Premium based promotions of branded washing powders

Role of sales promotion has been increasing since the last two decades. This has raised the concerns of the media advertising supporters (Low and Mohr, 2000). Companies are spending more on sales promotion than on advertising. According to one estimate 60 to 75 percent of promotional budget spend on sales promotion while the remaining on media advertising. Even companies use ads as a medium to communicate latest sales promotion offer (Tenser 1996, cited in Low and Mohr, 2000).

As the importance of sales promotion has increased various studies have been conducted on this topic to know its influence on consumer behavior. Marketers are keen to gain deep insight of the consumer mind, like how consumer perceives various promotional offers by the company. Do these offers really alter the consumer buying behavior? Are there any other factors responsible to increase the effectiveness of these promotional offers (D’Astous and Jacob, 2001; D’Astous etal.2004)?

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Previously sales promotion-to-advertising ratio was 40:60. Now this ratio has reached to 75% of combined budget for many consumer-packaged-goods companies. Numerous factors are responsible to this rapid growth in the use of sales promotions such as premiums, coupons, sweepstakes and contests, rebates. The worldwide recession is primarily responsible for the increased use of promotions. The consumer now has less disposable income and as a result, is more conscious of pricing and value for money. Most marketers have found that customers like certain brands but they want some extra benefits to buy those brands. Sales promotional programs if properly designed and implemented provide customers with those extra benefits (Blattberg & Neslin, 1990).

This study aims to find out consumer reaction to the sales promotion. The study will also examine factors responsible for creating positive or negative consumer reaction to sales promotion.

Problem Statement:

Consumers show different reactions to premium-based promotional offers. Some people appreciate them whereas other takes it as manipulation intent by the manufacturers. There is need to identify those factors which are responsible for varying consumers responses to premium-based promotions. This research aims to identify consumer-related factors responsible for creating positive consumer reactions to promotional offers.

Research Objectives:

To measure consumer reactions to the premium based sales promotion offers made by the branded washing powder companies.

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To find out some of the factors responsible for the consumer appreciation of the premium based promotional offers.

To explore the relationship between various attitudinal factors and consumer reactions to the premium based sales promotion.

To study the relationship between individual characteristics and consumer reaction to the premium based sales promotion.

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Significance of the study:

Few researches have been conducted on premium-based sales promotions as compare to price based sales promotions. There is need to study this marketing tool in depth, as companies are spending major portion of promotional budget on sales promotion. To break clutter these companies do not simply rely on price discounts, instead, they offer incentives in the form of attractive gifts to promote their brands.

This study is helpful for marketers, of convenience goods generally and laundry detergents specifically, to design effective premium-based sales promotion strategy. The study highlights the important psychological and behavioral characteristics of target audience that influences the consumer reactions to premium based promotion.

Branded washing powders category was selected for the purpose of study because washing powder usage in Pakistan is constantly increasing. Data shows that it has been increased from 9% in 1981 to 42% in 1999 (Gallup Pakistan poll findings on washing powders, 1999). Companies like Unilever and Colgate Palmolive offers numerous premium-based promotions to their consumers to increase market share.

Scope and limitation of the study:

This is survey based study conducted in Karachi, Pakistan in 2011. It has involved female buyers of five major branded washing powders (Surf Excel, Ariel, Brite Total, Express Power, and Bonus). Respondents’ age group starts from 20 to onwards. Working women and housewives both were surveyed. Sample was selected on convenience basis from super markets and different residential areas mainly from Gulistan-e-Jauhar and Gulshan-e-Iqbal, few samples were collected from P.E.C.H.S., Defence, and North Nazimabad. Sample size of this study comprises of 150 respondents. Primary data was collected through close ended structured questionnaire. Consumer responses were measured on 5-point Likert scale. Secondary data was collected through various studies and research publications in the field of sales promotion by foreign researchers in different time periods.

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This research aims to study the attitudinal and behavioral aspect of consumers to various sales promotional offers by branded washing powder.

While conducting research the researcher has faced few limitations. First of all, time was limited and short. Secondly, questionnaire was in foreign language (English) and hence it was difficult for many respondents to answer this with ease. Questionnaire was lengthy and no incentives were offered on filling, therefore it was little difficult to convince the people to fill the survey questionnaire carefully.

