Sales

Promotion
Marketing Metrics Presentation by Group 9
What is Promotion?

Philip Kotler defines promotion as "the

coordination of all seller-initiated efforts to set up
channels of information and persuasion to sell
goods and services or promote an idea.“

Why needed? - Promotion is crucial for building

awareness, persuading customers, and creating a
competitive advantage in the market.
Promotion (contd.)

Each 4Ps Significance differs

TATA IPL (title sponsor), promoting TATA Neu
Promotion Focuses on App, TATA Motors, running engaging ads,
effectively showcasing their diverse product
Communication and promotion of the range and reinforcing their brand presence
product's features among a massive and captive audience
Benefits, and value to the target
audience
Persuading and influencing potential
customers
Building brand image and driving sales

Dabur Red Toothpaste - highlighting the

product's herbal and natural ingredients,
emphasizing its benefits for oral health,
and creating awareness among consumers.
 Sales Promotion
According to Philip Kotler “a direct inducement that offers an 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.”

Examples: Collaborations: Restaurants promoting or Ranking

Social Media Contests (CTA): Amazon App contests >> Gamification: Dream11 Users can win prizes through
asking customers to share in Social Media (#AmazonQuiz) games or prediction of outcomes, promoting repeat
Flash Sales: To create urgency – Xiaomi, OnePlus (Giving engagement and purchases.
less time to think) Refer-a-friend: Swiggy, OLA, Uber, Zerodha
Sales promotion
• In simple terms, "Sales promotion is a
way to encourage people to buy a
product or service by offering them
special deals, discounts, or incentives.
It's like a fun and exciting way to get
people interested in buying things."
• Example: Diwali Sale at an Electronics
Store
• In India, Diwali is a big festival, and
many people like to buy new electronics
and appliances during this time. An
electronics store might run a sales
promotion like this:
• Promotion: "Diwali Dhamaka Sale!"
Objectives of Sales
Promotion
• To acquire new customers, perhaps by generating trial.
• To appeal to new or different segments that are more
price-sensitive than a firm's traditional customers.
• To increase the purchase rates of existing customers; to
increase loyalty
• To gain new trade accounts (that is, distribution)
• To increase shelf space
• To smooth production in seasonal
categories by inducing customers to order earlier (or
later) than they ordinarily would.
 Sales Promotion Metrics
Baseline Sales: Baseline sales refer to the level of sales or revenue a business typically
achieves in the absence of any specific promotional or marketing activities.

Total Sales (TS) = Baseline Sales (BS) + Incremental Sales from Marketing (ISM)

ISM = Incremental Sales from (Ads + Trade promotion + Consumer promotion +

Others) or ISA + ISTP + ISCP + ISO

Lift (%) = Incremental Sales / Baselines Sales

Cost of Incremental Sales (CIS) =
Marketing Spending (MS) /Incremental Sales (IS)
 Sales Promotion Metrics (Contd.)
Example: Expected sales of energy drinks is INR 45,000/month without ads. The
newspaper ad campaign costs INR 10,000, store sells INR 60,000 worth of products.
Engaging no other promotional expenses during the month.

Soln. => Given: Total Sales = 60,000 | Baseline Sales = 45,000

IS = 60,000-45,000 = 15,000
Lift (%) = 15,000/45,000 = 33%
CIS = 10,000/15,000 = 0.66
Lift (%) is It measures the additional sales generated CIS is expenses incurred specifically to generate
above the baseline (normal or expected) sales additional or incremental sales as a result of the
during the promotional period. Helps assess the promotion such as advertising costs, discounts,
effectiveness of the promotion. incentives. To assess ROI of the promotion.
Sales Promotion Metrics (Contd.)
Total Sales as a function of baseline sales and lift.

