Other Methods of Sampling
The four sampling methods just discussed are
the most common, but several other methods are also used. Marketers may insert
packets in magazines or newspapers (particularly Sunday supplements). Some
tobacco and cereal companies send samples to consumers who call toll-free numbers
to request them or mail in sample request forms. As discussed in Chapter 14, these
sampling methods are becoming popular because they can help marketers build a database
for direct marketing.
Many companies also use specialized sample distribution services such as Advo
Inc. and D. L. Blair. These firms help the company identify consumers who are
nonusers of a product or users of a competing brand and develop appropriate procedures
for distributing a sample to them. Many college students receive sample packs at
the beginning of the semester that contain trial sizes of such products as mouthwash,
toothpaste, headache remedies, and deodorant.
The Internet is yet another way companies are making it possible for consumers to
sample their products, and it is adding a whole new level of targeting to the mix by
giving consumers the opportunity to choose the samples they want. Catalina Marketing’s
ValuPage.com sampling and distribution service now has over one million members.
The Sunflower Group’s SiteLinkPlus program offers companies a fulfillment
service from their brand or corporate websites for samples, coupons, and premiums
(Exhibit 16-14). The service asks consumers qualifying questions on brand loyalty,
product usage, and lifestyles that can be used by marketers to target their samples and
other promotional offers more effectively.
Some companies cut back on their sampling programs in recent years because they
felt they were too expensive, wasteful, and fraught with distribution problems. However,
several factors have led to a resurgence in sampling recently. First, big companies
like Advo and Time Warner have entered the sampling business, which creates
more competition and helps keep sampling costs down. Also, a combination of technology
and creativity is driving new sampling methods that let marketers target more
efficiently. Yet another factor may be the everyday low-pricing strategies that have
prompted companies such as Procter & Gamble to move away from coupons and other
price promotions in favor of samples. Many marketers are finding that sampling meets
the complementary goals of introducing consumers to their products and getting retailers
to support their promotional programs.
The oldest, most widely used, and most effective sales promotion tool is the cents-off coupon. Coupons have been around since 1895, when the C. W. Post Co. started using the penny-off coupon to sell its new Grape-Nuts cereal. In recent years, coupons have become increasingly popular with consumers, which may explain their explosive growth among manufacturers and retailers that use them as sales promotion incentives. As Figure 16-2 showed, coupons are the most popular sales promotion technique as they are used by nearly all the packaged-goods firms. Coupon distribution rose dramatically over the past 30 years. The number of coupons distributed by consumer packaged-goods marketers increased from 16 billion in 1968 to a peak of 310 billion in 1994. Since 1994 coupon distribution has been declining, and it dropped to 239 billion in 2001. According to NCH Promotional Services, a company that tracks coupon distribution and redemption patterns, nearly 80 percent of consumers in the United States use coupons and nearly 25 percent say they always use them when they shop. The average face value of coupons distributed increased from 21 cents in 1981 to 83 cents in 2001. The average face value of the 4 billion coupons that were redeemed in 2001 was 74 cents.28 Adding additional fuel to the coupon explosion of the past several decades has been the vast number of coupons distributed through retailers that are not even included in these figures. In most markets, a number of grocery stores make manufacturers’ coupons even more attractive to consumers by doubling the face value. Advantages and Limitations of Coupons Coupons have a number of advantages that make them popular sales promotion tools for both new and established products. First, coupons make it possible to offer a price reduction only to those consumers who are price-sensitive. Such consumers generally purchase because of coupons, while those who are not as concerned about price buy the brand at full value. Coupons also make it possible to reduce the retail price of a product without relying on retailers for cooperation, which can often be a problem. Coupons are generally regarded as second only to sampling as a promotional technique for generating trial. Since a coupon lowers the price of a product, it reduces the consumer’s perceived risk associated with trial of a new brand. Coupons can encourage repurchase after initial trial. Many new products include a cents-off coupon inside the package to encourage repeat purchase. Coupons can also be useful promotional devices for established products. They can encourage nonusers to try a brand, encourage repeat purchase among current users, and get users to try a new, improved version of a brand. Coupons may also help coax users of a product to trade up to more expensive brands. The product category where coupons are used most is disposable diapers, followed by cereal, detergent, and deodorant. Some of the product categories where coupons are used the least are carbonated beverages, candy, and gum. But there are a number of problems with coupons. First, it can be difficult to estimate how many consumers will use a coupon and when. Response to a coupon is rarely immediate; it typically takes anywhere from two to six months to redeem one. A study of coupon redemption patterns by Inman and McAlister found that many coupons are redeemed just before the expiration date rather than in the period following the initial coupon drop.29 Many marketers are attempting to expedite redemption by shortening the time period before expiration. The average length of time from issue date to expiration date for coupons in 2001 was 3.2 months, for grocery products. However, coupons remain less effective than sampling for inducing initial product trial in a short period. A problem associated with using coupons to attract new users to an established brand is that it is difficult to prevent the coupons from being used by consumers who
