Sales promotions

Sales promotions In the United Kingdom, most of the companies that are known as the big advertising spenders allocate more money on sales, promotions than advertising. Due to the movement towards relationship marketing and integrated marketing communications, growth of direct mail and increasing cost, advertising lost its dominant importance over other communication mix in last two decades. The ratio of advertising budget against promotions budget is 30:70 (advertising: promotions) which was 60:40 in 1990s in UK (Kotler, 1997). This fact underlines the importance of sales promotions. However, sales promotions fail to be successful unless they are clearly targeted, well communicated and original. Companies can use sales promotions for different purposes such as: increasing a particular products usage, improving sales of existing product, retaining and rewarding loyal customers and helping to introduce new products, data capturing. Depending on the time and the way that these sales promotions methods are employed, they could be tactical or strategic tools (Pickton Broderick, 2001). More often sales promotions are used as tactical tools to have short term outcomes- for example, as a response to competitors activity or improving the sales of a product or service. Alternatively, some sale promotional techniques can be combined with customer relationship management programmes which seek more strategic and long term approaches (Hackley, 2005). For example, free samples and contest entry forms are used to capture customer information in order to create a customer database which adds value to business as importance of direct database marketing is rapidly increasing. Furthermore, cus tomer retention programs and rewarding loyal customers with sales promotions assist to create a brand loyalty over long run. Mintels (2008) report discovered that high street pubs and bars spend more money on sales promotions than any other communication mix. Particularly with the effects of credit crunch, reluctance of spending money on alcoholic drinks and night-outs made it indispensible to lower prices or add extra value through sales promotions to lure potential customers. This is one of the most important reasons why sales promotions became very important in bar industry in recent times. In order to retain customers, some bars and restaurants started to give price cuts, 2 for 1 offers and meal deals. To respond to competitors move and overcome the reluctance of spending money on entertainment, other bars and restaurants also used sales promotions. This current economic climate created a great opportunity for bars and restaurants to gain competitors customers by the way of using sales promotions to bring customers in to experience their service. If they can make good use of the opportunity, those cust omers can be loyal customers. Marketing communications are vital for a companys success. Regardless what product or service is offered by an organization, messages should be sent to potential customers through marketing communication methods. In most cases, combinations of those methods are used in marketing plan. Product life cycle is a tool that helps managers to plan their communication mix. Sales promotions can be employed in each stage of a product or services life cycle. Sales promotions help to strengthen the messages that are sent through advertising, public relations and other promotional activities. However, their purpose of use depends on what stage they are used. In introduction stage, they tend to encourage potential customers to try the service in order to create awareness. In growth and maturity stages, the main aim of the sales promotions is to build brand loyalty and reinforce the messages (Varey, 2002) that are given in introduction stage and increase the usage of a product or service. More in d epth uses and analysis of product life cycle will be discussed in chapter 2 and chapter 4. Pitcher Piano, a bar chain with branches located throughout the UK and owned by Marstons Public Limited Company, is one of the many bar chains which emphasise the importance of sales promotions by employing these tools as both a tactical and a strategic tool very often. There are three types of sales promotions: customer sales promotions, trade sales promotions and employee sales promotions (Wright, 2000). This study will mainly focus on customer sales promotions. The purpose of this research is, by using relative literature on the topic and with the help of primary data, to examine the usage of customer sales promotions and the methods and discover whether these methods are used to influence a service or brands performance in bar industry in short term or long term. 1.3 Brief Background of Pitcher Piano Pitcher Piano is a bar chain with branches located throughout the UK. Since 1996, the brand operates as a part of Marstons Public Limited Company. The first Pitcher Piano was opened in 1986 in Fulham. When Pitcher Piano Fulham opened its doors to public, it was one of the first wine bars in the UK. This new wine bar concept was an alternative to traditional British pub culture. The concept became very popular and over time other brands like All-Bar-One, Slug Lettuce