• Additive Equation
Projected Sales (PS) = BS + (BS * Lift% from ads) + (BS * lift% from TP) +
(BS * lift% from CP) + (BS*lift% from others)

• Multiplicative Equation:
PS = BS * (1 + lift% from ads) * (1 + lift% from TP) * (1 + lift% from CP) *
(1 + lift% from others)

In the additive approach, promotions are assumed to have an independent or cumulative effect on sales.
Multiplicative method accounts for specific form of interactions between marketing variables.
 Sales Promotion Metrics (Contd.)
Q – ABC Co., based on past data has estimated lift achieved through different marketing mix
elements. Values under two approaches are?
 Sales Promotion Metrics (Contd.)
Q – Estimated Sale: 30,000 units | Investment: INR 100,000 | Contribution: INR12/units
Baseline Sales: 15,000 units & 25,0000 units. How is investment affected i.e. profit realised?
Total contribution: 30,000*12 = INR 360,000
Profit: 360,000-100,000 = INR 260,000

Without promotion: 15,000*12 = INR 180,000

Extra profit: 360,000-180,000-100,000 = INR 80,000

For 25,000 units: 25,000*12 = INR 300,000

Profit or Not: 360,000-300,000-100,000 = INR(40,000)

Promotion implementation for 25K units is not sufficient for extra profit.
Sales Promotion Metrics (Contd.)
• Profitability of a Promotion = Profits achieved
with promotion -Estimated profits without
promotion (Baseline)
This metric is used to find out of a given promotion was profitable during
the period under study.

Example: Consider a company named ABC in the retail

industry.
They have announced free shipping for orders above $100.
The company believes that this promotional offer will
increase sales during the back-to-school season.
Sales without Sales Shipping Profits without Profits with
Cost​ Profitability​
promotion​ with promotion​ costs​ promotion​ promotion​

100,000​ 120,000​ 10,000​ 50,000​ 40,000​ 60,000​ 20,000​

Profitability of a Promotion = Profits achieved with

promotion -Estimated profits without promotion
(Baseline)
Profitability = 60000 - (40000+10000) = 10000
Interpretation
This promotional offer has generated $10000
dollars in additional profits
 Coupons - Metrics
Redemption Rate : It is a rough measure of coupon lift after
adjusting for sales that would have been made without
coupons.

• Coupon Redemption rate (%) = Coupons

redeemed/Coupons distributed
This metric is important to find out the effectiveness of the coupon
distribution strategy.

• Cost per redemption = Coupon face amount +

Redemption charges
This metric measures variable costs per coupon redeemed.

• Total coupon cost = Cost per redemption*Coupons

redeemed+ coupon printing and distribution cost
• Percentage sales with coupon (%) = Sales with
coupon/Sales
Rebates
• A rebate is a refund offered to a customer by a
manufacturer, distributor or retailer when a
customer makes a purchase. Sometimes referred
to as a retroactive discount, rebates are often
used as an incentive or marketing tactic to attract
customers
• We know this type of promotion as cashback.
• Similar metrics for coupons are also used for
rebates.
• Breakage: The number of rebates not redeemed
by customers
 Example : Consider a company XYZ selling consumer goods. They have announced a promotional offer of
"Buy one and get one free" (BOGO)
Coupon printing
Coupons Coupons Coupon face Redemption and distribution Sales without Sales with
distributed redeemed amount charges cost coupon coupon
100,000 20,000 $10 $1 $2,000 $100,000 $40,000

