Promotion

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Date: 2014
Encyclopedia of Business and Finance
From: Encyclopedia of Business and Finance(Vol. 2. 3rd ed.)
Publisher: Gale, a Cengage Company
Document Type: Topic overview
Pages: 4
Content Level: (Level 4)

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Promotion

It would be safe to say that most companies engage in some form of promotional activity every day of the year. Promotion is one of the four Ps of marketing (price, product, place, and promotion). Promotion is generally thought of as a sequence of activities designed to inform and convince individuals to purchase a product, subscribe to a belief, or support a cause. All of the various tools available to marketing managers for promotional activities constitute what is known as the promotional mix.

PROMOTIONAL MIX

Marketing managers use different components of the promotional mix, including advertising, personal selling, public relations, and sales promotion, as tools for achieving company objectives. Each of these elements can be further divided into additional subcomponents or strategies. The majority of a company's promotional resources are usually spent on these four elements for a simple reason: Companies perceive these methods as the most effective means to promote their products. Other specialized promotional techniques, however, are also used to enhance promotional objectives.

Advertising. Advertising is often thought of as the paid, nonpersonal communication used in the promotion of a cause, idea, product, or service by an identified sponsor. The various advertising delivery methods include banners at sporting events, billboards, websites, logos on clothing, magazines, newspapers, radio spots, and television commercials. Among the common forms of advertising are advocacy, comparative, cooperative, informational, institutional, persuasive, point-of-purchase, product, reminder, and specialty.

Personal selling. Personal selling is considered one of the most effective promotional techniques because it facilitates interaction between consumer and seller. With personal selling, a salesperson can listen to and determine a consumer's needs by asking questions and receiving feedback from the consumer. Furthermore, personal selling activities can generate long-lasting friendships between consumers and sellers that typically generate many repeat purchases. Personal selling can also occur by means of interactive computers, telephone conferences, and interactive videoconferencing. A drawback of personal selling, however, is its high cost. Examples of products promoted through personal selling include automobiles, life insurance, real estate, and many industrial products.

Public relations. Public relations has been described as building goodwill with a company's various constituencies, including consumers, employees, government officials, stockholders, and suppliers. The overall goal of any public relations effort is to project a positive company image when dealing with such issues as community and government relations, employment practices, and environmental issues.

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Consumers. Public relations efforts are extremely important for maintaining a company's consumer base. Consumers must believe that they are buying from a caring, honest, and trustworthy company. Negative media stories about, for example, exploiting workers or producing substandard products can do enormous damage to a company in the eyes of consumers. Erosion of a company's client base is likely to result in both lost sales and lost market share.

Employees. The most valuable asset a company has is its employees. Therefore, it is essential that employees believe in their company. Public relations communications are extremely important in ensuring that employees receive information about the company before outside media receive and report the information. A good example of providing superior public relations would be to inform company employees that a small reduction in the work force is required but that a full severance package will be provided for laid-off employees. Although this news is not positive, the employees are hearing about it first from the company and are also aware that they will be receiving assistance from the company. If employees read or see negative reports about the employer without credible public relations explanations, they may find other work or reduce their productivity because of low morale.

Government officials. Maintaining a positive public image is also important because government agencies and offices (e.g., Federal Trade Commission, Federal Communication Commission) monitor the media and have regulatory oversight over company activities. Positive stories in the media obviously help promote a positive image to government regulators, which reduces the chance of being investigated and possibly fined. The opposite is also true as stories about client complaints or other dishonest practices or potentially illegal actions will draw the government's attention and probably some sort of investigation, which is something that no company wants. An investigation can drag on for months, even years, providing even more negative publicity. Even if the government regulators find no wrongdoing, the public is still likely to be skeptical because the company was investigated. Therefore, every company must make its best effort to answer any questions that regulators have regarding negative media stories or consumer complaints. A strong, well-organized public relations department will ward off potential trouble by being honest, friendly, positive, and helpful to government regulators and members of the news media.

Stockholders. Another key interest group for any company that offers publicly traded securities are the stockholders. If company stockholders generally receive positive news about a company, they are more likely to maintain investment, which helps keep the stock price up. Negative news that is not countered with positive public relations can create uncertainty about how the company is running and encourage stockholders to sell and to invest in other companies. This action can cause the stock value to decrease, making it difficult to attract new investors.

Suppliers. Positive public relations are essential for a company's relations with its suppliers. Suppliers are most concerned about being paid for the product they are selling to a company. Since most suppliers are generally not paid until 10 to 20 days after delivery of their product, they must have faith in the ability of a company to pay its bills. Any negative news regarding a company's financial position in the absence of a full and complete explanation from the public relations department may result in a damaged reputation with suppliers. Suppliers could stop shipping their products or demand that payment is made at the time of delivery. Neither option is appealing to a company, and both could cause critical delays in getting its products to market.