emerged. There are 27 Pitcher Piano bars around UK now. Recently, company decided to sell some of their branches in London in order to focus on the branches where the venues are owned by the company and that are profitable. Main competitors of Pitcher Piano are All-Bar-One, Slug Lettuce, Grand Union and Living Room. Pitcher Piano bars offer a wide range of wines, spirits and beers as well as party snacks and food. Even though Pitcher Piano bars all operate under the same brand name each bar has its own strengths tailored to the customers demand in the area. While some are led by food sales, others are renowned for their party atmosphere and drinks. Hence, individual branch has its own promotions which are decided by house general manager depending on their customer base and target. In 2004, to help government to tackle increasing binge-drinking related crime, along with some of other pub groups, the company decided not to consider Happy Hours or similar promotions campaigns (Evening Standard, 2004). However, heavy competition, current economic climate and plans for creating customer database for direct marketing pushed the company to use sales promotions methods again. 1.4 Rationale of the Chosen Topic During the current economic climate, most companies use sales promotions to encourage recession-hit people to spend money on their products and services. In this context, the bar industry is one of the most interesting industries since the priority of entertainment lost its place to the primary needs such as satiating hunger. Therefore, it caused bar industry to employ sales promotions as tactical tools extensively. Particularly, in bar industry, heavy competition made it compulsory to use sales promotions in order not to lose customers to other bars at the same time attract competitors customers. Furthermore, having worked in bar industry for five years, out of which 4 years in Pitcher Piano, the researcher has gained knowledge and understanding of various usages of marketing communication mix, particularly, sales promotions in bar industry. This experience also helped the researcher to observe how the company reacts to internal and external changes. Even though sales promotions are common tools employed by marketers as a tactical weapon, it has become more complex and also interesting for the researcher to analyse them during the current economic climate within bar industry. That is the main reason why the topic, which is to examine methods of sales promotions employed by Pitcher Piano and analyse effects of these methods on the companys performance, was chosen to. This research will help the researcher to gain a valuable knowledge about marketing the communication mix and more importantly, sales promotions. 1.5 Aims and Objectives of Research The main aim of the research is to explore different methods of sales promotions, when and where to use appropriate methods, either as a strategic tool or tactical tool, and understand their pros and cons in the hospitality industry. In order to understand the methods, this research will evaluate the above mentioned bar Pitcher Piano that use sales promotion frequently. In this context, the objectives of this research can be described as follow; To find out what kind of sales promotions used by Pitcher Piano, To evaluate the outcomes of the employed sales promotion techniques, To assess the effectiveness of the given methods and suggest areas in need of improvement where necessary, To analyse the use of sales promotion in the context of tactical or strategic tools. 1.6 Significance of the Study This research provides several significances such as; This research will provide information to marketers on the uses of consumer sales promotion in bar industry and help them to have an understanding of some of the consumer sales promotion methods. This research can help other researches on this particular topic, sales promotion and related topic. In general, the usage of sales promotion amongst all communication mix is rapidly increasing, particularly in bar industry, in the UK. However, sales promotion always perceived as a supporting activity of advertising and public relations. Many academics underlined its efficiency of achieving short term goals. Nevertheless, its long term impacts have been ignored. Although the debate is on-going whether sales promotions are strategic or tactical tool, in the context of question industry examined in this research, they can be specifically interpreted as strategic tools in such activities as building customer database, encouraging trial use and repeat purchase. 