already use the brand. For example, General Foods decided to reduce its use of coupons for Maxwell House coffee when research revealed the coupons were being redeemed primarily by current users. Rather than attracting new users, coupons can end up reducing the company’s profit margins among consumers who would probably purchase the product anyway. Other problems with coupons include low redemption rates and high costs. Couponing program expenses include the face value of the coupon redeemed plus costs for production, distribution, and handling of the coupons. Figure 16-3 shows the calculations used to determine the costs of a couponing program using an FSI (freestanding insert) in the Sunday newspaper and a coupon with an average face value of 74 cents. As can be seen from these figures, the cost of a couponing program can be very high. Former Procter & Gamble chairman Durk Jager, who led efforts to rein in the company’s use of coupons in the late 90s, has argued that they are extremely ineffi- cient. He contends that it may cost as much as $50 to move a case of goods with coupons that may generate only $10 to $12 in gross profit.30 Marketers should track coupon costs very carefully to ensure their use is economically feasible
Another problem with coupon promotions is misredemption, or the cashing of a coupon without purchase of the brand. Coupon misredemption or fraud occurs in a number of ways, including: • Redemption of coupons by consumers for a product or size not specified on the coupon. • Redemption of coupons by salesclerks in exchange for cash. • Gathering and redemption of coupons by store managers or owners without the accompanying sale of the product. • Gathering or printing of coupons by criminals who sell them to unethical merchants, who in turn redeem them
Estimates of coupon misredemption costs are as high as $500 million.31 Many manufacturers hold firm in their policy to not pay retailers for questionable amounts or suspicious types of coupon submissions. However, some companies are less aggressive, and this affects their profit margins. Marketers must allow a certain percentage for misredemption when estimating the costs of a couponing program. Ways to identify and control coupon misredemption, such as improved coding, are being developed, but it still remains a problem.
Coupons can be disseminated to consumers by a number of means, including freestanding inserts in Sunday newspapers, direct mail, newspapers (either in individual ads or as a group of coupons in a cooperative format), magazines, and packages. Distribution through newspaper freestanding inserts is by far the most popular method for delivering coupons to consumers, accounting for 84 percent of all coupons distributed in 2001. This growth has come at the expense of vehicles such as manufacturers’ ads in newspapers (newspaper ROP), newspaper co-op ads, and magazines. There are a number of reasons why FSIs are the most popular way of delivering coupons, including their high-quality four-color graphics, competitive distribution costs, national same-day circulation, market selectivity, and the fact that they can be competition-free due to category exclusivity (by FSI company). Prices for a full-page FSI are currently about $6 to $7 per thousand, which makes FSI promotions very effi- cient and affordable. Because of their consumer popularity and predictable distribution, coupons distributed in FSIs are also a strong selling point with the retail trade. The increased distribution of coupons through FSIs has, however, led to a clutter problem. Consumers are being bombarded with too many coupons, and although each FSI publisher offers product exclusivity in its insert, this advantage may be negated when there are three inserts in a Sunday paper. Redemption rates of FSI coupons have declined from 4 percent to only 1.3 percent and even lower for some products (Figure 16-4). These problems are leading many marketers to look at ways of delivering coupons that will result in less clutter and higher redemption rates, such as direct mail. Direct mail accounts for about 2.1 percent of all coupons distributed. Most are sent by local retailers or through co-op mailings where a packet of coupons for many different products is sent to a household. These couponing programs include Metromail’s Red Letter Day, Advo System’s Super Coups, and Cox Target Media’s Valpak. IMC Perspective 16-3 discusses how Cox Target Media recently redesigned the familiar Valpak blue envelope that delivers billions of coupons each year and created an advertising campaign to improve the image of the direct-mail piece. Direct-mail couponing has several advantages. First, the mailing can be sent to a broad audience or targeted to specific geographic or demographic markets such as teenagers, senior citizens, Hispanics, and other market segments. Firms that mail their