Research Methodology:

This research is quantitative in nature. Consumer reaction is measured on Likert scale by using close ended/ structured questionnaire. Questionnaire was developed by using Zaichkowsky’s (1985) interest measurement scale to measure interest in product category and in premiums. Compulsive buying tendencies were measured by Faber and O’Guinn (1992) cited in Roberts and Jones (2001). For measuring attitude toward the brand, scale described in Astous and Jacob (2001) was used. Burton et al. (1998) scale was used to measure deal proneness. Richins and Dawson (1990) materialism scale was used to measure materialism. Consumer reactions to premium based promotions were measured with the help of scale used in d’Astous and Jacob (2001). Four types of premium based promotions were selected for study. These are (i) Premiums by Lucky Draw (ii) Bonus Pack (iii) On Pack (iv)Near Pack.

Convenience sampling was used to draw samples. Data was gathered from residential areas and from outside of different super markets of Karachi like Imtiaz Store, Makro, ARYCash & Carry. Total 150 surveys were conducted from female buyers.

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CHAPTER TWO

LITERATURE REVIEW

Sales promotion is a key element of promotional mix. Use to stimulate instant consumer demand if it is properly designed. Sales promotion can be defined as the technique used by manufacturers and sellers to generate short term sales by offering extra value and incentives to the customers on purchase of goods and services. Successful sales promotion results in greater brand value perception among consumers, traders, and business buyers. Consumer market sales promotion includes contests and sweepstakes, sampling, rebates, loyalty/ frequency programs, coupons, price-off deals, premiums, phone and gift cards, and event sponsorship (Semenik, 2002).

According to Belch and Belch (2004, p. 513) sales promotion can be defined as

“A direct inducement that offers extra value or incentive for the product to the sales force, distributors, or the ultimate consumer with the primary objective of creating an immediate sale”.

Sales promotion can be use to achieve various objectives. A company can offer price discounts or coupons to generate short term sales. It may also arrange contest and sweepstakes to increase the consumers’ involvement with the brand. Samples, coupons, and rebates are frequently used to attract new customers. Whereas other sales promotion techniques such as loyalty/ frequency programs and brand placements (on a TV shows or in a movie) rewards the customers for being associated with the brand (Semenik, 2002).

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Sales promotion is widely use in consumer markets and in business markets as well. Convenience goods (frequently purchased items) like detergents, soaps, toothpaste etc. where perceived differences among the brand is less and brand switching is frequent, price reductions in the form of coupons are most effective sales promotion tool for this category (Semenik, 2002).

Sales Promotion Theories

There are many theories which support the use of reward as a motivator.

Sales Promotion vs. Advertising

Sales promotion and advertising are greatly differ from each other although both are part of promotional mix strategy. Sales promotion focuses on stimulating short term demand and inducing product trial. Whereas with the help of advertising a company can create long term demand and ensure repeat purchase of the product. Sales promotion encourages brand switching unlike advertising that promotes brand loyalty. Sales promotion highlights price orientation of the product whereas advertising is image or feature oriented. Sales promotion gives quick and measureable results while advertising produces long term effects and difficult to measure results (Semenik, 2000). Sales promotion has financial appeal for customers and advertising has emotional appeal for customers (Belch and Belch, 2004).

The Importance and Increasing Use of Sales Promotion

Many managers try to reduce their huge sales promotion budget. Procter & Gamble by adopting an everyday-low-price strategy reduces its spending on trade promotion (Reitman, 1992 cited in Low and Mohr, 2000). P&G and other companies are trying to divert consumers from coupons consumption (Narisetti, 1997; Schrage, 1996 cited in Low and Mohr, 2000). Tenser (1996) cited in Low and Mohr (2000) argued that even though all these efforts has been made by the manufacturers to reduce the enormous amount spent on sales promotions every year, still almost 75% of marketing communications budget spend on these short-term activities by manufacturers.

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According to Mathews (1996) cited in Low & Mohr (2000) spending on trade promotion has increased from 50% in 1991 of total advertising and sales promotion budget to 58% in 1995 as estimated by A.C. Nielsen. Despite all the problems and risks involved with the sales promotion marketers continue to rely on this strategy as compare to advertising and allocating large budgets to sales promotion (Low and Mohr, 2000).

