Page 171 - DMGT507_SALES AND PROMOTIONS MANAGEMENT

Unit 9: Sales Promotion

Theoretically Optimal Expenditures: Promotion planners use a sales response model to determine Notes
the budget that will maximise profits. The model is solved analytically, or by using a simulation
approach. The “optimal” budget may not be taken literally but serves as a guideline. This is not
a commonly used method.
In many companies, sales promotion is considered as something extra, not a strategic part of the
company’s overall promotion plan. Such thinking undermines the strategic marketing value of
sales promotion and budget allocation to this function is not taken seriously. It often comes
under consideration when there is a threatening competitive move and based on experience or
opinion, some allocation is made to sales promotion.

Task Interview the marketing executive of a consumer product company.
Determine how the budget allocation is made for promotions.

Caselet The Brand Economies of Sales Promotions

here has been an alarming rise in the number of sales promotion exercises conducted
by brands these days. Often the growth of the sales promotion budget is at the
Texpense of the brand building budget. Sales is critical for the survival of brands and
the growing demands of investors puts pressure on brands to deliver higher sales volumes
in a tougher and increasingly combative marketplace. In this scenario, the increasing
reliance on sales promotion exercises is understandable even if occasionally short sighted.

Sales promotions can be used to achieve many objectives. Boosting sales, building brand
excitement, revitalizing trade, attracting new consumers, liquidating excess inventory,
demoralizing newly launched brands are but some of the many reasons that inspire sales
promotion exercises.

The effectiveness of any program is evaluated by comparing the extent of its success with
expectation and by contrasting this with the costs involved in achieving this degree of
success. A program that has a very low level of success but does not cost anything need not
be considered a success and similarly a program that exceeds the expectations at an
enormous cost to the brand also need not be considered a success. The important point that
is often missed out is that to understand the true effectiveness of a sales promotion exercise
all the costs direct and indirect, obvious and hidden must be taken into account.

Frequently or poorly conducted sales promotion exercises can have a debilitating effect
on brand equity and the associated hidden costs must be also be taken into account while
evaluating the effectiveness of a sales promotion budget. These hidden costs are the
outcomes of the decrease of brand equity as a result of sales promotions. And this is the
cost component that most evaluations of sales promotions do not consider. If there are any
gains to the brand’s equity due to the promotion then this needs to be reduced from the
costs of the exercise.

Source: www.allaboutbranding.com

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