Increasingly, companies of all sizes, and especially brands and those with a defined image, are aware that price cutting can have disastrous long-term effects on both the general public’s perception of the brand and on company profits.
In this article, we look at how you can win more business by using sales promotions instead of cutting your prices.
The spend on traditional advertising in the UK is around £20 billion a year. Last year the total spend on sales promotion was almost £19 billion and this is because more and more companies are seeing it as an alternative to price cutting.
Sales promotion is a way of engaging and interacting with customers, and incentivising them to purchase YOUR product, good or service over your competitors.
There are various types of sales promotions ranging from competitions, “try me free”, “gift with purchase” and “loyalty schemes” to name but a few and some of the more popular are outlined below.
Money-back or cash-back offers
Rather than offer an in-store price discount of say, 10%, offer a money back discount on part of the purchase;
i.e. if you buy x, we will send you a cheque for 10% of the purchase price, when you apply for it.
The massive advantage is that the consumer has to pay full price for the product in the first place – so the seller gets the full basket value and that all important cash flow.
Secondly, most consumers will purchase the product with the intention of claiming the cash-back, but it is unlikely everybody will do so.
In any event, the consumer will buy the product partly because of the advertised discount even though the full price has been actually paid.
When buyers apply for their cash-back cheque, they will provide you with their name and address. You can then build up a database of customers who have bought your products. This information is very valuable and handy a by-product of the cash-back offer.
There are many similar variants of this promotion technique, from small retailers offering £x discount on a basket value of over £y (but the consumer has to write in and apply for it), through to purchasing z amount of a product and claiming £x back by way of a discount.
Offers can be blanketed at the market as a whole, used in a local newspaper advert, or more or less anyway the business wants.
The money back offer side is usually feasible from about 500 sales upwards. They are always time restricted and typically have redemptions ranging from 5% to 80% depending on the offer, value of cash-back, product etc. It is essential for budgeting purposes however, that 100% redemption is seen as a possibility and provision made accordingly.
Loyalty schemes are obviously targeted at a company’s regular customer base in the traditional sense, but are also very useful for incentivising sales staff, especially third party staff.
How often have you gone to make a purchase knowing which brand you wanted to buy, but ending up being persuaded to buy a different brand by the sales staff?
Whilst the loyalty side is generally more expensive to set up and therefore less cost efficient for small businesses, it can certainly be adapted to smaller operations. A hairdresser, for instance, could offer consumers every 10th hair cut free of charge. In effect a 10% discount, but the consumer has to have 9 full price cuts first.
Sales promotion doesn’t need to be expensive
Sales promotion has generally been perceived as the preserve of the big agencies as it is expensive or difficult to set up. This does not have to be the case if the correct partner company is running it and clear targets and objectives are set up at the outset. However, you will always need an initial budget; there are very few, if any promotions that can be run on a ‘self liquidating’ basis.
It is recommended that specialist companies should be used to oversee such promotions because the legalities can be complex. Additionally, what works well in one industry may fall totally flat in another and that sort of information largely comes down to experience. With money back promotions, bank charges can kill many ideas dead in the water if the schemes are too small in nature.
Having said all that, by making more use of clever promotion techniques, intelligent businesses can gain more customers by offering something a bit different, build up their customer databases and NOT set themselves up for problems in the future by having to cut their prices now in order to survive.
About the Author
Annabel Gilmour has worked in Sales Promotion for a number of years and her promotional portfolio includes promotions ranging from very big collector schemes for Persil, and The Daily Mail through to small money back guarantees for 3M and an awful lot in between. She can be contacted via her corporate website at: www.madabouthandling.com