own coupons can be quite selective about recipients. Another important advantage of direct-mail couponing is a redemption rate of over 3 percent, much higher than for FSIs. Direct-mail couponing can also be combined with a sample, which makes it a very effective way to gain the attention of consumers. The major disadvantage of direct-mail coupon delivery is the expense relative to other distribution methods. The cost per thousand for distributing coupons through co-op mailings ranges from $10 to $15, and more targeted promotions can cost $20 to $25 or even more. Also, the higher redemption rate of mail-delivered coupons may result from the fact that many recipients are already users of the brand who take advantage of the coupons sent directly to them. The use of newspapers and magazines as couponing vehicles has declined dramatically since the introduction of FSIs. In 2001 only 1.3 percent of coupons were distributed via newspapers. The advantages of newspapers as a couponing vehicle include market selectivity, shorter lead times with timing to the day, cooperative advertising opportunities that can lead to cost efficiencies, and promotional tie-ins with retailers. Other advantages of newspaper-delivered coupons are the broad exposure and consumer receptivity. Many consumers actively search the newspaper for coupons, especially on Sundays or “food day” (when grocery stores advertise their specials). This enhances the likelihood of the consumer at least noticing the coupon. Problems with newspapers as couponing vehicles include higher distribution costs, poor reproduction quality, clutter, and declining readership of newspapers; all contribute to low redemption rates. The use of magazines as a couponing vehicle has also declined steadily since the introduction of FSIs. Magazines now account for only about 2 percent of the total number of coupons distributed each year. Distribution of coupons through magazines can take advantage of the selectivity of the publication to reach specific target audiences, along with enhanced production capabilities and extended copy life in the home. However, the cost of distributing coupons through magazines is very high and redemption rates are low (just under 1 percent). Placing coupons either inside or on the outside of the package is a distribution method that accounted for about 3 percent of the coupons distributed in 2001. The in/on-package coupon has virtually no distribution costs and a much higher redemption rate than other couponing methods, averaging between 3 and nearly 14 percent. An in/on-pack coupon that is redeemable for the next purchase of the same brand is known as a bounce-back coupon. This type of coupon gives consumers an inducement to repurchase the brand. Bounce-back coupons are often used with product samples to encourage the consumer to purchase the product after sampling. They may be included in or on the package during the early phases of a brand’s life cycle to encourage repeat purchase, or they may be a defensive maneuver for a mature brand that is facing competitive pressure and wants to retain its current users. The main limitation of bounce-back coupons is that they go only to purchasers of the brand and thus do not attract nonusers. A bounce-back coupon placed on the package for Kellogg’s Eggo brand waffles is shown in Exhibit 16-15. Another type of in/on-pack coupon is the cross-ruff coupon, which is redeemable on the purchase of a different product, usually one made by the same company but occasionally through a tie-in with another manufacturer. Crossruff coupons have a redemption rate of 4 to 8 percent and can be effective in encouraging consumers to try other products or brands. Companies with wide product lines, such as cereal manufacturers, often use these coupons. Yet another type of package coupon is the instant coupon, which is attached to the outside of the package so the consumer can rip it off and redeem it immediately at the time of purchase. Instant coupons have the highest redemption levels of all types of coupons, averaging around 18 percent for grocery products and jumping to over 40 percent for health and beauty items. However, the redemption level is
much lower for instant cross-ruff coupons, as it averages around 5 percent. Instant coupons give consumers an immediate point-of-purchase incentive, and can be selectively placed in terms of promotion timing and market region. Some companies prefer instant coupons to price-off deals because the latter require more cooperation from retailers and can be more expensive, since every package must be reduced in price. Another distribution method that has experienced strong growth over the past 10 years or so is in-store couponing, which includes all co-op couponing programs distributed in a retail store environment. This medium now accounts for around 8 percent of total coupon distribution. Coupons are distributed to consumers in stores in several ways, including tear-off pads, handouts in the store (sometimes as part of a sampling demonstration), on-shelf dispensers, and electronic dispensers. Most of the coupons distributed in stores are through ActMedia’s Instant Coupon Machine. This coupon dispenser is mounted on the shelf in front of the product being promoted. It has blinking red lights to draw consumers’ attention to the savings opportunity. These in-store coupons have several advantages: They can reach consumers when they are ready to make a purchase, increase brand awareness on the shelf, generate impulse buying, and encourage product trial. They also provide category exclusivity. In-store couponing removes the need for consumers to clip coupons from FSIs or print ads and then remember to bring them to the store. Redemption rates for coupons distributed by the Instant Coupon Machine are very high, averaging about 6 to 8 percent. Another popular way to distribute in-store coupons is through electronic devices such as kiosks or at the checkout counter. Some electronically dispensed coupons, such as Catalina Marketing Corp.’s Checkout Coupon, are tied to scanner data at each grocery store checkout. When the specified product, such as a competitive brand, is purchased, the consumer receives a coupon at the checkout for the company’s brand (Exhibit 16-16). Companies also use this system to link purchases of products that are related. For example, a consumer who purchases a caffeine-free cola might be issued a coupon for a decaffeinated coffee. Major advantages of electronically dispensed checkout coupons are that they are cost-effective and can be targeted to specific categories of consumers, such as users of competitive or complementary products. Since 65 to 85 percent of a manufacturer’s coupons are used by current customers, marketers want to target their coupons to users of competitive brands. Redemption rates are also high for electronically dispensed coupons, averaging around 5 to 7 percent.