1.7 Brief Structure of the Study This study consists of 5 sections. Each section includes some explanations and opinions to help enlightening the subject matter. This study attempts to find out the uses of customer sales promotion in bar industry and whether these promotions are employed as tactical or strategic tool. Chapter 1: This chapter contains the introduction on the changing nature of sales promotion within promotion mix and a brief view on related models and topics. This chapter also includes the usage and the importance of sales promotions in brief and succinct background information about Pitcher Piano. Finally, aims and objectives, rationale and significance of the study are covered in this section. Chapter 2: In this chapter, all current and related topics are examined. Different opinions that have been expressed by academics on strategic uses of sales promotion are discussed. Furthermore, various consumer sales promotion methods, communication methods in service industry, importance of sales promotions in direct marketing and usage of product life cycle for promotional mix are explained with the help of existing vast literature on these topics. Chapter 3: This chapter explains the methodology that is employed by researcher while doing this research. Approaches of the researchers and the methods adopted to collect and analyse the primary data are critically argued. Finally, shortcomings which are faced by researcher in the research process are included in this chapter. Chapter 4: This chapter represents the analysis of the data collected and the findings of this research. In this chapter, it is also focused on that to what extend the findings are related to the literature review. The researcher also Chapter 5: This chapter includes conclusions and recommendations. Conclusions are made with the help of literature review, analysis and the primary data. Recommendations were given to bar industry to advise on the strategic use of sales promotion methods. 2. LITERATURE REVIEW This section will attempt to explain the current argument on the topic and present different views by academics. It will help to understand concepts and models relating to sales promotion in the context of question as well. However, the usage of these models and concepts in practice will be related in data analysis section with the help of observed examples and primary data. 2.1 Sales Promotions 2.1.1 Sales Promotion and Current Debate on Sales Promotion Sales promotion is one of the four aspects of promotional mix along with advertising, personal selling and public relations. Sales promotions which, are also known as below the line promotions, are methods that are used by marketers to attract consumers. Sales promotions have been in use in trading for a long time. Shopkeepers and stallholders had been employing on the spot offers to convince people to purchase a product (Mullin and Cummins, 2008). Sales promotions are, traditionally, defined in the most textbooks as activities such as deals, discounts, coupons, loyalty programs, refunds, contest, sampling and special displays that are encouraging the target audience to act in a particular way by reducing the perceived value of the product being promoted usually to achieve short term goals (Fill, 2006; Pickton and Broderick, 2001). According to Institute of Sales Promotion (2004; cited in Yeshin, 2006, p1), sales promotion is defined as a planned and implemented marketing activity that both enhances product and service appeal and changes customer behaviour positively in return for an additional benefit for purchase or participation. Lamb et al. (2004, p323) also interpret sales promotion as generally a short run tool used to stimulate immediate increase in demand. Most definitions underpinned the immediate encouragement to buy the product and service at the time. Nevertheless, the definitions do not convey the same message whe ther it has short term or long term effects. Most of the definitions above agree that sales promotion is a short term tool. Similarly, Shimp (2000, p508) considers that sales promotion has a short term nature by stating that in contrast to advertising, which typically, though not always, is relatively long term in orientation and best suited to enhancing buyer attitudes and augmenting brand equity, promotion is more short-term oriented and capable of influencing behaviour (rather than just attitudes or intensions). Fill (2006, p635) is another supporter of this school of thought. He believes that just as advertising seeks to work over the long term, sales promotion can achieve short term upward shifts in sales. When comparing advertising and sales promotion, Kotler (2008, p85) underlined that whereas advertising offers a reason to buy a product or service, sales promotion offers reasons that would achieve immediate sale. However, Yeshin (2006) opposes to the views stated above and claims that objectives of sales promotion have dramatically changed in recent years. Wilmshurt and Macay supported Yeshin (2006) by stating that companies have increasingly realized, however, that whilst sales promotion has tactical uses it has strategic implications (2002, p211). According to Gupta et al. (1997 cited in Yeshin, 2006), many empirical researches have focused on identifying short-term effects of sales promotion. Thus, most practitioners and, in particular, academics failed to see long term effects of sales promotion. Schultz et al. suggested that sales promotion can be strategic by stating sales promotions are marketing and communications activities that change the price / value relationship of a product or service perceived by the target, thereby generating immediate sales and altering long term brand value (1998, p7). Kotler and Armstrong (2008, p502) suggest that in general, rather than creating only shor t term sales or temporary brand switching, sales