Promotion Through the Marketing Channel

1. Part 3: Managing the Marketing Channel Promotion Through the Marketing Channel

2. Channel member support • Pull & Push Promotional Strategies • Promotion through channel members • Push promotion research findings • Basic Push promotional strategies • 4 types of “kinder & gentler” push promotion strategies

3. Channel Member Support 1 Why is channel member support one of the major tools of the manufacturer’s promotional mix? Most products and services are not sold directly to final customers.

4. Pull Strategy versus Push Promotional Strategies 2 Pull Strategy Push Strategy Manufacturer builds strong consumer demand for a product to force members to automatically promote the manufacturer’s product because it is in their obvious self-interest to do so. Manufacturer develops mutual effort & cooperation in the development & implementation of promotional strategies by working directly with members to develop strong & viable promotional support.

5. Promotional Strategies Pull Strategy Push Strategy Manufacturer Manufacturer 1* † 2 3 Channel members Channel members Final users (consumer or industrial) Final users (consumer or industrial) *Numbers indicate sequence of flows † Sequence of flows is simultaneous Promotion flow Negotiation flow Product flow

6. Promotion Through Channel Members 3 Strategies that are part of an overall program of manufacturer support of channel member needs Strategies that involve channel members & Stand a higher probability of being favorably received by the channel members

7. Push Promotion Research Findings 4 1. All of the studies suggest that ad hoc, quick-fix, and frequently offered push promotions do not foster high levels of channel member support on a consistent basis.

8. Push Promotion Research Findings 2. Push promotions should be viewed as part of strategic channel management rather than as mere tactical actions to elicit quick channel member responses to sell more products.

9. Push Promotion Research Findings 3. Given the wide range of factors that can affect channel members’ responses to promotions, manufacturers should study channel members’ needs carefully before launching major push promotions.

10. Push Promotion Research Findings 4. A tradition of post-promotion (follow-up) research to evaluate channel member responses to push promotions is needed if manufacturers expect to make steady progress in improving the effectiveness of push promotions.

11. Push Promotion Research Findings 5. Despite the manufacturer’s best efforts, large and powerful channel members will inevitably come into conflict with the manufacturer over promotional issues because their interests and goals will at times diverge.

12. Basic Push Promotional Strategies 5 Cooperative Advertising Promotional Allowances Slotting Fees Displays & Selling Aids In-store Promotions Contests & Incentives Special Promotional Deals & Merchandising Campaigns

13. Cooperative Advertising Typical Strategy: A sharing in the cost on a 50–50 basis up to some percentage of the retailer’s purchases from the manufacturer Administration: Effective administration by manufacturer is necessary to avoid abuses & to help secure cooperation from channel members 2. Channel manager must be sensitive to channel members’ primary concern about this strategy

14. Promotional Allowances Typical Strategy: Manufacturer offers channel member a direct cash payment or a certain percentage of the purchases on particular products Administration: Manufacturer should conduct research to determine whether it is getting its money’s worth in terms of retailer cooperation and follow-through

15. Slotting Fees Typical Strategy: Payments by manufacturers to persuade channel members, especially retailers, to stock, display, and support new products Administration: Joint sponsorship of research between retailers and manufacturers on effects of slotting fees on various topics could help alleviate conflict

16. Slotting Fees • Manufacturer pays retailer to get a product into a store and/or gain prominent placement. • Thousands of new grocery products per year • Grocery stores often stock 30-45 thousand items • There is room for only about 5% of 15,000 new grocery products each year. • Slotting fees help ensure grocer profits on a product, help balance risk of trying unknown product. • Grocery is a narrow margin business, slotting fees can represent a significant revenue source.

17. Displays and Selling Aids Typical Strategy: Include point-of-purchase (POP) displays, dealer identification signs, promotional kits, special in-store displays, & mailing pieces Administration: Channel manager should make the effort to see whether the firm’s selling aids and displays are serving any useful purpose

18. In-Store Promotions Typical Strategy: Short-term events designed to create added interest and excitement for the manufacturer’s products Administration: The planning of a successful in-store promotion should always include considerations of the potential benefits for the retailers involved.