Over the past four years the number of coupons distributed has declined by nearly 20 percent. While the average American household is still being barraged with nearly 3,000 coupons per year, many marketers have cut back on their use of coupons because of concerns over costs and effectiveness. Critics argue that coupons cost too much to print, distribute, and process and that they don’t benefit enough consumers. Consumers redeemed less than 2 percent of the 239 billion coupons distributed in 2001. Former Procter & Gamble CEO Durk Jager echoed the sentiment of many consumer-product companies when he said, “Who can argue for a practice that fails 98 percent of the time?”32 Despite the growing sentiment among major marketers that coupons are inefficient and costly, very few companies, including Procter & Gamble, are likely to abandon them entirely.33 Although most coupons never get used, consumers use some of them and have come to expect them. More than 80 percent of consumers use coupons and nearly one-quarter say they use them every time they shop. With so many consumers eager for coupons, marketers will continue to accommodate them. However, companies as well as the coupon industry are looking for ways to improve on their use. Marketers are continually searching for more effective couponing techniques. General Mills, Kellogg, and Post replaced brand-specific coupons with universal coupons good for any of their cereal brands. For example, to make its couponing spending more efficient, Post began using universal coupons worth $1.50 off two boxes (matching the average cereal-coupon discount of 75 cents) and cut coupon distribution in half. Even though Post
dropped only half as many coupons, redemption rates reached 6 percent, far exceeding the FSI average of less than 2 percent.34 Some marketers are broadening their use of account-specific direct-mail couponing, in which coupons are cobranded with individual retailers but can be used by consumers at any retail store. Procter & Gamble began using account-specific couponing with Tide detergent and has broadened the program to include mailings for a number of other brands.35 Some marketers and retailers are looking to the Internet as a medium for distributing coupons. Several companies now offer online couponing services. Catalina Marketing started Valupage.com as a way for marketers to reach consumers at home with promotions traditionally offered in-store, including coupons. Consumers can log on to the website, type in their Zip code and choose from a list of participating grocery stores in their area and download manufacturer- and retailer-sponsored coupons. A number of retailers, particularly supermarkets, are also using the Internet to distribute coupons to encourage consumers to shop at their stores. Cox Target Media also offers consumers the opportunity to access coupons online, through Valpak.com. The website makes the same coupons and offers available to consumers that come in the Valpak direct-mail envelope (Exhibit 16-17)
Premiums are a sales promotion device used by many marketers. A premium is an offer of an item of merchandise or service either free or at a low price that is an extra incentive for purchasers. Many marketers are eliminating toys and gimmicks in favor of value-added premiums that reflect the quality of the product and are consistent with its image and positioning in the market. Marketers spend over $4 billion a year on value-added premium incentives targeted at the consumer market. The two basic types of offers are the free premium and the self-liquidating premium. Free Premiums Free premiums are usually small gifts or merchandise included in the product package or sent to consumers who mail in a request along with a proof of purchase. In/on-package free premiums include toys, balls, trading cards, or other items included in cereal packages, as well as samples of one product included with another. Surveys have shown that in/on-package premiums are consumers’ favorite type of promotion.36 Package-carried premiums have high impulse value and can provide an extra incentive to buy the product. However, several problems are associated with their use.