Thousands of new brands enter in the consumer market every year, making place among them and obtaining attention of consumer is a difficult task for marketers. Therefore, marketers use sales promotion techniques to generate trial by attracting customers. Media Clutter is also one of the reasons for increase in sales promotion (Semenik, 2000).

Consumer Response

Consumer response to promotions has been greatly changed. Customers are now seeking extra value on purchase of products. Sales promotion fulfills their expectations by providing them incentives on purchase of a particular good. This strategy helps in better positioning of brand in terms of value in customers’ mind. Brands are offering coupons, premiums, and price off deals to get chosen over competitors’ brands (Semenik, 2000). According to Cox Direct 20th Annual Survey of Promotional Practices (1998) cited in Semenik (2000) consumers give high weightage to coupons, price, and value for money and their 75% to 85% brand choice decisions are influenced by these factors.

Objectives of Consumer-oriented Sales Promotion

Generate trial purchase: Sales promotion helps in reducing the consumer’s risk of buying new brands (Semenik, 2000; Belch and Belch, 2004).

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Encourage repeat purchases: Coupons and frequency programs are used to stimulate repeat purchases and to induce brand loyalty (Semenik, 2000; Belch and Belch, 2004).

Encourage larger purchases and retaining current customers: Price reduction or buy 2 get 1 free kind of deals motivates the customers to purchase in larger quantities and increase consumers’ consumption and firms’ cash flow (Semenik, 2000; Belch and Belch, 2004).

New Brand Introduction: Sampling is commonly used sales promotion technique for introducing new brand in a market (Semenik, 2000; Belch and Belch, 2004).

Dealing with competitors: A firm can offer price off deals, in-package coupons or use a sweepstakes promotion to disrupt competitors’ new brand launch or new marketing campaign (Semenik, 2000; Belch and Belch, 2004).

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Focusing specific market: Contests and sweepstakes, events, coupons and sampling are special tools to target specific geographic, demographic, psychographic and ethnic market segments. When firms involve in local area marketing they offer coupons, samples, and bundle offer to promote their brand in that particular vicinity (Belch and Belch, 2004).

Strengthening brand equity and contributing to integrated marketing communications: Sales promotion as a part of promotional mix strategy provides further support to firm’s integrated marketing communications. It is also use to increase consumers’ interaction with the brand by involving them in contests and sweepstakes or by offering premiums (Semenik, 2000; Belch and Belch, 2004).

Premium Based Sales Promotion

Premium is an extra incentive offer (product or service) on purchase of a product or services either free or at a low price. It may or may not be related to the purchased product or service. Premium is a most popular form of sales promotion. `According to Bertrand (1998) cited in d’Astous & Jacob (2001) use of premiums in USA accounted for 18% sales increase in 1996 as compare to sales in 1995. Preston et al.(1978) cited in d’Astous and Jacob (2001) studied the effect of premiums on consumers in the banking sector. Study was conducted in two banks. Premium were used at one bank to stimulate new account openings, at other bank no such incentive were offered on new account opening. According to the study findings bank where no premium was used showed no significant changes in number of new account openings where as in other bank small increase was observe during the cookware campaign and 50% increase in demand was observed during the calculator promotion.

Premium whose perceived value is less or has no value at all in the consumer mind cast negative effect on brand image and attitude toward the brand. It was further argued that consumers react negatively to brands using worthless premiums and marketing tricks to gain customer attraction. One study showed that 22% less brand selection was occurred on free subscription offer of Audio / Video magazine compare to when no premium was offered (Simonson et al.1994, cited in d’Astous and Jacob, 2001).

Extra quantity or bonus pack has no significant impact on consumer purchase intention and stock building tendency (Ong 1999, cited in d’Astous and Jacob, 2001).