promotions should help to reinforce the products position and build long term customer relationship. In addition, they (Kotler and Armstrong, 2008, p.502) claim that if properly designed, every sales promotion tool has the potential to build both short term excitement and long term consumer relationship. Mullin and Cummins (2008) believe that a good sales promotion should prompt a customer to consider a product or service and help them to make a decision after the promotion campaign. Brassington and Pettitts (2003, p720) definition covers all the characteristics of sales promotion. They believe sales promotion is a range of tactical marketing techniques designed within a strategic marketing framework to add value to a product or service in order to achieve specific sales and marketing objectives. This extra value may be of a short-term tactical nature or it may be part of a longer-term franchise-building programme. Finally, Boone and Kurtz (2001, p509) noticed the shift in the usage of sales promotion in recent years by stating that today, however, marketers recognize them as integral parts of many marketing plans, and the focus of sales promotion has shifted from short-term to long-term goals of building brand equity and maintaining continuing purchase. They supported their argument with frequent-flyers programs that can create a base of loyal customers. It should be noted that sales promotion is a great tool to get immediate affects. However, sales promotions capability of creating a long term affects should not be ignored. While the debate, whether sales promotion is short term or long term, is still on-going, the use of sales promotion has increased enormously in last two decades. Smith and Taylor state that the importance of sales promotions over advertising have been increased because of various reasons which are; a)the movement towards relationship marketing, b) the growth of direct mail, c) the emergence of promotion-literate consumers who expect promotions with certain product types, d) during recessions, price-conscious customers search for value-for-money promotions, e) powerful retailers favour suppliers whose products sell quickly, f) high television advertising costs force marketing managers to look for more cost effective below-the-line tools. (Smith and Taylor, 2004 p. 356) Even though they are widely used by many companies, some academics disagree to use them extensively. Many of them underline the facts that extensive and repetitive promotions of a product can damage the brand value, sales and cash flow (Schultz et al., 1998). 2.1.2 Strengths and Weaknesses of Sales Promotions Each communication mix can accomplish a certain objective that other elements cannot (Burnett and Moriarty, 1998; Shimp 2000). For example, advertising cannot change a product or services sales trend in short term however sales promotion can. What sales promotion is capable of accomplishing; Motivate sales force to sell a new, improved or mature product. When personal selling methods becomes boring and monotonous, exciting sales promotions can stimulate sale forces enthusiasm and make the job easier for them (Shimp, 2000). Stimulate sales in maturity stage of a product or service. By changing price / value relationship, it can encourage more people to use a product or service (Schultz et al., 1997). Counteract a competitors communication campaign. Competitors advertising and sales promotion campaign can be neutralized by using counter sales promotion campaigns (Shimp, 2003). Encourage consumers to try a new service or product (Fornell et al., 1985). When a product or service is being introduced into the market, it is very important to encourage people to experience it (Mela et al., 1997). Consumers would not know if the product or service is high-quality unless they try it. Many consumers would not try a new product without any sales promotion activity. Retain existing customers through repeat purchases. Sales promotion can be used to prevent existing customers to go to competitors. Shimp, (2000, p516) states that strategic use of sales promotion can encourage at least short-run repetitive purchasing. Besides short-term repetitive purchasing, continuous sales promotion programs such as loyalty card scheme encourage customers to repeat purchase. Reinforce the messages given with advertising and public relations campaigns. Sales promotion can be a main tool for an organizations communication plan. However, it can also help to emphasise messages given with any other communication tools (Burnett and Moriarty, 1998). Help to build a customer database. The importance of direct marketing is increasing. In order to build a database to contact consumers directly, sales promotion are used to capture their contact details. Some sales promotions require customers to provide their details in return of a free products or discounts (Mullin and Cummins, 2008). What sales promotion is not capable of accomplishing; Inability to change opinion about an undesired product or service. Consumers would not purchase a product or service if they do not like it. Sales promotion usually will fail to help to compensate a low quality product or bad service (Boone and Kurtz, 2001). Unable to compensate for poor advertising. Sales promotions cannot fix a problem caused by weak brand image or lack of brand awareness. It can help in the short run. However, it is unrealistic to expect a good result in long run. Sales promotions can have negative effects on long term (Jedidi et al., 1999). If sales promotion is used repeatedly, it can create confusion on perceived value of a product or service. Thus, customers would not buy the product or service once the promotion is over and wait for the new promotion. 