An Evaluation of the Effectiveness of Premiums Promotion, Limited

Qing Lu 2111573 10 weeks Business M. Sc. International Business Permission given to use this project Word Count: 2824 An Evaluation of the Effectiveness of Premiums Promotion, Limited- time Discount and Loyalty Card Promotion—Based on Product Life Cycle 31 August 2012 Abstract In recent years, sales promotion tactics are extensively used to achieve different marketing targets.The aim of this project is to analyze the effectiveness of premiums promotion, limited-time discount and loyalty card promotion according to the marketing targets in the first three phases of product life cycle, which can help companies maximize the effects of sales promotion. The specific marketing targets in the first three stages of product life cycle are discussed and the effective sales promotion tactics are analyzed, based on a rich literature about sales promotion.The potential risks in the implementation process need to be taken into account and the possible solutions are proposed to help companie s reduce the unnecessary losses. This may be of interest to marketers, which intend to enhance the competitiveness of companies.   List of references Introduction As the competitive pressure on market increases, the studies on product life cycle are paid more and more attention by marketers in recent years. On one hand, product life cycle can direct companies to set the clear marketing target in each phase. On the other hand, it can help marketers select the effective sales promotion tactics to achieve each marketing target.The selection of sales promotion strategies in each stage of product life cycle seems to be of considerable importance in achieving different marketing targets. The study by Yeshin (2006) suggests that premiums promotion, limited-time discount and loyalty card promotion play marked roles in the first three stages of product. Moreover, it appears to be necessary for marketers to set the marketing targets in different stages of product life cycle, to select the e ffective means of sales promotion, and to be aware of possible solutions for dealing with potential risks.As Kotler and Armstrong (2001) point out, companies can induce customers to know, to use and to be loyal for their products by the effective means of sales promotion, even if customers may have different buying habits, product preference and purchase motivation. The purpose of this paper is to analyze the effectiveness of premiums promotion, limited-time promotion and loyalty card promotion according to the three marketing targets in the first three phases of product life cycles, which tends to help companies expand new product awareness, increase market share and maintain customer loyalty. Features nd marketing targets of the first three stages of product life cycle will first be presented. The reasons for the effectiveness of the three marketing tactics mentioned above will then be analyzed, with a focus on the three corresponding marketing targets. The limitations and the pos sible solutions will finally be discussed to help firms reduce the potential risks. 1. Features and Marketing Targets of Product Life Cycle When a new product is launched into market, it will go through four stages of product life cycle, which are introduction, growth, maturity, and decline (Kotler and Armstrong 2001).The first three stages, however, may be the optimal period at which the effect of sales promotion can be maximized. Therefore, features of the first three stages and the corresponding marketing targets will be discussed in the following subsections. 1. 1 Introduction stage Introduction stage refers to a period at which new products are first introduced into market (Ibid). In this phase, the growth of sales tends to be slow because much time and money need to be invested to attract the resellers, to inform customers of new products, and to encourage the trial (Ibid).In other words, customer demand for new products should be aroused in the introduction stage. As Bhasin ( 2011) points out, marketers should induce customers to accept new products, thus inspiriting their desires for these products. As a result, the marketing target in introduction stage appears to maximize new products awareness and to stimulate customers to try out new products. 1. 2 Growth stage Growth stage refers to a period at which new products are widely recognized in the market, and more and more customers are willing to follow their innovators (Kotler and Armstrong 2001).The market share is likely to be quickly expanded in this stage as long as marketers attempt to form a purchasing trend. According to the illustration by Bhasin (2011), growth stage offers the appropriate opportunity to markers to occupy more market share due to the high growth rate of sales. Hence, the marketing target in this phase should be to quickly boost sales volume, so as to create a customer trend that more new customers could be attracted to follow. 1. 