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As discussed earlier a premium is an item offered free or at a low cost and all marketing authors agreed on this definition of premium. However there is disagreement among authors on types and number of premiums. Kotler and Turner (1998) cited in d’Astous and Jacob (2001) stated that there are four types of premiums:

With pack premium

Reusable container

Free-in the mail

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Self-liquidating

Where as Rossiter and Percy (1997) cited in d’Astous and Jacob (2001) identifies two categories:

Free premiums ( Samples, Coupons, or refund offers)

Self-liquidating premiums

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D’Astous and Jacob (2001) classified premium into two main categories as

Direct premiums

Delayed premiums

Detail classification of premium as described by d’Astous and Jacob (2001);

Near pack

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In pack

On pack

Bonus pack

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Delayed free with proof(s)

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Delayed not free with proof(s)

This has close resemblance with Institute of Sales Promotion (ISP) in the UK.

Deal Proneness

Deal proneness is defined as

“A general proneness of consumer to react to promotions because they are in deal form”

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(Lichtenstein etal.1990, cited in DelVecchio, 2005, pp.374).

Deal proneness does not refer to the actual purchase of the promoted product but it actually means that consumer will favorably evaluate the offer if it is in deal form. We can say that deal proneness is the mental tendency of the consumer to buy those products which comes in deal form. Several authors have argued that deal prone consumers attracted to price offers because they are in the form of deal and not because they offer lower price. It means deal prone consumers give more weightage to psychological benefits rather than monetary benefits (Lichtenstein etal. 1990; Ramaswamy & Srinivasan 1998, cited in DelVecchio, 2005).

Researchers have distinguished deal proneness into (a) active and passive deal proneness and (b) proneness to specific type of deals. Active proneness is when consumers are looking for deals before making purchases, whereas, passive deal proneness refers to when consumers take benefit of in-store deals (Bawa etal.1997; Henderson 1994; Lichtenstein etal. 1990, cited in DelVecchio, 2005).

A positive relationship exists between deal proneness and selection of promoted brands. Deal proneness may influence the consumer decision making by reducing the complexity of choice decision (DelVecchio, 2005). Some consumers associate value with the availability of deal (Zeithaml 1998, cited in DelVecchio, 2005). Research shows that deal prone consumers can not avoid a product which is on deal (Hackleman & Duker 1980, .cited in DelVecchio,2005) and will buy it anyway even if it is not desirable (Thaler 1985, cited in DelVecchio, 2005). Deal prone consumers must search for the deal while choosing among the brands occupying their consideration sets. They consider deal-availability as one of the major criteria for purchase decision making (DelVecchio, 2005). High deal prone consumers also appreciate the premium-based promotional offers and less likely to interpret such offers as manipulation intent by the manufacturers (d’Astous and Jacob, 2001). Hence on the basis of this following hypothesis is formulated;

H: Deal-prone consumer shows positive reactions to premium based promotional offers.

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Materialism

Materialism is a degree of importance an individual attach with the money and luxuries in life. Materialistic consumers often perform less careful shopping and are less attracted to promotional offers. Price consciousness is positively affected by materialism (Mehta & Keng, 1985). Materialism can be identified with its four variables which are possessiveness, envy, non-generosity, and preservation (Belk 1985, cited in Ahuvia and Wong, 1995). Possessiveness is defined as fear of losing possessions and tendency to gain control of more and more possessions (Ger and Belk 1993, cited in Ahuvia and Wong, 1995). Possessive individuals tend to save more and retain possession instead of disposing off. According to d’ Astous and Jacob (2001) consumer reactions to sales promotion is insignificantly related to individual materialism and is negatively influenced by general materialism.

Compulsive Buying Tendencies

Literature suggests that people are more prone to sales promotion offer if they have compulsive buying tendencies (Vicdan & Sun, no date).Compulsive buying is an abnormal consumer behavior and is termed as the dark side of consumption (Shiffman and Kanuk 2000, cited in Vicdan & Sun, no date). Compulsive buying can be defined as “chronic repetitive purchasing disorder in response of negative events or feelings” (O’Guinn and Faber 1989 cited in Vicdan & Sun, no date). Compulsive buyers are characterized by low self esteem, high levels of depression, anxiety, and they also show tendency to fantasize (O’Guinn and Faber 1989 cited in Vicdan & Sun, no date). Compulsive buyers are significantly affected by the point of sales promotions because of having fear that they would not get such offer in future after the end of promotional period (Rajagopal, 2008).

CHAPTER THREE

RESEARCH MEHODOLOGY

CONCEPTUAL FRAMEWORK AND RESEARCH HYPOTHESES

Conceptual framework for this study is adapted from the conceptual framework developed by d’Astous and Jacob (2001) for their study.