First,here is the cost factor, which results from the premium itself as well as from extra packaging that may be needed. Finding desirable premiums at reasonable costs can be difficult, particularly for adult markets, and using a poor premium may do more harm than good. Another problem with these premiums is possible restrictions from regulatory agencies such as the Federal Trade Commission and the Food and Drug Administration or from industry codes regarding the type of premium used. The National Association of Broadcasters has strict guidelines regarding the advertising of premium offers to children. There is concern that premium offers will entice children to request a brand to get the promoted item and then never consume the product. The networks’ policy on children’s advertising is that a premium offer cannot exceed 15 seconds of a 30-second spot, and the emphasis must be on the product, not the premium. Since most free mail-in premium offers require the consumer to send in more than one proof of purchase, they encourage repeat purchase and reward brand loyalty. But a major drawback of mail-in premiums is that they do not offer immediate reinforcement or reward to the purchaser, so they may not provide enough incentive to purchase the brand. Few consumers take advantage of mail-in premium offers; the average redemption rate is only 2 to 4 percent.37 Free premiums have become very popular in the restaurant industry, particularly among fast-food chains such as McDonald’s and Burger King, which use premium offers in their kids’ meals to attract children.38 McDonald’s has become the world’s largest toymaker on a unit basis, commissioning about 750 million toys per year for its Happy Meals (Exhibit 16-18). Many of the premium offers used by the fast-food giants have cross-promotional tie-ins with popular movies and can be very effective at generating incremental sales. McDonald’s gained a major competitive advantage in the movie tie-in premium wars in 1996 when it signed an agreement with Disney giving McDonald’s exclusive rights to promotional tie-ins with Disney movies for 10 years.39 One of the fastest-growing types of incentive offers being used by marketers is airline miles, which have literally become a promotional currency. U.S. airlines make more than an estimated $2 billion each year selling miles to other marketers. Consumers are now choosing credit-card services, phone services, hotels, and many other products and services on the basis of mileage premiums for major frequent-flyer programs such as American Airlines’ AAdvantage program or United Airlines’ Mileage Plus program. Exhibit 16-19 shows a trade ad run by American Airlines promoting the value of AAdvantage miles as a promotional incentive that companies can offer their customers to help generate sales. Self-Liquidating Premiums Self-liquidating premiums require the consumer to pay some or all of the cost of the premium plus handling and mailing costs. The marketer usually purchases items used as self-liquidating premiums in large quantities and offers them to consumers at lower-than-retail prices. The goal is not to make a profit on the premium item but rather just to cover costs and offer a value to the consumer. In addition to cost savings, self-liquidating premiums offer several advantages to marketers. Offering values to consumers through the premium products can create interest in the brand and goodwill that enhances the brand’s image. These premiums can also encourage trade support and gain in-store displays for the brand and the premium offer. Self-liquidating premiums are often tied directly to the advertising campaign, so they extend the advertising message and contribute to consumer franchise building for a brand. For example, Philip Morris
ffers Western wear, outdoor items, and other types of Marlboro gear through its Marlboro Country catalog, which reinforces the cigarette brand’s positioning theme. Self-liquidating premium offers have the same basic limitation as mail-in premiums: a very low redemption rate. Fewer than 10 percent of U.S. households have ever sent for a premium, and fewer than 1 percent of self-liquidating offers are actually redeemed.40 Low redemption rates can leave the marketer with a large supply of items with a logo or some other brand identification that makes them hard to dispose of. Thus, it is important to test consumers’ reaction to a premium incentive and determine whether they perceive the offer as a value. Another option is to use premiums with no brand identification, but that detracts from their consumer franchise-building value.