2.1.3 Consumer Sales Promotions and Methods According to Fill (2006), sales promotions are used for various reasons such as reaching new customers, reducing distributor risk, rewarding behaviour, retention, adding value and assisting segmentation. There are three types of sales promotions depending on who they target: consumer sales promotions, trade sales promotions and employee sales promotions (Srinivasan and Anderson, 1998; Wright, 2000; Fill, 2006; Boone and Kurtz, 2001). The focus of this study will be on consumer sales promotions, as it is mentioned in Chapter 2 and on discovering what types of sales promotions methods are used by Pitcher Piano and whether they are tactical or strategic. Pickton and Broderick define consumer targeted sales promotion as pull promotional activities designed to encourage demand by end-customers that will pull products through distribution channels (2001, p539). Objectives of sales promotion and analysis of whether the objective is strategic or tactical are given in the Table-1. Consumer targeted promotions are used for improving sales of existing products, encouraging repeat purchase, trial of new products and brand loyalty, giving a response to competitors move and capturing customer database information. There are different tools of consumer targeted promotions. The most popular and widely used ones are sampling, couponing, premiums, money-off, bonus-packs, prize draws and refunds. However, Pitcher Piano uses sampling, premiums (2 for 1s, 3 for 2s), money-off and contests and sweepstakes more often, for example, last summer, Pitcher Piano customers could win Bacardis global music festival tickets on completion of registration forms (Appendix 1). Price-offs offer consumer discount on the regular price of a product. They are used to accomplish different objectives. They can be used to reward the existing customers. In this case, price-offs collaborated with loyalty card schemes (Hobbs and Rowley, 2008). Another use of price-offs is to encourage consumers to stockpile the product. It is a good way of pre-empting competitors. Those customers who stockpiled the product are out of marketplace until they consume the product. They would not buy competitors brand during that time (Shimp, 2000). Price-offs can be offered to customers on a specific time of the day. For example, happy hours in pubs and bars is a good example of it. The objective behind is that to pull the customers inside the venue at slow periods to increase volume (Reid and Bojanic, 2006). Combination offers or bundling are one of the most popular methods that are employed by restaurant and bar industry (Kotler et al., 1996). Two or more products or services are combined together and offered on a price that would be more if they are purchased separately. Such examples are restaurants 3 course meal deals, two for one deals and drink and meal at a specific price deals. 2.1.3.2 Premiums Premiums are products or services that are offered free or at relatively low cost when buying a product; such as buy a meal get the drinks free or purchase this meal and get a baseball cap free (dAstous Jacob, 2002). Premiums are typically given to consumers as a reward for behaving in a particular way, usually visiting a store or buying a product or service (Burnett and Moriarty, 1998). They can also be used to add value to product and represent an advantage over competitors products (Pickton and Broderick, 2001). The main target of premiums is to encourage the trial of a product. There are two types of premiums which are direct premiums and mail premiums. Incentives are provided at the time of the purchase with direct premiums. Direct premiums can be given to customers in the store, be placed with the package, be inserted in the package or the container itself can be the premium (Yeshin, 2006). Mail premiums require consumers to provide a proof of purchase of a product or service before being handed. Some of the mail premiums are given free after the customer sending the proof of purchase and some requires customers to save a specific number of coupons or special labels (Burnett and Moriarty, 1998). 2.1.3.3 Sampling Sampling means offering standard or trial-sized samples of a product for free or at a reduced price in order to either create an awareness of a new product / service or increase the consumption of an existing one (Shimp, 2003). Sampling is usually used to aid when a new product or service is launched. Although it is very effective, it is the most expensive way of introducing a product or service. If the consumers are not targeted properly, the losses can be big (Kotler et al., 1996). Thus, companies should avoid giving samples to consumers who would never purchase the product or service in future. Samples are widely used in hospitality sector as well (Reid and Bojanic, 2006). Some restaurants and bars offer samples of their potential customers or people whose opinion is respected in the area. One of the reasons for that is to create a positive word of mouth about the service. 