Consumer Reactions to Premium Based Promotional Offers

Appreciation judgment

Perceived manipulation intent

Attitudinal Variables

Interest in the product

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Attitude toward the brand

Interest in the premium

Individual Characteristics

Deal -proneness

Materialism

Compulsive buying tendencies

For this study, four types of premium based promotional offers commonly used by branded washing powder companies were selected.

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Premium (gift/extra incentive) received on participation into a lucky draw on purchase of the product e.g. on purchase of Colgate products of Rs. 500 worth, customer can win prizes through lucky draw or Surf Excel offered Mercedes car and other prizes through lucky draw on purchase of 1kg pack of Surf Excel.

Bonus pack (Product is offered in extra quantity on same price)

Near pack (e.g. A bucket is offered on purchase of 3Kg of surf excel )

On pack (e.g. Softlan or some other product of Colgate is offered and attached with the Brie total or Express power pack)

HYPOTHESES

Following hypotheses were developed on the basis of literature review and theoretical framework.

Hypotheses on Attitudinal Variables

H1: Consumer reactions to premium based promotions are positive if consumer has greater interest in the product category.

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H2: Consumer reactions to premium based promotions are positive if consumer has positive attitude toward the brand.

H3: Consumer reactions to premium based promotions are positive if consumer has greater interest in the premium.

Hypotheses on Individual Characteristics

H4: Deal-prone consumer shows positive reactions to premium based promotions.

H5: Materialism and consumer reactions to premium based promotions have positive relationship.

H6: Compulsive buying tendencies and consumer reactions to premium based promotions have positive relationship.

References

Ahuvia, A., & Wong, N. (1995). Materialism: Origins and Implications for Personal Well-Being. European Advances in Consumer Research , 2, pp.172-178.

Belch, G. E., & Belch, M. A. (2004). Advertising and Promotion: An Integrated Marketing Communications Perspective (6th ed.). Boston: McGrawHill Irwin.

Blatt, Blattberg, R. C., & Neslin, S. A. (1990). Sales Promotion: Concepts, Methods and Strategies. Prentice Hall.

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d’Astous, A., & Jacob, I. (2001). Understanding consumer reactions to premium based promotional offers. European Journal of Marketing , pp. 1270-1286.

d’Astous, A., Colbert, F., & Legoux, R. (2004). Consumer Perceptions of Promotional Offers in the Performing Arts: An Experimental Approach. Canadian Journal of Administrative Sciences , 21 (3), pp.242-254.

DelVecchio, D. (2005). Deal-Prone Consumers’ Response to Promotion:The Effects of Relative and Absolute Promotion Value. Psychology & Marketing , 22 (5), pp.373-391.

Gallup Pakistan poll findings on washing powders. (1999, December 17). Retrieved March 28, 2011, from Gallup Pakistan: http://www.gallup.com.pk/Polls/17-12-1999.pdf

Kotler, P., Cunningham, M. H., & Turner, R. E. (2001). Marketing Management (10 ed.). Toronto, Canada: Pearson Education.

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Low, G. S., & Mohr, J. J. (2000). Advertising vs sales promotion: a brand management perspective. Journal of Product and Brand Management , pp.389-414.

Mehta, S. C., & Keng, K. A. (1985). Correlates of Materialism: A Study of Singaporean Chinese. Associationof Consumer Research , pp. 326-330.

Rajagopal. (2008). Point of sales promotion and buying stimulation in retail stores. Retrieved March 15, 2011, from Social Science Research Network: papers.ssrn.com/sol3/papers.cfm%3Fabstract_id%3D1261570

Semenik, R. J. (2002). Promotion and Integrated Marketing Communications. Singapore: Thomson Asia Pte Ltd.

Vicdan, H., & Sun, J. (no date). TOWARDS A FRAMEWORK FOR UNDERSTANDING COMPULSIVE BUYERS ONLINE: EXPLORING THE EFFECTS OF ONLINE SALES PROMOTIONS. Retrieved March 15, 2011, from http://www.swdsi.org/swdsi08/paper/SWDSI%20Proceedings%20Paper%20S155.pdf

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