Sales Promotion Metrics

Question 1

Immediate effects metrics

Answer 1

• Baseline/ incremental sales, promotional lift

- Promotional profitability

Question 2

Longer term indicators

Answer 2

• Percentage sales on deal
• price waterfall
• Pass-through

Question 3

Types of sales promotion

Answer 3

• 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

Question 4

Paradox of sales promotion

Answer 4

• 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

Question 5

Positive sales scenario

Answer 5

• Consumer franchise building promotions (samples, coupons, demos, games etc.)

Question 6

Negative sales scenario

Answer 6

Non consumer franchise building (price off, premiums, rebates etc)

Question 7

Incremental sales

Answer 7

• 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)

Question 8

Baselines sales

Answer 8

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

Question 9

Baseline sales, incremental sales and promotional lift purpose

Answer 9

measure the short term effects of sales promotion

Question 10

Advertising to sales promotion ratio has changed because?

Answer 10

• Retailer power
• Managerial acceptance
• More brands
• Increased parity
• Questions on ad effectiveness

Question 11

Promotional lift achieved by?

Answer 11

A marketing program measuring incremental sales as a percentage of baseline sales

Question 12

Challenges of baseline sales, incremental sales, promotional lift

Answer 12

• 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)

Question 13

Promotional profitability purpose

Answer 13

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

Question 14

Promotional profitability problems

Answer 14

short run profitability is not a predictor of long term profitability

Question 15

Percentage of sales on deal

Answer 15

manufacturers offer discounts to distributors and retailers to encourage promotions and sales to their customers

Question 16

Percentage of sales on deal purpose

Answer 16

• 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

Question 17

Problems with percentage sales on deal

Answer 17

• 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.)

Question 18

Price waterfall purpose

Answer 18

• 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).

Question 19

Price waterfall construction considerations

Answer 19

• 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

Question 20

Pass through purpose

Answer 20

• 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

Question 21

Why would pass through not happen

Answer 21

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).