Sales promotion. Sales promotions are marketing practices designed to facilitate the purchase of a product that do not include advertising, personal selling, or public relations. Companies use sales promotion for a variety of reasons, including (1) to attract new product users who may turn into loyal consumers who keep buying the product; (2) to reward existing consumers with a price reduction, thereby maintaining their loyalty; and (3) to encourage repeat sales from occasional consumers.

SPECIAL PROMOTIONAL ACTIVITIES

Companies use a variety of sales promotion tactics to increase sales, including advertising specialties, cash refund offers/rebates, contests and sweepstakes, coupons, patronage rewards, point-of-purchase displays, premiums, price packs/cents-off deals, samples, and trade shows.

Advertising specialties. Companies frequently create and give away everyday items with their names and logos printed on the items such as bottle/can openers, caps, coffee mugs, key rings, and mouse pads. Companies prefer to use inexpensive handouts that will yield constant free advertising when used by the recipient.

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Cash refund offers/rebates. A cash refund or rebate is similar to a coupon except that the price reduction comes after the product is already purchased. In order to receive the cash refund or rebate, the consumer must send in a proof of purchase with the company offer in order to obtain the refund. Rebates are often an excellent form of sales promotion for a company to use because a high percentage of consumers will not send in the forms for the refund.

Contests and sweepstakes. Many companies use contests and sweepstakes to increase the sales of a product. As a reward for participating, consumers might win cash, free products, or vacations. With a contest, participants are required to demonstrate a skill. For example, entrants might be asked to suggest a name for a new product, design a company logo, or even suggest a company name change. Contest entries are then reviewed by a panel of judges. The originator of the winning entry receives a prize, usually in the form of cash or a vacation. In contrast to the skill required with contests, a sweepstakes winner is determined by chance. For example, consumers may be given a scratch card in a fast-food restaurant. If three-of-a-kind or another predetermined criterion is achieved, the consumer would be given a free hamburger or some other selected prize.

Coupons. Coupons are certificates that give consumers a price savings when they purchase a specified product. Coupons are frequently mailed, placed in newspapers, or dispensed at the point of purchase. In addition, some companies have coupons generated when an item is scanned at the register. Companies can promote both new and mature products through the use of coupons.

Patronage rewards. Awards provided by companies to promote and encourage the purchasing of their products are called patronage rewards. Airlines use this strategy by awarding frequent-flyer miles to consumers who use their services often. When a consumer has earned enough frequent-flyer miles, he or she can redeem a free ticket. Credit card companies also use patronage rewards by providing a list of free products a person can order based on the number dollars charged in a specified time period.

Point-of-purchase displays. Point-of-purchase promotions can include displays and demonstrations that take place at the point of purchase. The cardboard cutouts of popular movie stars that are put next to merchandise are excellent examples of this method. One drawback to point-of-purchase displays is that stores do not have time to set up all the ones that are offered, so only a handful of them are used. Companies frequently offer assistance in assembling and removing promotional displays to encourage storeowners to use their point-of-purchase displays.

Premiums. A premium is a good offered free or at a low cost to encourage consumers to buy a particular product. Companies can also offer premiums in the form of reusable containers bearing names and logos in order to help promote other products. In addition, a company may also decide to use a self-liquidating premium. The costs associated with self-liquidating premiums are passed along to consumers through the cost of product.

Price packs/cents-off deals. Price packs provide consumers with a reduced price that is marked directly on the package by the manufacturer. Companies can offer price packs in the format of two for the price of one or offer products such as a tube of toothpaste and a toothbrush in one package for a lower price than that of the two items purchased separately. Consumers generally react favorably to price packs because they are perceived as a real bargain.

Samples. Some companies offer free samples of their products. The rationale for offering a free product sample is to achieve immediate consumer introduction to the product. Companies have several ways to introduce potential consumers to product samples. Commonly used delivery methods include mailing the product, passing the product out in stores, or door-to-door delivery of the product. The largest drawback of free samples is their high cost. However, it is expected that the associated sales will offset the initial cost of the free samples.

Trade shows. Most industries hold conventions and trade shows each year to show off new technology, assess consumer trends, and review other issues important to the industry. Trade shows provide firms that sell to a particular industry an excellent opportunity to promote new products, make new contacts, renew existing business relationships, maintain or build a reputation, and distribute promotional materials.

PROMOTIONAL OBJECTIVES

There are a number of promotional objectives, some of the most common being information dissemination, product demand, product differentiation, product highlights, and sales stabilization. Regardless of the promotional objective selected, the company's goal is to inform and convince consumers to buy the product.

