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CHAPTER ONE

INTRODUCTION

1.1 Background of The Study

The sales promotion industry has evolved tremendously within the past 30 years. “Traditional pull marketing involving advertising directly to consumers has given way to more targeted consumer promotions” (Messinger & Narasimhan, 1995). The 5th Annual State of the Promotion Industry, presented by the Promotion Marketing Association (PMA) on June 2003, confirmed the new trend: The year 2001 and 2002 changed the pace of marketing history, including promotion. In 2001 advertising experienced its greatest decline (-6.5%) since the 1930’s. Estimated promotion expenditures for 2001, while still in the “plus column” reflect the slowest rate of growth (+2%) since this report was developed in 1975. Historically, there may be a tendency to blame 2001 declines on the tragedies of “9/11”, but in fact advertising was already down approximately 6% in the first half of 2001, and cut backs in promotion also had become apparent by mid-year. The advertising and promotion industry reversed their status in 2002, though promotion growth (+5%) was approximately twice that of advertising (+2.3%). 

In 2005, the Trade Promotion report showed that between 1997 and 2004, promotion accounted for 75% of marketing expenditures for U.S. packaged goods manufacturers, while roughly 25% went to advertising. Among the possible reasons for the increase in the use of sales promotions are lack of product differentiation and little growth in primary demand for many consumer products (Papatla & Krishnamurthi, 1996). These two situations make it difficult for advertising to influence consumers. According to Kahn and McAlister (1997), it has become almost impossible to build brand awareness and brand loyalty solely with advertising. On the other hand, promotions are better influencers because they bring the product to the attention of the consumer much more effectively than advertising (Papatla & Krishnamurthi, 1996).

Parallel to the increasing interest of marketers on integrating different types of sales promotions to their marketing plans, there also has been a higher demand for studies in the field of promotion marketing. Still, the focus on the type of studies needed was not clear. Chandon (1995) stated,

“scholars are not certain whether we must study sales promotions separately, as it is currently the case for price promotions, or if it makes sense to speak of sales promotions as a whole”.

Most sales promotion research studies put too much emphasis on monetary promotions (Bawa &

Shoemaker, 1987; Blattberg, Eppen, & Lieberman, 1981; Blattberg & Neslin, 1990; Diamond, 1990; Diamond & Campbell, 1989; Dickson & Sawyer, 1990; Hunt & Keaveney, 1994; Irons, Little, & Klein, 1983). Luk and Yip (2008) conducted an empirical study that tested the effect of brand trust dimensions, brand reliability, and brand intentions through the moderation effects of monetary sales promotions. They concluded, “Ideally, nonmonetary sale promotions should be considered. This approach enables the researchers to investigate whether monetary or nonmonetary promotions will have greater moderation impact on the following antecedents of brand loyalty: brand trust and brand buying behavior” (Luk & Yip, 2008). It was not until the late 1990s that studies on promotion marketing started to pay attention to nonmonetary sales promotions (Hardesty & Bearden, 2003; Liao, 2006; Palazón-Vidal & Delgado-Ballester, 2005; Teunter, 2002).

In addition to the scarce research on nonmonetary sales promotions, many studies share other limitations. For example, Diamond and Johnson (1990) discussed a tendency for sales promotions research to be hindered by the absence of a theoretical approach. They criticized what they termed

“the very narrow categorization” of promotions that only dealt with a single type of promotion, such as couponing, and went on to say that “behavioral theorists have tended to either confine empirical work in this area to one type of promotion at a time or select promotions theoretically” (Diamond & Johnson, 1990).

Finally there are conflicting results over the long-term effects of consumer sales promotions (Teunter, 2002; Tietje, 1999). This, in part, can be attributed to the fact that most research is on monetary promotions. For example, Palazón-Vidal and Delgado- Ballester (2005) stated that monetary promotions are less effective in building brand knowledge because of their emphasis on only one brand association price. Luk and Yip (2008) concluded, “the buying behavior of less committed consumers is mainly promotion driven” and are mostly driven by economic incentives. Still, there is new empirical research that shows promotion activities have indirect effects on brand loyalty through customer satisfaction, which in turn has direct effects on brand loyalty (Li-xin & Shou-Lian, 2010). Nevertheless, most researchers claim that sales promotions yield negative effects, including price sensitivity (Chandon et al., 2000; Neslin, 2002), brand switching, and lower repeat purchase rates (Gupta, 1998). The limitations of previous research and inconsistent findings reveal there is a need for new empirical research that includes both nonmonetary and monetary promotions and their impact on long-term effects, such as brand loyalty.

Sales promotions, such as coupons, rebates, premiums, and samples, typically are viewed as temporary incentives that stimulate the sales of a product or service. There are different ways to classify sales promotions; the most basic is to classify them between trade promotions and consumer promotions. Consumer promotions are directed at the consumer and are designed to induce them to purchase the marketer’s brand. Trade promotions are designed to motivate distributors and retailers to carry a product and make an extra effort to push it to their customers (Belch & Belch, 2008). Most marketing programs include both trade and consumer promotions. The difference between one and the other relies primarily on who is targeted in the marketing channel: the consumer or the retailer.

Consumer promotions can be considered as pull promotions in that they directly entice the consumer to purchase the product, thereby pulling the brand through the channel. Trade promotions can be considered as push promotions in that they provide incentives for the retailer to offer special deals and push the product through the channel. (Raghubir, Inman, & Grande, 2004). While manufacturers care most about their brand performance, the retailers are interested in individual brands that will offer higher profit margins and are more effective at driving store performance or attracting and retaining high-value customers. Manufacturers’ tools include brand advertising, public relations, sales force incentives, and consumer and trade promotions (Ailawadi, Beauchamp, Donthu, Gauri, & Shankar, 2009).

Consumer sales promotions take many forms; they can be classified as nonmonetary and monetary promotions. Monetary promotions refer to monetary incentives, such as coupons, rebates, and discounts, while nonmonetary promotions refer to samples, premiums, displays, sweepstakes, and contests. The latter are less likely to be compared with the original price of the product and be perceived as a separate gain or reward for a purchase.

Some studies imply that consumers respond to sales promotions because of the positive benefits they provide (Chandon, Wanskink, & Laurent, 2000; Luk & Yip, 2008). A common classification of customers’ benefits is to distinguish between utilitarian and hedonic benefits. Both nonmonetary and monetary promotions provide consumers with an array of utilitarian and hedonic benefits (Luk & Yip, 2008).

Utilitarian benefits are primarily instrumental, functional, and cognitive; they provide customer value by being a means to an end. Hedonic benefits are noninstrumental, experiential, and affective; they are appreciated for their own sake, without further regard to their practical purposes.

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