3 Maturity stageIt is widely agreed that sales i n the maturity stage continue to grow at a relatively slow rate until it reaches the peak, which means the number of customers seems to maintain relatively stable (Kotler and Armstrong 2001, Janotta 2012). There is far less agreement, however, about customers’ purchasing behaviors in this phase. Yeshin (2006) concludes that it may be a competitive period in which the existing customers are likely to buy other brands. In fact, competitive products are likely to flood into the marketplace in the maturity stage, providing more options for customers.Thus, if the effective measures are not taken, companies would lose a portion of market share. Likewise, Bhasin (2011) also illustrates that fierce market competition probably occurs in the maturity stage because some competitors tend to drive down the prices under the cost, in order to draw the attention of customers. Namely, the risk of brand switching in this phase seems to be high, so the marketing target should be set to retain c ustomer loyalty.In conclusion, the first three stages of product life cycle have their own features, so different marketing targets need to be set in different phases: new products awareness should be expanded in the introduction stage, sales volume should be quickly boosted in the growth stage, and customer loyalty should be maintained in the maturity stage. Then, effective sales promotion tactics will be analyzed in the next chapter, according to the marketing targets in the three phases. 2. Analysis of the Three Sales Promotion Tactics 2. 1 Premiums promotion for new product awarenessPremiums promotion refers to free products or free services that can be obtained by customers in addition to the main purchase (Yeshin 2006). Gift promotion plays an important role in new product introduction. First of all, free gifts as incentives can encourage customers to try out new products as well as inform customers about new demand. For example, 200,000 Quattro for Women razors were given out as free gifts in American by Schick, which allowed Quattro to receive the recognition of most female customers (Pride and Ferrell, 2010).It seems that free gifts are effective to stimulate customers to generate interest in new products. Yeshin (2006), however, argues that premiums promotion may reduce the value of brand due to the possible hazard caused by the free gifts in the product contents. For example, in order to attract children, small toys are often inserted into snakes as premiums, which are likely to arouse the controversy about food security, thereby resulting in brand crises. Nevertheless, premiums still contribute to expand new products awareness.Pride and Ferrell (2010) illustrates that the Promotion Marketing Association’s Product Sampling Council, according to an investigation, showed that 92%of participators in this survey indicated that free samples motivated their trials for new products. Besides, the free experience as a kind of intangible gifts could al low customers experience multi-value such as relational, emotional and behavioral value, which increases brand popularity and affinity. As a case in point, the customers who buy the new item in Burger King could watch the latest Star Wars film for free (Yeshin 2006).Not only did the famous film expand the new item awareness, but also increased customers’ affection for Burger King. In fact, the reason why premiums promotion has a great appeal to customers tends to be that it gets hold of customers’ mentalities. According to the study by Yeshin (2006), customers usually get used to regarding themselves as the weaker end of the deal, so the free products or services as the compensatory gifts can incentivize customers. Consequently, premiums as incentives can benefit to expand new products awareness in the introduction stage. 2. 2 Limited-time promotion for quick boost to salesA promotional deadline is set for customers to ensure that the volume of sales can be boosted as soon as possible, which is called limited-time promotion (Reid and Bojanic 2010). The advantage of limited-time discount lies in a short-term surge in sales, which enables companies to rapidly grab market share in the growth phase. Limited-time discount seems to create a sense of excitement and competition and a tense atmosphere. Customers tend to be attracted by excitement that limited-time discount create. Or rather, what customers love may not be products themselves but the sense of getting a good deal.Kolb (2005) also indicates that even the customers with high wages like to feel that they are smart in this way. In addition, as this kind of discount is temporary, which will restore regular prices soon, it creates a threat to customers, aiming at stimulating them to make immediate purchase (Gaffney and Francis, 2009). Such a threat appears to take effect on rapidly increasing sales. According to Reid and Bojanic (2010), Marriott International, Hyatt Hotels and Resorts, and Hilton gave discounts to customers on weekends as so to quickly boost the volume of sale, which had gotten great success.Hence, if limited-time discount is used in the growth stage, market share can be quickly expanded by increasing sales in the short term. 2. 