19. Contests and Incentives Typical Strategy: Techniques that manufacturers use to stimulate channel member sales efforts for their products Administration: Manufacturer should put much effort into determining the view of channel members toward this form of promotion

20. Special Promotional Deals & Merchandising Campaigns Typical Strategy: Include a variety of push-type promotional deals such as discounts to channel members to encourage them to order more products Manufacturers need to develop carefully planned strategies that are based on knowledge of channel member needs and that take a long-term perspective on promotion through the marketing channel Administration:

21. 4 Types of “Kinder & Gentler” Push Promotion 6 Training Programs Quota Specification Missionary Selling Trade Shows

22. Training Programs Wholesale: Help wholesalers’ knowledge, selling techniques, and skill in counseling customers they call on Retail: Help retailer’s product knowledge, selling techniques, and counseling customers on product usage Pro: Manufacturers can assist wholesalers & retailers by helping to offset the cost. Con: There is often little time for training.

23. Quota Specification Sales volumes that manufacturers specify for channel members to generate during a certain time period • Pros: • Can amount to a substantial sum and can make a major difference in the dealers’ overall profit picture • Can be effective in improving channel member promotional support • Cons: • If presented in a coercive fashion, it can produce ill will and conflict rather than support • Channel members may ignore quota if manufacturer’s line does not make up an important part of the member’s product mix

24. Missionary Selling Manufacturer’s salespeople who are specially assigned to supplement the selling activities of channel members • Pro: • A useful strategy when channel members lack sales capacity or competence to handle tasks assigned to them • Useful when channel members desire this service • Cons: • Expensive • Can cause conflicts in the channel • Some members view these salespeople as intruding on the time of their own sales force

25. Trade Shows Annual events organized by associations in particular industries • Pros: • Opportunity for manufacturer to sell existing & new channel members substantial quantities of new products face-to-face • A chance for manufacturers to socialize with channel members • Creates a sense of pride and belonging in channel members that sell its products

26. Discussion Question #1 In November of 2010, Lowe’s, the nation’s second largest home improvement retailer, ran a day-after-Thanksgiving Black Friday promotion using Facebook. Lowe’s picked out several items that were offered at incredibly low prices (typically 90% off). Then the heavily discounted merchandise was offered to Lowe’s’ Facebook fans and was limited to the first 100 consumers that checked out with the items at Lowes.com. Lowe’s believed that offering this new “giveaway” via Facebook would create a lot of buzz, which in turn would accelerate the growth of Lowe’s’ fans on Facebook. These Facebook fans, Lowe’s hoped, would not only stay in touch but would be more inclined to become loyal Lowe’s customers because the regular and continuous interaction with the home improvement retailer via Facebook would evolve into a real relationship between Lowe’s and its Facebook fans rather than just a retailer selling home improvement products to customers. If you were the manufacturer of any of the items used in Lowe’s’ Facebook promotion, what might you be worried about with regard to Lowe’s’ Facebook promotional strategy? Do you think the worry is justified? Discuss.

27. Discussion Question #6 ArisIsotoner, a division of Sara Lee Corporation, is one of the world’s largest manufacturers of gloves. It was the first company to put gloves in boxes and its four-way stretch fabric, which enables it to offer one-size-fits-all for most of its products, has made it unique in the industry. But what makes this company even more unusual is that it does 75 percent of its annual sales in just five weeks—the period from Thanksgiving to Christmas. The company has learned from experience that point-of-purchase display is the key to capitalizing on this brief window of sales opportunity, because this five-week period is when store traffic is highest and when impulse buying is at its peak. Thus, ArisIsotoner puts most of its promotional emphasis on designing and getting retailers to use POP displays. For example, one of its newest display units, costing about $200 each, uses all neutral colors so as to blend with any retailer’s décor. Why do you think ArisIsotoner has been so successful in employing POP as its key promotional tool in a retail environment that is often hostile to POP?

28. Discussion Question #7 Gillette, now a division of Procter & Gamble, has developed its own iPhone application called “uArt.” This app enables consumers to upload a picture of themselves and then use the Gillette Fusion razor (your finger that shows up as a Fusion razor on the iPhone screen) to virtually shave and then create many facial hairstyles and see the results of the various looks on the iPhone screen. Gillette believes that reaching customers and potential customers via an entertaining but potentially useful iPhone app is not just a cute app that its customers “will get a kick out of,” but has become a necessary part of its promotional mix to stay connected with its customer base, especially its younger customers. Do you agree with Gillette’s position? Why or why not? How might Gillette’s iPhone app promotional strategy affect retailers selling Gillette products?