Contests and Sweepstakes
Contests and sweepstakes are an increasingly popular consumer-oriented promotion. Marketers spent nearly $2 billion on these promotions in 2001. These promotions seem to have an appeal and glamour that tools like cents-off coupons lack. Contests and sweepstakes are exciting because, as one expert has noted, many consumers have a “pot of gold at the end of the rainbow mentality” and think they can win the big prizes being offered.41 The lure of sweepstakes and promotions has also been influenced by the “instant-millionaire syndrome” that has derived from huge cash prizes given by many state lotteries in recent years. Marketers are attracted to contests and sweepstakes as a way of generating attention and interest among a large number of consumers. There are differences between contests and sweepstakes. A contest is a promotion where consumers compete for prizes or money on the basis of skills or ability. The company determines winners by judging the entries or ascertaining which entry comes closest to some predetermined criteria (e.g., picking the winning teams and total number of points in the Super Bowl or NCAA basketball tournament). Contests usually provide a purchase incentive by requiring a proof of purchase to enter or an entry form that is available from a dealer or advertisement. Some contests require consumers to read an ad or package or visit a store display to gather information needed to enter. Marketers must be careful not to make their contests too difficult to enter, as doing so might discourage participation among key prospects in the target audience. A sweepstakes is a promotion where winners are determined purely by chance; it cannot require a proof of purchase as a condition for entry. Entrants need only submit their names for the prize drawing. While there is often an official entry form, handwritten entries must also be permitted. One form of sweepstakes is a game, which also has a chance element or odds of winning. Scratch-off cards with instant winners are a popular promotional tool. Some games occur over a longer period and require more involvement by consumers. Promotions where consumers must collect game pieces are popular among retailers and fast-food chains as a way to build store traffic and repeat purchases. Because they are easier to enter, sweepstakes attract more entries than contests. They are also easier and less expensive to administer, since every entry does not have to be checked or judged. Choosing the winning entry in a sweepstakes requires only the random selection of a winner from the pool of entries or generation of a number to match those held by sweepstakes entrants. Experts note that the costs of mounting a sweepstakes are also very predictable. Companies can buy insurance to indemnify them and protect against the expense of awarding a big prize. In general, sweepstakes present marketers with a fixed cost, which is a major advantage when budgeting for a promotion. Contests and sweepstakes can get the consumer involved with a brand by making the promotion product relevant. For example, contests that ask consumers to suggest a name for a product or to submit recipes that use the brand can increase involvement levels. Nabisco developed an “Open a box, make up a snack,” promotional contest for its three top cracker brands—Ritz, Triscuit, and Wheat Thins. Consumers sent in their favorite recipes, which were then made available on a dedicated website and at a tollfree number. Marketers can use contests and sweepstakes to build brand equity by connecting the prizes to the lifestyle, needs, or interests of the target audience. Sweepstakes and games can also be used to generate excitement and involvement with a popular and timely event and/or as a way to get consumers to visit a company’s website. For example, Suzuki sponsored a sweepstakes that was tied to its sponsorship of the 2002 Heisman Trophy, which is the award given each year to the top college football player (Exhibit 16-20). One official vote was placed in the selection of the winner of the Heisman Trophy based on the results of the voting. Each person who voted was also entered into the Suzuki Heisman Sweepstakes. The contest was an effective way of associating Suzuki with this prestigious award and encouraging consumers to visit the website, where they would learn more about the company’s vehicles. Problems with Contests and Sweepstakes While the use of contests and sweepstakes continues to increase, there are some problems associated with these types of promotions. Many sweepstakes and/or contest promotions do little to contribute to consumer franchise building for a product or service and may even detract from it. The sweepstakes or contest often becomes the dominant focus rather than the brand, and little is accomplished other than giving away substantial amounts of money and/or prizes. Many promotional experts question the effectiveness of contests and sweepstakes. Some companies have cut back or even stopped using them because of concern over their effectiveness and fears that consumers might become dependent on them.42 The sweepstakes industry also received a considerable amount of negative publicity recently. Lawsuits were filed by a number of states against American Family Publishing for misleading consumers regarding their odds of winning large cash prizes in AFP’s annual magazine subscription solicitation sweepstakes.43 Numerous legal considerations affect the design and administration of contests and sweepstakes.44 These promotions are regulated by several federal agencies, and each of the 50 states has its own rules. The regulation of contests and sweepstakes has helped clean up the abuses that plagued the industry in the late 1960s and has improved consumers’ perceptions of these promotions. But companies must still be careful in designing a contest or sweepstakes and awarding prizes. Most firms use consultants that specialize in the design and administration of contests and sweepstakes to avoid any legal problems, but they may still run into problems with promotions, as discussed in IMC Perspective 16-4. A final problem with contests and sweepstakes is participation by professionals or hobbyists who submit many entries but have no intention of purchasing the product or
service. Because most states make it illegal to require a purchase as a qualification for a sweepstakes entry, consumers can enter as many times as they wish. Professional players sometimes enter one sweepstakes several times, depending on the nature of the prizes and the number of entries the promotion attracts. Newsletters are even available that inform them of all the contests and sweepstakes being held, the entry dates, estimated probabilities of winning for various numbers of entries, how to enter, and solutions to any puzzles or other information that might be needed. The presence of these professional entrants not only defeats the purpose of the promotion but may also discourage entries from consumers who think their chances of winning are limited.
