Discussions about marketing often begin and end with advertising.
That’s a mistake.
For every dollar spent on advertising worldwide, three more are spent on promotions – and the gap is growing every year. Studies by international firms like WPP confirm that the emphasis of marketing began shifting from advertising to promotions several years ago, and that the shift continues.
Promotions have several advantages over advertising:
- Unlike advertising, promotions are eminently measureable. Experts can argue over the number of impressions needed to key response. With promotions, it’s easy. Either the goal (more store traffic, increased sales, more leads generated) was reached, or it wasn’t. ROI is easy to measure.
- Promotions can be tactical. A specific store in a city or a specific county in a state can be targeted.
- Promotions are time-sensitive. A promotion can last a few hours, a few days, or a few weeks. It can quickly be turned on or off, depending upon the reaction of the targeted audience.
Because of these factors, promotions have become the preferred tool of the brand or product manager. That often puts the people who work with promotions behind different doors than those who plan advertising. Media reps are often unaware of these doors.
Promotions come in many shapes and sizes, but for the most part they are simply money: a dime off a can of peas at the supermarket or US$1,000 off the next car you buy. Here are the definitions of the three most important categories:
- Discounts: This category accounted for 80% of all promotions spending in 2012. Whether they’re called discounts, rebates, spiffs, or any of a dozen other terms, the result is the same: buyers of goods or services receive a monetary incentive to purchase what they want from a specific supplier.
It doesn’t apply only to consumer-oriented businesses. Last year, about 7% of all discounts were B2B transactions. Business discounts are popular ways to increase sales and are often spur-of-the-moment decisions made to seal a nascent deal.
Even though discount spending will increase by nearly 7% in 2013, its share of promotions totals will drop slightly, in large part due to the continuing surge in coupons.
- Coupons. Interest in coupons had flagged earlier several years ago, but that was before the economic meltdown.
The Great Recession changed the shopping habits of consumers, and continuing research by Prosper and others indicates the change is persistent. Valassis (the nation’s largest FSI distributor), through its NCH subsidiary, discovered stagnant distribution levels and face value decreases in 2012.
But that was just for paper coupons. Couponing is no longer limited to those clipped from newspapers and flyers, nor is it limited to smaller personal items on supermarket or drugstore shelves.
Coupons have moved on to bigger targets. Electronic gear, toys, prescription pharmaceuticals, and other big-ticket items now offer coupons as well. And their redemption rates rise as the item price climbs.
All said, coupon redemption spending is predicted to reach almost US$67 billion in 2013, up nearly one-third from 2012. Everybody loves a bargain. [Note: In our definition of coupon spending, we include “deal of the day” offers from companies like Angie’s List, Amazon, LivingSocial, and Groupon, as well as in-store coupon programmes used by many retailers.]
- Loyalty programmes. Variously titled (some are known as customer retention or customer development programmes), these programmes work to bring a store’s best customers back for more shopping. Their tools include store credit, special discounts, or other “special treatment.”
All rely on the same well-known fact: Good customers spend more with the stores they shop the most than other shoppers do.
Although loyalty programmes can be considered a part of discounting, they deserve special consideration because of their specific goals and unique tools. Almost every business, B2B or B2C, has or has considered some kind of loyalty programme.
This year, businesses will spend almost US$5 billion on these programmes, 6% more than was spent in 2012.
In closing, perhaps the most important thing to remember about promotions today is that many business planners have thrown past marketing definitions out the window. They don’t differentiate between “advertising” and “promotions.” Perhaps one day the dichotomy will simply cease to exist.
Borrell’s latest report, “2013 Local Promotions Forecast,” details how advertisers are carving dollars from other budgets to invest in quick-reward marketing programmes like discounts, coupons, contests, and loyalty programmes. This year, local businesses are likely to spend a whopping 81% more on local promotions than they will on classic advertising – something that’s never happened before.