3 Loyalty card for customer loyalty Loyalty card is used to earn points for purchasing certain products or shopping at certain retailers. When customers collect enough points, these can be exchanged for money, goods or other offers (Kotler and Armstrong 2001). One of the main functions of loyalty card is to maintain the long-term relationship between customers and brands. It motivates customers to keep buying products with fixed brand, thus strengthening customers’ brand loyalty.A study by Lancaster and Massingham (2011) shows that Tesco owed its success in becoming the largest grocery supermarket retailer in Britain to introduction of loyalty card, since loyalty card was used to reward regular purchase, thus enhancing consum er loyalty to Tesco. Furthermore, loyalty card is felt to be effective in analyzing purchasing behaviors of the existing customers and directing enterprises to improve the operation of businesses, which thus benefits to build long-lasting relationship with existing customers.As Humby, Hunt and Phillips (2007) conclude, shopping habits, brand preference and economic capability of certain customer groups can be analyzed through loyalty card data, which contribute to firms to adjust marketing strategy. As a matter of fact, most marketers concern about customer loyalty in the maturity stage in that many competitive brands have piled into the market, which may lead customers to switch other brands.Liljenwall(2004) points out that it is difficult to be loyal for most products that customers purchase, even though many of them have brand preference for commodities. Indeed, they attempt to seek the best one by constantly changing brands. However, it seems that loyalty card reduces the risks of brand switching by offering discounts for regular purchases. When facing to different brands with same quality, customers usually would like to purchase fixed brand in return for discount. That is to say, loyalty card promotion can effectively maintain customer loyalty in the maturity stage.In conclusion, the three sales promotion tactics are effectively used to help companies to achieve the marketing targets in different phases: premiums promotion expands new products awareness in the introduction stage since this way could induce consumers to try out new items; limited-time promotion probably helps companies increase market share in the growth stage through boosting the volume of sales as soon as possible; loyalty card seems to be effective to maintain customer loyalty in the maturity stage because marketers would like to provide discount or gifts in return for regular purchase.Nonetheless, some potential risks may occur in the implementation. In order to maximize the effects o f sales promotion on different phases of product life cycle, limitations and possible solutions of the three means of sales promotion will be discussed in the next main section. 3. Limitations and Possible Solutions 3. 1 Risks of premiums promotion There seems to be two limitations in premiums promotion. First, it is difficult for marketers to ensure that premiums or free samples are attractive enough to their target customers (Ace 2002).In the introduction stage, new products usually need to be widely aware, so if premiums cannot arouse customers’ interest, marketers may lose chances to convince customers to try out their new products. Second, the cost of premiums and the value that customers perceive should be balanced. As Yeshin (2006) illustrates, the low-cost premiums may be perceived as low quality, thus reducing the brand value of new products themselves, whereas free gifts with high quality often cost much.Hence, it is felt to be difficult for marketers to forecast th e perceived value of premiums and to ensure that premiums can enhance new products reputation. 3. 2 Risks of limited-time discount Two possible limitations should be taken into account when limited-time discount is implemented. First, overusing limited-time discount probably shakes consumers’ decision for instant purchase in that they get used to waiting for discounts (Hendershot-Hurd 2007). As most customers are waiting for discount, it seems possible that the growth rate of sales becomes low in the growth stage.Second, if the time interval between the end of a limited-time discount and the start of the next limited-time discount is short, the perceived value of products may be reduced (Devlin, Ennew, McKechnie, and Smith 2007). In other words, Customers may regard the promotional price as the actual value. As a result, once restoring the original price, products may become unacceptable. 3. 3 Risks of loyalty card promotion The security of personal data caused by loyalty car ds may lead to customer dissatisfaction (Janotta 2012).For example, customers probably regard loyalty cards as source of spamming, thereby refusing to use loyalty card; they may also feel that individual privacy is offended, which could directly decrease customer satisfaction and destroy customer loyalty; if rewards cannot satisfy customers, they are likely to lose interest in loyalty card. As Janotta (2012) concludes, loyalty card system often disappoints consumers because of unattractive rewards, harsh requirements for exchange, and time and place limit. 3. 