Refunds and Rebates
Refunds (also known as rebates) are offers by the manufacturer to return a portion of the product purchase price, usually after the consumer supplies some proof of purchase. Consumers are generally very responsive to rebate offers, particularly as the size of the savings increases. Rebates are used by makers of all types of products, ranging from packaged goods to major appliances, cars, and computer software. Exhibit 16-21 shows an ad promoting a $30 rebate on Intuit’s popular tax and financial software products, TurboTax and Quicken. Packaged-goods marketers often use refund offers to induce trial of a new product or encourage users of another brand to switch. Consumers may perceive the savings offered through a cash refund as an immediate value that lowers the cost of the item, even though those savings are realized only if the consumer redeems the refund or rebate offer. Redemption rates for refund offers typically range from 1 to 3 percent for print and point-of-purchase offers and 5 percent for in/on-package offers. Refund offers can also encourage repeat purchase. Many offers require consumers to send in multiple proofs of purchase. The size of the refund offer may even increase as the number of purchases gets larger. Some packaged-goods companies are switching away from cash refund offers to coupons or cash/coupon combinations. Using coupons in the refund offer enhances the likelihood of repeat purchase of the brand. Rebates have become a widely used form of promotion for consumer durables. Products such as cameras, sporting goods, appliances, televisions, audio and video equipment, computers, and cars frequently use rebate offers to appeal to priceconscious consumers. The use of rebates for expensive items like cars was begun by Chrysler Corp. in 1981 to boost sales and generate cash for the struggling company. Rebates are now common not only in the auto industry and other durable products but for packaged-goods products as well. Evaluating Refunds and Rebates Rebates
can help create new users and encourage brand switching or repeat purchase behavior, or they can be a way to offer a temporary price reduction. The rebate may be perceived as an immediate savings even though many consumers do not follow through on the offer. This perception can influence purchase even if the consumer fails to realize the savings, so the marketer can reduce price for much less than if it used a direct price-off deal. Some problems are associated with refunds and rebates. Many consumers are not motivated by a refund offer because of the delay and the effort required to obtain the savings. They do not want to be bothered saving cash register receipts and proofs of purchase, filling out forms, and mailing in the offer.45 A study of consumer perceptions found a negative relationship between the use of rebates and the perceived difficulties associated with the redemption process.46 The study also found that consumers perceive manufacturers as offering rebates to sell products that are not faring well. Nonusers of rebates were particularly likely to perceive the redemption process as too complicated and to suspect manufacturers’ motives. This implies that companies using rebates must simplify the redemption process and use other promotional elements such as advertising to retain consumer confidence in the brand.
When small refunds are being offered, marketers may find other promotional incentives such as coupons or bonus packs more effective. They must be careful not to overuse rebate offers and confuse consumers about the real price and value of a product or service. Also, consumers can become dependent on rebates and delay their purchases or purchase only brands for which a rebate is available. Many retailers have become disenchanted with rebates and the burden and expense of administering them.47
Bonus packs offer the consumer an extra amount of a product at the regular price by providing larger containers or extra units (Exhibit 16-22). Bonus packs result in a lower cost per unit for the consumer and provide extra value as well as more product for the money. There are several advantages to bonus pack promotions. First, they give marketers a direct way to provide extra value without having to get involved with complicated coupons or refund offers. The additional value of a bonus pack is generally obvious to the consumer and can have a strong impact on the purchase decision at the time of purchase.
Bonus packs can also be an effective defensive maneuver against a competitor’s promotion or introduction of a new brand. By loading current users with large amounts of its product, a marketer can often remove these consumers from the market and make them less susceptible to a competitor’s promotional efforts. Bonus packs may result in larger purchase orders and favorable display space in the store if relationships with retailers are good. They do, however, usually require additional shelf space without providing any extra profit margins for the retailer, so the marketer can encounter problems with bonus packs if trade relationships are not good. Another problem is that bonus packs may appeal primarily to current users who probably would have purchased the brand anyway or to promotion-sensitive consumers who may not become loyal to the brand.
Another consumer-oriented promotion technique is the direct price-off deal, which reduces the price of the brand. Price-off reductions are typically offered right on the package through specially marked price packs, as shown in Exhibit 16-23. Typically, price-offs range from 10 to 25 percent off the regular price, with the reduction coming out of the manufacturer’s profit margin, not the retailer’s. Keeping the retailer’s margin during a price-off promotion maintains its support and cooperation. Marketers use price-off promotions for several reasons. First, since price-offs are controlled by the manufacturer, it can make sure the promotional discount reaches the consumer rather than being kept by the trade. Like bonus packs, price-off deals usually present a readily apparent value to shoppers, especially when they have a reference price point for the brand and thus recognize the value of the discount.48 So price-offs can be a strong influence at the point of purchase when price comparisons are being made. Price-off promotions can also encourage consumers to purchase larger quantities, preempting competitors’ promotions and leading to greater trade support. Price-off promotions may not be favorably received by retailers, since they can create pricing and inventory problems. Most retailers will not accept packages with a specific price shown, so the familiar X amount off the regular price must be used. Also, like bonus packs, price-off deals appeal primarily to regular users instead of attracting nonusers. Finally, the Federal Trade Commission has regulations regarding the conditions that price-off labels must meet and the frequency and timing of their use.
