Sales Promotion Metrics Flashcards
Immediate effects metrics
- Baseline/ incremental sales, promotional lift
- Promotional profitability
Longer term indicators
- Percentage sales on deal
- price waterfall
- Pass-through
Types of sales promotion
- Consumer promotions. Pull strategy: incentivising consumers to buy more e.g. Godiva
- Trade promotions. Push strategy: incentivising channel members to promote the brand/product in their outlets e.g. Phillips
- Internal promotions Push strategy: incentivising sales force and other employees to promote the brand/ product through sales or customer service e.g. SouthTrust Bank
Paradox of sales promotion
- Increase in sales can be very effective in raising short term sales
- But this can be detrimental to brand equity
- Creates a question of short term vs long term, insufficient integration vs successful integration
Positive sales scenario
- Consumer franchise building promotions (samples, coupons, demos, games etc.)
Negative sales scenario
Non consumer franchise building (price off, premiums, rebates etc)
Incremental sales
- represent the “lift” in sales resulting from a price promotion
- Separating sales portions attributable to various marketing activities to generate them
- Calculated for any period of time (year, quarter, or term of promotion)
Baselines sales
Baseline sales are those that a firm would have expected to achieve without any promotion. Generally estimated through analysis of historical sales data through regression analysis, test market results and market research
Baseline sales, incremental sales and promotional lift purpose
measure the short term effects of sales promotion
Advertising to sales promotion ratio has changed because?
- Retailer power
- Managerial acceptance
- More brands
- Increased parity
- Questions on ad effectiveness
Promotional lift achieved by?
A marketing program measuring incremental sales as a percentage of baseline sales
Challenges of baseline sales, incremental sales, promotional lift
- Separating baseline and incremental sales- and components of incremental sales can be extremely difficult. Marketing mix modelling is a step in that direction, but it is a less than perfect tool
- Baseline estimates is complex and inexact process
- Multiplicative or additive equations can be used to present lift
Long-term effects are not addressed (profitability and sales need to be adjusted over time)
Promotional profitability purpose
to assess the short term returns on a sales promotion
- to compare if we make more money with or without running the sales promotion
- the difference between the with and without (Baseline) scenarios
Promotional profitability problems
short run profitability is not a predictor of long term profitability
Percentage of sales on deal
manufacturers offer discounts to distributors and retailers to encourage promotions and sales to their customers
Percentage of sales on deal purpose
- Measures the % of company sales that are sold with a temporary discount of some form. Temporary discount does not include accounting discounts such as early payment discounts, cooperative allowances, etc.
- Assess the extent to which products are being sold on sale
- Helps to understand penetration of the sales promotion efforts but can also raise a red flag about potential threats to brand equity and long-term profitability
Problems with percentage sales on deal
- Collecting relevant sales data (splitting on-sale and list prices) can be challenging
- Not always in control of how much discount is passed along to the end customers
- Be conscious of whether you are using gross or net figures for the $-based version of this metric
- Resellers can take advantage of manufacturer pricing incentives (volume purchase, returns, timing etc.)
Price waterfall purpose
- To assess to what extent and how promotions decrease the list price (and long run profits) - understand “value leaks”
- Why do we care? Because on average, a 1% price loss translates to an 8% profit loss (just as a 1% increase translates into a 8% profit gain).
Price waterfall construction considerations
- Disaggregate value loss at each step of discounting
- Consider both on-invoice and off-invoice discounts
- Calculate overall loss by dividing the net price by the list price
Pass through purpose
- To assess whether trade promotions get to consumers in the form of consumer promotions from the retailer - are promotions “passed through” to end-users?
- While some trade promotions are designed to increase channel member margins, many ultimately want to share “value with consumers
Why would pass through not happen
Trade promotions are only partly designed to strengthen channel partners’ margins – often the objective is to share value with consumers (irrespective of whether that’s a good idea or not in the first place).