4 Possible solutionsWith regard to the limitations above, the possible solutions are proposed by Yeshin (2006) and Kotler and Armstrong (2001) as follow: * A small quantity of premiums should be first used at the beginning of introduction stage for market test, and a mass of premiums or free samples should be then used to expand new products popularity. * Time limited discount should be reasonably used and the promotion cycle s hould be identified by market investigation * Integrated promotion replacing single promotion should be used to stimulate customers in the first three stages of product life cycle.These possible solutions enable companies to reduce the risks in the implementation, thereby avoiding the unnecessary losses. All in all, the risks of sales promotions should be considered by marketers. First, low attractiveness and low perceived value of premiums could reduce the interest of customers in new products. Second, overuse and short cycle of limited-time promotion tend to compel companies to cut prices in that customers may overly relay on discount and reject to purchase at the original price.Third, the invasion of privacy caused by loyalty cards can result in decreasing customer satisfaction since customers could feel to be offended. Furthermore, in terms of possible solutions, early market test on a small scale enables companies to adjust promotion strategies, appropriate promotion cycle prob ably stimulate customers to make instant purchase decision, and integrated promotion mode could make better use of the advantages of sales promotion and compensate for the disadvantages of each other. Conclusion Sales promotion tactics seems to be of considerable importance in achieving different marketing targets.This paper analyzed the effectiveness of three sales promotion tactics according to the three marketing targets mentioned above. First, premiums could encourage customers to try out new products, which are beneficial to expand new products popularity in the introduction stage. Second, limited-time promotion is used to increase sales as sons as possible, eventually occupying more market share in the growth stage. Third, loyalty card has great advantage in keeping long-term relationship with existing customers, which could reduce the risk of brand switching in the maturity stage by rewarding regular purchase.Nevertheless, it seems to be inevitable that the three sales promot ion strategies have limitations. First of all, the quality and attractiveness of free gifts may directly influence the perceived values of new products. Furthermore, limited-time discount may stop products from restoring the original prices since customers prefer to wait for discounting. Finally, even if companies may obtain useful information about customers through analyses of loyalty card data, customer satisfaction is probably reduced due to the invasion of individual privacy.The possible solutions can be summarized as market test on a small scale, appropriate promotion cycle, and integrated promotion mode, which could reduce the risks above and maximize the effects of sales promotion. In discussing process in premiums promotion, limited-time discount and loyalty card promotion, it was conclude that the three tactics of promotion can be effective to help companies achieve the marketing targets in the first three phases, based on a rich literature about sales promotion.However, i t should be noted that a detailed analysis of other tactics of sales promotion realizing different marketing targets is not involved in this paper and future work could be done in this area. This would mainly focus on online marketing and could help marketers enhance the competitiveness of online marketing by appropriate strategies of sales promotion.References Ace, C. (2002) Effective Promotional Planning for e-Business. Oxford: Butterworth-Heinemann Devlin, J. , Ennew, C. ,McKechnie, S. , and Smith, A. (2007) ‘A study of time limited price promotions’. Journal of Product & Brand Management 16 (4), 280 – 285 Gaffney, S. and Francis, C. (2009) Honesty Sells: How to Make More Money and Increase Business Profits. Hoboken: John Wiley & Sons Humby, C. , Hunt, T. , and Phillips, T. (2007) Scoring Points: How Tesco Continues to Win Customer Loyalty. London: Kogan Page Hendershot-Hurd, K. (2007) Beyond the Niche: Essential Tools You Need to Create Marketing Mess ages that  Deliver Results. Swindon: Acuminate Janotta, S. (2012) Loyalty Cards in the Apparel Retail Industry. Munich: Grin Verlag Kolb, B. M. (2005) Marketing for Cultural Organizations. London: Thomson Learning Kotler, P. and Armstrong, G. (2001) Principles of Marketing. Upper Saddle River: Prentice Hall Lancaster, G. and Massingham, L. (2011) Essentials of MarketingManagement. Abingdon: Routledge Liljenwall, R. (2004) The Power of Point-of-Purchase Advertising: Marketing At Retail. Washington, DC: Point-Of-Purchase Advertising International   Pride, W. M. and Ferrell, O. C. (2010) Marketing. Stamford: Cengage Learning Reid, R. , D. and Bojanic, D. , C. (2010) Hospitality Marketing Management. Hoboken: John Wiley & Sons Yeshin, T. (2006) Sales Promotion. London: Thomson Learning