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MP74028

MAPS PROMOTIONS AND INCENTIVES 1998

Overview

Table of Contents

Executive Summary

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EXECUTIVE SUMMARY

The sales promotion industry has been growing steadily since its development over 30 years ago. It is a relatively new industry, and one of the fastest growing sectors in the marketing spectrum. The industry was relatively unaffected by the recession as marketers turned away from expensive main media advertising in favour of cheaper promotional activity.

A number of factors are currently influencing the market. Sales promotion is controlled by a closely monitored code of practice operated on a self-regulatory basis. The code includes complex conditions concerning the advertising and promotion of specific products and services, and governing particular promotional techniques.

Currently each European country has its own laws and regulations. In some ways these make pan-European promotional activity very difficult not least because there are very restrictive codes of practice in some countries. The European Community’s plans to harmonise sales promotion in Europe are likely to change this environment. However, pan-European promotional activity is also limited by cultural differences and language barriers.

Promotional activity originated in order to increase the volume of sales of a product over a particular period of time. Promotional practices have since become more sophisticated and are used to enhance brand image. Brand loyalty is currently a focus of marketing activity due to the increasing diversity of product and services offered to the consumer. In addition, brand loyalty is being challenged by retailers attempting to establish store loyalty amongst consumers.

The promotions and incentives market is currently worth approximately £8.2 billion in the UK. This is divided into two main sectors; trade promotions accounting for 60 percent of the market; and consumer promotions accounting for 40 percent.

Consumer promotions are no longer focused on the fast moving consumer goods (fmcg) sector. They are operational in almost every retail and service industry, from basic products such as food and clothing, to luxury goods, travel services, financial services and public sector organisations.

Consumer research revealed that the most influential forms of sales promotion are free extra product and price discounts, influencing 88 percent and 79 percent of consumers’ buying behaviour respectively. In-store display, free samples, and charity linked promotions are also considered likely to influence purchasing decisions by a high proportion of consumers. In contrast, competitions and exclusive offers requiring payment and proof of purchase are likely to influence the buying behaviour of less than a quarter of consumers.

Consumers most likely to be influenced by any typed of sales promotion are women and young people. Furthermore, promotions appeal to consumers with children, and those in social classes C2 and DE.

Trade promotions usually involve price discounts to the wholesale or retail trade. Free gifts or premiums and competitions are also popularly used by manufacturers to persuade intermediaries to push sales of their products. Incentives to employees, particularly sales personnel are shifting from financial incentives to those which offer employees recognition and prestige. Incentive travel and company events are other methods increasingly used to motivate staff.

There are a variety of promotional techniques in current use, each with its own set of benefits and disadvantages both to the recipient and to the promoter. Single promotional techniques are rarely used in isolation; each promotion is likely to involve a combination of different offers. Certain techniques lend themselves to being used in conjunction with others and promotions are designed to maximise upon this.

Consumer promotions are those where the consumer either receives something for free, saves money, or has the opportunity to enter a competition. This may or may not require the consumer to actually purchase the product or require repeat purchases. Trade promotions involve price deals, discounts depending on performance, subsidies for advertising and co-operative advertising, and trade premiums and competitions.

Suppliers to the promotions and incentives industry are sales promotions agencies, including small specialist consultants, and large advertising agencies; promotional merchandising companies, which include a multitude of manufacturers and distributors of all manner of premium products; and manufacturers and service providers who run sales promotions on their products and services.

There are a variety of distribution methods and communications used by promoters. The majority of promotions are run through retailers. These are communicated through on-pack messages and via large in-store displays. Sales promotions are also communicated through the media, often in conjunction with other advertising activity associated with the product or service. Direct marketing activity such as direct mail is increasingly used to communicate promotions and incentives, particularly for distributing free samples, money-off coupons and to advertise competitions and free prize draws. Another method, field or event marketing, is often used for new product launches since events can attract a lot of attention and publicity.

The UK sales promotion industry is forecast to rise 30 percent to reach £10 billion by the year 2003, indicating a faster growth rate than in the past five years. However, changing European legislation could affect growth, and will certainly affect the dynamics of the market.

European harmonisation of sales promotion activity is anticipated to result in the imposition of restrictive codes of practice in the UK. The EC is currently assessing the restrictions imposed on other member states to determine whether or not they should be implemented across the board as part of EU law.

In addition to this, there are current concerns over certain promotional techniques, particularly free prize draws and competitions, due to their often misleading nature. The sales promotion industry is under scrutiny with regards to such promotions especially those aimed at under 16s. Furthermore, it is almost certain that there will be further limitations on tobacco promotions and possibly those relating to alcoholic beverages.

Manufacturers face increasing competition from retailer loyalty schemes. Retailers have increased their power over manufacturers via these schemes by collecting a wealth of information on their customers. However, information on consumer behaviour is about to be made more available to manufacturers and retailers alike with the advent of digital television and widespread use of the Internet.

Text © 1998 MAPS

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Last updated by Duncan Nottage 9th February 1999