2.1.3.4 Coupons Coupons are the legal certificates by manufacturers that offer customers discount when buying a specified products (Schultz et al., 1998). They can be mailed or emailed (direct mail), given with newspapers, magazines or with another product. According to Kotler et al. (1996), coupons are very popular in restaurant and bar industry. Srinivasan and Anderson (1998) suggest that the value of the discount should be decided very carefully. If the face value is low, consumers are reluctantly to redeem the coupons. However, if the face value is raised, more people redeem it on a price lower than they would have redeemed. Moreover, excessive uses of the coupons can make customers feel they are getting poor value, if they purchase the product or service without a coupon. 2.1.3.5 Contests and Sweepstakes Different forms of competitions such as contests, sweepstakes, prize draws, where they can win a prize without having to spend extra money, are used in order to attract customers (Boone and Kurtz, 2001). This kind of competitions creates an excitement amongst consumers. A sweepstake is a sales promotion technique where customers are required to submit their names and e-mails in a drawing in which they have the chance to win cash, trips or a product or service. The winners are determined purely on the basis of their luck (Egan, 2007). Because of its low cost comparing with other methods, simplicity and ability to accomplish a variety of marketing objectives, the usage of sweepstakes have increased recently (Shimp, 2000) Contests are also another technique for sales promotion. Unlike the sweepstakes, in order to win a prize, contestants compete with others on the basis of skills or ability (Fill, 2006). They are usually asked a contest problem or proof of purchase. The winners are sele cted by judges. Regardless the type of sales promotion, all the sales promotion campaigns should go through an ethical consideration. Consumer oriented promotions such as coupons, contests and premium offers fail to be ethical if the consumers are promised a reward for acting in a certain way wished by promoter and the reward is never given (Shimps, 2000). For example, contests that are making people believe the winning odds are high when they actually are not or lowering the quantity or quality of a product or service when they are on promotion and advertising it as normal. Consumers can also be guilty of unethical behaviour. For example, filling coupons with fictitious names and addresses in order to get the reward. 2.2 Marketing Communications and Integrated Marketing Communications (IMC) Marketing communication is an important aspect of an organizations overall marketing mission and key determinant of its success. Marketing communication is the process of reaching and acknowledging target audiences about a product or service. According to Thomas and Housden, there are four main objectives of marketing communications which are to initiate a relationship (prospecting), to develop the relationship into a sales transaction (conversion), to maintain the relationship (loyalty building) and to resurrect a lapsed relationship (re-activation) (2002, p13). Companies apply different approaches and methods in order to communicate with their target audiences. Advertisements, salespeople, store signs, point-of-purchase displays, product packages, direct-mail marketing, publicity releases, sponsorships, sales promotions are all various forms of communication devices for marketers (Shimp, 2000). All these devices are used to create awareness or to promote a product or service. Any activity that an organization is involved in can deliver messages to their consumers. These messages can either be planned or unplanned. Planned messages are sent to consumers through communication mix. Unplanned messages would include all other communications such as store cleanliness, distributors, employee attitudes and the exterior surroundings of your business, in other words, any elements related with the company that are capable of delivering implicit messages. For example, unfriendly bartender, dirty glasses in a bar, untidy back bar can all deliver negative messages that can have more impact than all the planned marketing communication messages (Burnett and Moriarty, 1998). The term marketing communication mix and promotion mix from 4Ps of marketing mix are used interchangeably in existing literature. Therefore, they are also used interchangeably throughout this research. In 1980s, many academics and practitioners treated each communication tool as separate and distinct. This approach, sometimes, could create some confusion for customers. For example, messages from advertising campaign could fail to match with the messages from public relations campaign, since the sources of the messages were different. Thus, this could give two different messages to consumers about the same product, servic