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Information dissemination. One of the most basic desires of a company is to provide information about a product to potential consumers. Tools available to an organization for informing potential consumers about a product include billboards, flyers, websites, magazines, newspapers, radio spots, and television commercials. Normally a variety of these promotional tools are used to communicate a single, coordinated message to potential consumers. These different promotional tools can provide potential consumers with an array of information about a product, such as features, quality, and/or price. The informational focus depends on the makeup of the target audience that the company is trying to reach with its message.

Product demand. Another organizational goal of promotional activities is to create product demand. A company has several promotional options for fostering product demand. For example, a company may focus on using a primary demand strategy that concentrates on trying to increase demand for a general product or service line. Large companies or cooperatives that have well-known and large product lines normally use the primary demand strategy. Advertisements for these companies carry over to all product categories and, as a result, may improve sales in several product areas. Companies also use another marketing strategy, known as selective demand, which concentrates on promoting a specific brand within a company's product line. Selective demand is often used to help promote a new product so that consumers are aware of the new addition to a large company's product line. A company may also utilize a selective demand strategy when it wants to sell a product that has a high profit margin. A good example of this strategy is the active promotion of sport utility vehicles by major automobile companies.

Product differentiation. A common challenge faced by companies is increased competition, which often results in the market being flooded with similar products. Consumers may conclude that no substantial difference exists between the products (homogeneous demand) and, therefore, look for the lowest-priced product to purchase. An industry that has experienced the problem of homogeneous demand is the soft-drink industry. With few exceptions, most consumers do not make a distinction among the numerous beverages that are offered. A company that excels at product differentiation can normally demand a higher price for a product because of its perceived higher quality.

Product highlights. Companies have another tool to employ in order to justify a higher-priced product: A firm can accentuate the product's exceptional quality in detail to convince consumers that the extra cost is worthwhile. Highlighting a product's quality might sound easy, but a company must first develop superior advertisements to promote the product. Moreover, the firm must develop a reputation for making a superior product that is well known to the average consumer. Volvo is one company that has done an excellent job of creating the image of producing only high-quality, safe cars. Thus, Volvo can charge an extra premium for its cars. Caterpillar has also nurtured and promoted a reputation for producing only the best heavy earth-moving equipment in the world. It, too, charges an increased price for its products.

Sales stabilization. A challenge that companies face is inconsistent demand for their products throughout the year. Reasons for this fluctuation can range from seasonal demand to changing economic conditions. Most companies would rather have a consistent demand for their products throughout the year because this would allow them to have steady production and distribution facility operations. Ice cream manufacturers often face this dilemma because in the summer months demand for ice cream normally reaches its highest levels, whereas sales decrease substantially in the winter. In order to combat these shifts in product demand, ice cream companies might offer coupons to encourage the purchase of their products during slow sales seasons.

SUMMARY

Companies engage in promotional activities virtually every day of the year. The various tools available to marketing managers for such activities are known as the promotional mix. Elements of the promotional mix include advertising, personal selling, public relations, and sales promotion. Each of these promotional mix elements can be further divided into sub-elements depending upon company objectives.

BIBLIOGRAPHY

Armstrong, G., & Kotler, P. (2013). Marketing: An introduction (11th ed.). Boston, MA: Prentice Hall.

Boone, L. E., & Kurtz, D. L. (2014). Contemporary marketing (16th ed.). Mason, OH: South-Western/Cengage Learning.

Kaser, K. (2013). Advertising & sales promotion. Mason, OH: South-Western/Cengage Learning.

Lamb, C. W., Hair, J. F., & McDaniel, C. D. (2013). MKTG 7 (7th ed.). Mason, OH: South-Western/Cengage Learning.

Allen D. Truell
Michael Milbier

Source Citation

Source Citation   (MLA 8th Edition)
Truell, Allen D., and Michael Milbier. "Promotion." Encyclopedia of Business and Finance, 3rd ed., vol. 2, Macmillan Reference USA, 2014, pp. 630-633. Gale Ebooks, https%3A%2F%2Flink.gale.com%2Fapps%2Fdoc%2FCX3727500264%2FGVRL%3Fu%3Dmnarasmuss%26sid%3DGVRL%26xid%3Ddd89e4bb. Accessed 23 Sept. 2019.

Gale Document Number: GALE|CX3727500264

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  • Advertising
    • promotion
      • 2: 630
  • Cash refund offers
    • 2: 632
  • Contests and sweepstakes
    • 2: 632
  • Marketing
    • promotion
      • 2: 630-633
  • Patronage rewards
    • 2: 632
  • Personal selling
  • Point-of-purchase displays
    • 2: 632
  • Premiums
    • 2: 632
  • Product differentiation
    • 2: 633
  • Products
    • promotion objectives
      • 2: 633
  • Promotion
  • Public relations
  • Rebates
    • 2: 632
  • Sales and sales promotion
    • personal selling
    • promotion
      • 2: 633
  • Sales promotions
    • 2: 631
  • Samples
    • 2: 632
  • Stockholders
    • 2: 631
  • Trade shows