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Answer to #1
Retailers demand this fee of manufacturers supposedly to compensate them for added costs incurred when taking a new brand into distribution and placing it on the shelf. In certain respects, slotting allowances are a legitimate cost of doing business. When a store takes on a new brand, it incurs several added expenses because the chain must make space for that new brand in its distribution center, create a new entry in its computerized inventory system, possibly redesign store shelves, and notify individual stores about the new SKU. Additionally, the chain takes the risk that the new brand will fail, which is likely in the grocery industry where at least half of all new brands are failures. Retailers are able to impose expensive slotting fees on manufacturers because the balance of power has shifted away from manufacturers and toward retailers. CPG manufacturers have hurt their own cause by introducing thousands of new brands each year, most of which are trivial variants of existing products rather than distinct new offerings with meaningful profit opportunities for retailers and many of which ultimately fail.
Answer to #2
TRUE
Answer to #3
What promotions can accomplish (students can discuss any 3):
1 . Stimulate sales force enthusiasm for a new, improved, or mature product. Exciting sales promotions give salespeople persuasive ammunition when interacting with buyers, reviving enthusiasm and making the saleperson's job easier and more enjoyable.
2 . Invigorate sales of a mature brand. Promotions cannot reverse the sales decline for an undesirable product or brand, but promotions can invigorate sales of a mature product that requires a shot in the arm.
3 . Facilitate the introduction of new products to the trade. Promotions to wholesalers and retailers are typically necessary to encourage the trade to handle new offerings (SKUs). Many retailers refuse to carry additional SKUs unless they receive extra compensation in the form of off-invoice allowances, display allowances, and slotting allowances.
4 . Increase on- and off-shelf merchandising space. Trade-oriented promotions, often in conjunction with consumer promotions, enable a manufacturer to obtain extra shelf space or more desirable space for a temporary period.
5 . Neutralize competitive advertising and sales promotions. Sales promotion can effectively offset competitors' advertising and promotion efforts.
6 . Obtain trial purchases from consumers. Marketers depend on free samples, coupons, and other sales promotions to encourage trial purchases of new brands.
7 . Hold current users by encouraging repeat purchases. The strategic use of certain forms of promotion can encourage at least short-run repetitive purchasing.
8 . Increase product usage by loading consumers. The effect of many deal-oriented promotions is to encourage consumer stockpiling (i.e., purchase more of a particular brand than they normally would to take advantage of the deal). Research has shown that consumption rate accelerates in the short term.
9 . Preempt competition by loading consumers. When consumers are loaded with one company's brand, they are temporarily out of the marketplace for competitive brands.
10 . Reinforcing advertising. An exciting promotion can reinforce advertising's impact, and advertising is increasingly being used as a communication mechanism for delivering promotional offerings.
What promotions cannot accomplish:
1 . Inability to compensate for a poorly trained sales force or for a lack of advertising. Promotions will provide at best a temporary fix of an underlying problem.
2 . Inability to give the trade or consumers any compelling long-term reason to continue purchasing a brand. Repeat purchasing is based on continued satisfaction with the brand.
3 . Inability to permanently stop an established brand's declining sales trend or change the basic nonacceptance of an undesired product. A declining sales trend can be reversed only through product improvements or perhaps an advertising campaign that breathes new life into an aging brand.
Answer to #4
TRUE
Answer to #5
Promotion expenditures historically were treated in exactly the same fashion as advertising expenditures, namely, as current expenses that were deducted from top-line revenue. However, new accounting rules require that those sales promotions used as a form of price discount, including promotions directed to retailers as well as to consumers, must now be treated as reductions in sales revenue. The difference between the old and new procedures is the amount recorded for the top-line revenue, and this change better reflects true levels of sales revenue. The old accounting system served to inflate actual revenue and to mislead financial analysts, stockholders, and other parties regarding a firm's actual revenue generation. Moreover, sales forces compensated on the basis of top-line results were overcompensated because revenue itself was overstated.
Answer to #6
TRUE
Answer to #7
Major developments that have given rise to sales promotion are:
1 . Balance-of-oower shift. Retailers have more power over manufacturers due to the decrease in network television effectiveness and the advent of optical scanning equipment. Retailers no longer need to depend on manufacturers for data and use the facts they now possess to demand terms of sale rather than merely accepting manufacturers' terms.
2 . Increased brand parity and price sensitivity. As product categories have matured, most new offerings represent only slight changes from existing products, thus resulting in greater similarities between competitive brands. With fewer distinct product differences, consumers have grown more reliant on price and price incentives as ways of differentiating parity brands.
3 . Reduced brand loyalty. Similar brands make it easier for consumers to switch among brands, and many consumers rarely purchase brands other than those on deal.
4 . Splintering of the mass market and reduced media effectiveness. As consumer lifestyles have diversified and advertising media have narrowed in their appeal, mass media advertising's efficiency has weakened. Also, advertising effectiveness has declined with simultaneous increases in ad clutter and escalating media costs.
5 . Short-term orientation and corporate reward structures. The reward structure in firms organized along brand manager lines emphasizes short-term sales response rather than slow, long-term growth, and sales promotion is incomparable when it comes to generating quick sales response.
6 . Consumer responsiveness. Consumers respond favorably to money-saving opportunities and other value-adding promotions.
Answer to #8
FALSE
Answer to #9
Promotion refers to any incentive used by a manufacturer to induce the trade (wholesalers, retailers, or other channel members) and/or consumers to buy a brand and to encourage the sales force to aggressively sell it. The incentive is additional to the basic benefits provided by the brand and temporarily changes its perceived price or value.
In contrast to advertising, which typically, though not always, is relatively long term in orientation and best suited to enhancing buyer attitudes and augmenting brand equity, promotion is more short-term oriented and capable of influencing behavior (rather than just attitudes or intentions). Promotion has the character of urgency in its injunction to act now. Promotion has the power to influence behavior because it offers the buyer superior value in the short term and can make buyers feel better about the buying experience.
All three groupsthe sales force, retailers, and consumersare targets of sales promotional efforts, even for this type of product. First, trade- and consumer-oriented sales promotion provide the manufacturer's sales force with the necessary tools for aggressively and enthusiastically selling to wholesale and retail buyers. They are, in other words, encouraged to actively sell those brands that are being promoted. Manufacturers' promotions also can encourage retail salespeople to devote more attention to the manufacturer's brands. A second target of sales promotion efforts is the trade, including wholesalers but especially retailers. Various types of allowances, discounts, contests, and advertising support programs are used in a forward thrust from manufacturers to trade accounts that provide retailers with reasons for stocking, displaying, advertising, and perhaps placing the promoted brand on a price-discounted deal. Third, the use of consumer-oriented promotions (e.g., coupons, samples, premiums, cents-off deals, sweepstakes, and contests) serve to pull a brand through the channel by providing consumers with a special reason to purchase a promoted brand on a trial or repeat basis.
Answer to #10
FALSE
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