Frequency ProgramsOne of the fastest-growing areas of sales promotion is the use of frequency programs (also referred to as continuity or loyalty programs). American Airlines was one of the first major companies to use loyalty programs when it introduced its AAdvantage frequent-flyer program in 1981. Since then frequency programs have become commonplace in a number of product and service categories, particularly travel and hospitality, as well as among retailers. Virtually every airline, car rental company, and hotel chain has some type of frequency program. American Airlines has nearly 44 million
members in its AAdvantage program, while Marriott International has enlisted more than 18 million business travelers into its Rewards program. Many packaged-goods companies are also developing frequency programs. Pillsbury, Nestlé, Kraft, and others have recently introduced continuity programs that offer consumers the opportunity to accumulate points for continuing to purchase their brands; the points can be redeemed for gifts and prizes. For example, Kellogg launched a frequency program called “Eet and Ern” that targets younger consumers. The program allows them to find a 10-character code on the inside of speciallymarked packages of Kellogg products, enter the code at the EetandErn.com website, and receive a downloadable reward (Exhibit 16-24). They can also participate in other special promotions including contests, sweepstakes, special offers, games and other activities. The frequency program has been very effective and has helped Kellogg increase its sales despite the overall decline in cereal industry sales.49 Frequency programs have become particularly popular among grocery stores.50 Nearly 7,000 supermarkets now have loyalty programs that offer members discounts, a chance to accumulate points that can be redeemed for rewards, newsletters, and other special services. Loyalty programs are also used by a variety of other retailers, including department stores, home centers, bookstores, and even local bagel shops. There are a number of reasons why frequency programs have become so popular. Marketers view these programs as a way of encouraging consumers to use their products or services on a continual basis and as a way of developing strong customer loyalty. Many companies are also realizing the importance of customer retention and understand that the key to retaining and growing market share is building relationships with loyal customers. Frequency programs also provide marketers with the opportunity to develop databases containing valuable information on their customers that can be used to better understand their needs, interests, and characteristics as well as to identify and track a company’s most valuable customers. These databases can also be used to target specific programs and offers to customers to increase the amount they purchase and/or to build stronger relationships with them. As frequency programs become more common, marketers will be challenged to find ways to use them as a means of differentiating their product, service, business, or retail store. It has been argued that many of the loyalty programs developed by packaged-goods marketers are really short-term promotions that overreward regular users and do little to develop long-term loyalty.51 Marketers must find ways to make them true loyalty programs rather than just frequent-buyer programs. This will require the careful management of databases to identify and track valuable customers and their purchase history and the strategic use of targeted loyalty promotions.
Another type of consumer-oriented promotion that has become very popular in recent years is the use of event marketing. It is important to make a distinction between event marketing and event sponsorships, as the two terms are often used interchangeably yet they refer to different activities. Event marketing is a type of promotion where a company or brand is linked to an event or where a themed activity is developed for the purpose of creating experiences for consumers and promoting a product or service. Marketers often do event marketing by associating their product with some popular activity such as a sporting event, concert, fair, or festival. However, marketers also create their own events to use for promotional purposes. For example, RC Cola staged events to launch RC Edge Maximum Power, a new soda targeted at teens that contains Indian ginseng and taurine in addition to caffeine. RC put together a 25-market tour that included radio tie-ins and “Edgy” events such as white-water rafting and skydiving at which samples of the product were distributed (Exhibit 16-25). The comarketing promotion Coppertone created for Wal-Mart, which was discussed earlier in the chapter, is an example of an in-store event marketing activity. An event sponsorship is an integrated marketing communications activity where a company develops actual sponsorship relations with a particular event and provides financial support in return for the right to display a brand name, logo, or advertising message and be identified as a supporter of the event. Event marketing often takes place as part of a company’s sponsorship of activities such as concerts, the arts, social causes, and sporting events. Decisions and objectives for event sponsorships are often part of an organization’s public relations activities and are discussed in the next chapter. Event marketing has become very popular in recent years as marketers develop integrated marketing programs including a variety of promotional tools that create experiences for consumers in an effort to associate their brands with certain lifestyles and activities. Marketers use events to distribute samples as well as information about their products and services or to actually let consumers experience the product.