. If these claims are true, the dealer would have raked in Rs 50 crore in sales in five days flat. No doubt, there is a method in this madness.

Today marketing budgets are much tighter, and programmes need to be more accountable in driving results, say experts.

Indeed, such high value programmes cannot be sustained for long. In fact, as the dealer stresses, the shorter the offer period the better. Not everyone is sold on this idea though. VG Ramakrishnan, senior director (automotive and transportation), South and West Asia, Frost and Sullivan, sees the Torque offer as 'a gimmick with zero sustainable value'. "Dealers should not go over the top while chasing consumers. Instead, while waiting for the upturn, one should work to build stickiness with consumer-centric activities," he adds. Like probably what Hyundai is doing.

Hyundai considers sales promotions as tactical activities undertaken to increase the footfalls and enquiry level at the dealership, especially in a down market. Says Nalin Kapoor, the company's senior general manager and group head, marketing, "For big-ticket purchases customers tend to go with tried and tested brands - especially during times of uncertainty. So high value gifts really don't make much sense. For premium cars, the idea has shifted to improving the value proposition to customers rather than just offering a discount." Things like extended warranty and maintenance schemes at a lower cost are ways to improve the perceived value of its brands. Besides, the company is also focusing on various sale staff incentive schemes (foreign trips, Galaxy note, etc) to keep them motivated.

Indeed, such high value gifts are possible in categories where margins are higher. Like the real estate industry, which over the past few years, has spoilt the consumer with high value freebies like holiday packages, consumer durables, modular kitchens etc on booking new properties. Take the new projects at Noida Extension, a new township coming up near Delhi, next to the already developed Noida and Ghaziabad border. While opening bookings for their township, realty firms Gaursons and Saviour Builders decided to give away 60 Hyundai i10 cars as part of a lucky draw. To give a fair chance to those who make bookings, a draw is conducted at the end of every tenth booking. Started in April, the lucky draw gets over by June.

Since the venture is a 50:50 partnership, the promotion cost is being borne by both partners equally. Just like its media budget, the JV has a gifting budget of Rs 2.5 crore. Says Sanjay Rastogi, director, Saviour Builders, "Such promotional activities are a big draw. Word of mouth from this initiative has helped us arouse curiosity in customers." Saviour claims that more than 400 bookings are done with 23 cars gifted to the customers so far.

Think strategy, not tactics
Promotions are a reality in today's marketplace because trade push is a premium commodity. A few years ago, companies with huge advertising budgets and vast distribution networks could use their marketing muscle to move products at the topmost retail shelves or at eye level, keeping the smaller players at the bottom. Today, however, retailers command terms and demand incentives from manufacturers for giving preference to their products.

Says Mayank Shah, group product manager at Parle Products, "Gone are the days when one could dominate as a leader. The proliferation of modern trade has proved to be an equaliser. Generating trials has become a huge challenge. In this scenario, we use sales promotions for engagement and to create excitement around our offerings." Unlike 10 years ago, today the sales promotion calendar is prepared right at the beginning of the fiscal. Regional festivals have gained prominence as Parle leverages these opportunities to hard sell.

Parle operates in a category where the ticket size of gifts is smaller but the frequency is higher. In January, for instance, the company conducted a pan India promotion for its Marie biscuits where a free glass bowl was given away on purchase of each pack. This led to a significant increase in sales volume. "Giving freebies over heavy discounts is more sustainable," he adds.

In sum, sales promotions may look like the first option to take when you need to perk up sales but research has proven it is a strategy fraught with danger. First, when you offer deals and discounts too often you may end up alienating the loyal customer. She will think there's something wrong with the brand. Worse, you may induce shoppers to wait for the next deal - bad news for your round-the-year business.

The bottom line is simple: Like so many other potentially addictive behaviours, sales promotions can be healthy only in moderation.

PLAY BY THE BOOK
Dos & don'ts of sales promotions
  • Set the sales objectives. What do you want to sell, who is your target market and what are the timescales involved
  • Decide where your focus will lie - on a specific product or a client base and what needs to be changed
  • Invest in customer management systems. Before starting any promotion, you should target customers who are likely to buy
  • Once you have worked out what your market is and how it's broken down, decide which sales channels to use
  • Encourage customers to buy greater quantities: make offers such as buy one and get 50% off on the second
  • Don't mislead consumers with over-promises
  • Do not stretch the activity beyond a couple of weeks. You don't want a situation where the buyers are queuing up but the product is missing from the shelves
  • While stressing on the benefits, do not underplay the terms and conditions
  • Don't set your promotional budget to achieve share-of-voice parity with competitors
  • Don't skimp on selling the programme. Ensure the advertising material prepared by the company are distributed to the dealer for display purposes well in advance

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Jun 24 2013 | 12:20 AM IST

Explore News