Calculations:
• Coupon redemption rate = 20,000 / 100,000 = 20%
• Cost per redemption = $10 + $1 = $11
• Total coupon cost = $11 * 20,000 + $2,000 = $222,000
• Percentage sales with coupon = $40,000 / $140,000 = 28.57%
Analysis:
• The coupon redemption rate of 20% indicates that a relatively small percentage of coupons distributed were
redeemed. This may be due to a few factors, such as the coupon being expired, the product being out of stock, or
the coupon not being appealing to consumers.
• The cost per redemption of $11 is relatively low, especially considering the coupon face amount of $10. This means
that XYZ Company is only spending a small amount of money to redeem each coupon.
• The total coupon cost of $222,000 is a significant investment. However, it is important to consider the increase in
sales generated by the coupon promotion. In this case, the coupon promotion generated an additional $40,000 in
sales.
• The percentage sales with coupon of 28.57% indicates that a significant portion of sales during the promotion were
generated by coupons. This suggests that the coupon promotion was effective in attracting new customers and
encouraging existing customers to spend more money.
 Pass-Through
• "Pass-through" in the context of sales
promotion typically refers to the practice of a
manufacturer or supplier passing promotional
incentives or discounts dirctly to the end-
consumer through the retailer. In other words,
the manufacturer or supplier provides special
offers or price reductions to encourage
consumers to buy their products, and these
benefits are immediately visible to shoppers
when they visit a retail store or website. Pass-
through promotions are often used to
stimulate consumer demand and increase
sales.
 Pass-Through (contd)
• Pass-Through(%) = promotional Discounts Provided by the
Trade to consumers (₹)/Discounts Provided to Trade by
Manufacturer
• Promotional Discount (₹) = Sales with any Temporary
Discount(₹)*Average depth of Discount as percent of list(₹)
• Average depth of Discount as percent of list(₹) = Unit
Discount(₹) / Unit list price (₹)
Percentage Sale on Deal(%) = Sales with any Temporary
Discount(₹)/Total Sales (₹)
Measures the percentage of company sales that are sold
with a temporary trade discount of some firm
Example-Pass-Through
• A manufacturer of smartphones offers a retailer a discount of ₹500 per phone if
the retailer agrees to feature the phones on its front tables.
• The retailer passes on ₹250 of the discount to consumers in the form of a lower
retail price.
• As a result, consumers pay ₹250 less per phone.
• In this example, the pass-through rate is 50%, because the retailer passes on half
of the manufacturer's discount to consumers.
Here is an example of a percentage sale on a deal:
• A clothing retailer is having a sale where all items are 20% off.
• A customer purchases a shirt that is originally priced at ₹1,000.
• The customer receives a discount of 20%, or ₹200, on the shirt.
• The customer pays ₹800 for the shirt.
• In this example, the customer received a percentage sale on a deal. The percentage sale
was 20%, and the customer saved ₹200 on the shirt.
Price Waterfall
• The price waterfall is a way of describing the progression of prices from published
list price of the final price paid by a consumer. Each drop in price represent a drop
in the "water level"
• The average price paid by consumers will depend on the list price of a
product, the sizes of discounts given, and the proportion of customers taking
advantage of those discounts.
• By analyzing the price waterfall, marketers can determine where product value
is being lost. This can be especially important in businesses that allow the sales
channel to reduce prices to secure customers. The price waterfall
can help focus attention on deciding whether these discounts make sense for
the business.
• Price Waterfall (%) = Net Price per Unit (₹) / List Price per Unit (₹)
Price waterfall (contd)
• Net price: The actual price paid for a product by consumers after all discounts
and allowances have been factored in. Also called pocket price.
• Net price = List price-[discount A*proportion of purchases on which discount A is
taken(%)]-[discount B*proportion of purchases on which discount B is taken(%)]
and so on....
• List Price: The price of a good or service before discounts and allowances are
considered.
• Invoice Price: The price specified on the invoice for a product. The price will
typically be stated net of some discounts and allowances, such as dealer,
competitive, and order size discounts, but will not reflect other discounts and
allowances, such as those for special terms and corporate advertising.
Typically, the invoice price will therefore be less than the list price but greater
than the net price.
Example
• Hakan manages his own firm. In selling his product. Hakan grants two discounts or allowances.
The first of these is a 12% discount on orders of more than 100 units. This is given on 50% of the
firm's business and appears on its invoicing system. Hakan also gives an allowance of 5% for
cooperative advertising. This is not shown on the invoicing system. It is completed in separate
procedures that involve customers submitting advertisements for approval. Upon investigation,
Hakan finds that 80% of customers take advantage of this advertising allowance.
• The invoice price of the firm's product can be calculated as the list price (50 Dinar per unit), less
the 12% order size discount, multiplied by the chance of that discount being given (50%). Invoice
Price = List Price -[Discount Proportion of Purchases on Which Discount Is Taken] =50 Dinar-[(50-
12%) -50% ) =50 Dinar - 3 Dinar = 47 Dinar
• Net Price List Price - [Discount Proportion of Purchases on Which Discount Is Taken -[Advertising
Allowance Proportion of Purchases on Which Ad Allowance Is Taken]= 50 Dinar-[(50 12%) 50% ] -
[(50-5%) 80% ] = 50-3-2 = 45 Dinar.
• Price waterfall (%) = 45/50 * 100 = 90%
Thank You