Sales Promotion Purposes, Types, Limitations

Sales Promotion refers to the use of short term incentives to persuade the people to purchase the goods or services immediately. These incentives are discount, free gift offer, distribution of free samples, rebate, sales contents etc. Basically, sales promotion supplements other promotional activities viz: advertisement, personal selling etc.

Sales Promotion Purposes:

• Increase Short-Term Sales:

One of the primary purposes of sales promotions is to boost short-term sales. By providing temporary incentives, businesses can encourage consumers to make immediate purchases, especially useful during product launches, seasonal peaks, or inventory clearance periods.

• Introduce New Products:

When launching a new product, sales promotions can help attract consumer attention and encourage trial use. Promotions such as free samples, introductory discounts, or bundled offers can reduce consumers’ risk perception and facilitate adoption.

• Enhance Customer Traffic:

Sales promotions can draw more customers into a store or to a website. Special deals, limited-time offers, and interactive promotions are effective in increasing footfall and web traffic, which can also boost sales of non-promotional items through increased exposure.

• Liquidate Excess Inventory:

Promotions are often used to clear out excess or outdated inventory without having to resort to permanent price reductions. This helps in managing stock levels and reducing holding costs, keeping the product assortment fresh and relevant.

• Reward Loyal Customers:

Loyalty promotions such as rewards programs or exclusive deals for returning customers serve to acknowledge and reward brand loyalty. These promotions help maintain a relationship with the customer base, encouraging repeat business and enhancing customer lifetime value.

• Counteract Competitive Actions:

In competitive markets, sales promotions can be used as a tool to counteract a competitor’s actions. If a competitor launches a promotion, a timely and effective sales promotion can help a company maintain its market share and ensure visibility among consumers.

Merits of Sales Promotion:

• Attention Value:

Use of incentives helps in attracting a large number of buyers.

• Useful in New Product Launch:

The tools of sales promotion like discount, free gift offer etc. are very useful in launching new products. It convinces them to use new products in place of the products which they may have been using regularly.

• Synergy in Total Promotional efforts:

Sales promotion tools add to the overall effectiveness of the efforts made under personal selling and advertisement.

• Inventory Management:

Through promotions like clearance sales or special discounts, companies can effectively manage their inventory levels by accelerating the movement of older or excess stock, helping to optimize storage and reduce overhead costs.

• Market Penetration and Expansion:

Sales promotions can help a product penetrate a crowded market more effectively or break into new geographic territories by temporarily improving the product’s value proposition compared to competitors.

• Consumer Engagement and Brand Loyalty:

Engaging promotions like contests, loyalty rewards, or interactive campaigns can enhance consumer interaction with the brand. This not only helps in building customer loyalty but also increases customer lifetime value.

Limitations of Sales Promotion:

• Reflects crisis:

If a firm uses sales promotion tools frequently, it may give the impression that the numbers of consumers are very less or a firm is unable to manage its sales.

• Spoils Product Image:

Continuous use of sale promotion tools also affects the product image. The customer may develop an impression that “products sold through sales promotion are overpriced & of poor quality etc.”.

• Short-term Orientation:

Sales promotions typically generate immediate, short-term sales rather than building long-term customer loyalty. This can lead businesses to rely excessively on promotions, potentially harming their brand image and profitability in the long run.

• Customer Expectation:

Regular promotions can lead customers to expect discounts and avoid purchasing at regular prices, which can diminish brand value and reduce profitability during non-promotional periods.

• Profit Margin Reduction:

Frequent use of discounts and promotions can erode profit margins. When promotions are not carefully planned and executed, the increased sales volume may not compensate for the lower per-unit profit.

Sales Promotion Methods:

1. Rebate:

It refers to a product being sold at special prices, less than the original price for a limited & very short period of time. The main aim is to clear off excess inventory. For example, offer of LG to sell 28″ colored television at a discount of Rs 5000/- for a limited period.

2. Discount:

Certain percentage of price is reduced as discount from the list price. For example at the end of the season, brands like Allen Solly, TNG, Peter England etc offer their product at discount to clear off the stock.

3. Refunds:

This refers to refunding a part of price paid by customer on some proof of purchase. For example, Rs. 3 on return of empty bottle of Pepsi.

4. Product Combination:

It involves offering another product as gift on purchase of a product. For example, a tooth brush free with a 200gm of Colgate toothpaste or 100 gm Parle biscuit free with purchase of 1kg of Kissan Tomato Sauce etc.

5. Quantity Gift:

It refers to offering extra quantity of the same product. For example, 1 soap free on purchase of 3 soaps or Tata Tea offer of 40% extra quantity etc.

6. Instant Draws and Assigned Gifts:

Under this scheme, some gifts are given on the basis of draws or some events. For example, Jainsons Westend, Karol Bagh, Delhi organize some events instantly and deliver gifts on the spot.

7. Lucky Draw:

Under this scheme, some coupons bearing distinct numbers are issued on the purchase of some products. At the end of a day, week or month, draws are taken and the winner is awarded some gifts. For example, gift of computer to the lucky winner declared on the basis of draw taken out from tickets of visitors to India International Trade Fair.

8. Usable Benefits:

For example a holiday package of Rs 5,000 free with purchase of goods worth Rs 5,000.

9. Full Finance @ 0%:

In case of consumer durable goods like electronic goods or automobiles, the seller offers easy financing scheme at 0% interest. For example payment of Rs 45,000 for a bike can be done as Rs 15,000 immediately and balance in 15 installments of Rs 2,000 each.

10. Samples:

Free samples of product are distributed among the customers. The main aim is to persuade the customers to try it. For example when Godrej company introduced ‘Ezee’ it distributed its samples as it wanted the people to try them.

11. Contests:

It refers to the competitive events organized by the companies for promoting their products. For example, Bourn-vita Quiz Contest etc.