Consumer Discretionary

The Logic Of Consumer Promotions

<p>Consumer promotion is the one gift from the marketing team that the sales function really looks forward to! As an Area Sales Manager based out of Vijayawada in 2005, I used to really look forward to the Chopper Promo, Bayblade Promo, etc. that the Bournvita brand would sport once a quarter. In that month we would do 60% of the quarter's volumes and the sales team and the trade would really look forward to the same.</p><p>And then I was shocked when our new Managing Director, Anand Kripalu decided to put a stop to a practice that had been a norm in the category for over a decade. And sitting in Andhra Pradesh where we had a sub-10% Market share, we found our hearts sinking.</p><p>However, Anand, was adamant that one less promo every quarter meant far more money for thematic adverting, and as a Sales guy then I didn&rsquo;t agree with him at all! By the end of the year, I had to grudgingly accept that the strategy appeared to work and we gained share. But are Consumer promos necessary and evil or do they have relevance in the armory of a marketer?</p><p><strong><u>Strategic Rationale</u></strong></p><p>As I have often articulated earlier, there are primarily two tasks that a marketer must choose between:</p><p>- Grow Category</p><p>- Steal Share</p><p>Now, consumer promotions, which basically mean giving something free are rarely useful as mediums of growing a category as you would agree to but something extra only if the category is already relevant to you.</p><p>Hence, Consumer Promotions usually find a role for a Brand seeking to Steal Share versus a dominant market leader.</p><p>However, there are several ways of running consumer promotions and it&rsquo;s important to decide why one would choose one route over the other.</p><p><strong><u>Consumer Promotions &ndash; Broad Routes</u></strong></p><p>Consumer Promos are essentially routes of offering higher value to the consumer, usually for a limited time period. Hence, before one recommended a consumer promo one, needs to evaluate the exact value gap that one is trying to bridge.</p><p>There are broadly 3 reasons for choosing to run a consumer promotion:</p><p>- Enhance Imagery</p><p>- Bridge an Imagery Gap</p><p>- Offer Value</p><p>Enhancing Imagery usually happens through the route of aspirational partnerships, like one often observes with alcohol brands. Say the partnership between a brand of Scotch and Harley Davidson. The aspirational nature of both brands rubs off each other and creates a lucrative experience for the consumer.</p><p>The second route of bridging an imagery gap, say the promo of Uncle Chips with Motu Patlu Tazoos is the second route where the ambition is to make the brand look cool, in the absence of a strong brand proposition or advertising.</p><p>The third route is the simplest where one offers a 20% extra, a Paytm cashback, or 2 GB of data on a purchase. This route also includes promos like Lucky Draws offering vacations etc. This is usually the simplest route.</p><p><strong><u>Enhancing Imagery</u></strong></p><p>This is perhaps the only route of running promos that I would advocate as a sustainable strategy. A few diverse examples that come to my mind are:</p><p>1. The exquisite luggage that one gets free on the purchase of Jonnie Walker or Chivas Regal Whiskeys in Duty-Free. Here it&rsquo;s very critical to ensure that the craftsmanship of the gift matches the aspirational value of the brand. One of the reasons why alcohol brands invest heavily here is because you get your Brand trademarks inside the house of a consumer.</p><p>&nbsp;2. Bajaj V Series of Bikes: I guess Bajaj saw the range of Bikes that they launched with a small amount of metal from the decommissioned INS Viraat as a separate brand rather than a consumer promo. Now, it was definitely brilliant marketing and made for lovely storytelling, however, the Brand lost luster fast and had no taker after a few years.</p><p>This for me is another example of the fact that you can only borrow equity for a while and provide a halo and not buy equity permanently. The lack of their ability to sustain the range is for me another validation that the consumer perhaps only saw the range as a consumer promo rather than brand building.</p><p>3. Coca-Cola Personalized Labels: I guess the Coke personalized labels for me are the King of consumer promotions. You are still just giving something &ldquo;extra&rdquo;, a personalized label. But it fits with Coke's proposition and the emotional kick it provides puts it in the category of consumer promos that enhance the imagery.</p><p>4. Britannia Khao World Cup Jao: This was a promo that Britannia has run a number of times all the way since the 90s. Now the reason why this worked is not because of the sheer value offered, but rather because Britannia because a Brand that for a purchase of just Rs 5 could fulfill your international travel aspiration. As India continues to become more affluent, the relevance of such a promo continues to wane.</p><p>The pitfall of this approach is that they rarely provide an immediate sales lift and work far more as a strategic &amp; long-term brand-building vehicle. So if you are planning to use an Imagery Enhancing promo for next quarter's numbers, it is best to think again!</p><p><strong><u>Bridge an Imagery Gap</u></strong></p><p>Now, there is a category of promos that I consider truly dangerous to brand equity. This is one of the easiest mistakes that marketers can make where we try and replace an equity-building campaign with a promo that builds off the imagery of another brand.</p><p>Some of the examples that come to my mind as we discuss this category are as follows:</p><p>1. Malted Food Drinks: Brands like Bournvita, Horlicks &amp; Milo till the early 2000s would offer a promo every quarter. I started this section with this example, and really the fact was that we would all be very excited about the sales lift but really there was no real increase in consumption, our consumers would just stock up these Brands and still consume as they regularly do.</p><p>This led to a huge cost increase for manufacturers but to a commensurate increase in consumption. Also, contrary to popular belief, promos rarely lead to penetration increase and hence you didn&rsquo;t get any new users into the category. The popular folklore at that time was the Milo ran itself into the ground through an over-dependence on promos rather than Brand building.</p><p>2. Chips using Motu Patlu Tazoo etc: I feel one of the reasons behind Uncle Chips falling from grace as an aspirational brand when I was growing up to and has been today has been trading their own brand equity for that of a cartoon character. In my opinion, such promos do more for Motu Patlus fame rather than those of Uncle Chips and in my opinion, are best stayed away from!</p><p>3. Disney Partnerships: This is where it becomes fuzzy. I am all for the lovely kid's range of Disney that many popular brands create for Clothes, Stationary, Tiffin&rsquo;s, etc. Here as long as you are clear that &lsquo;Disney&rsquo; is the brand that you are selling, you are likely to sail through and create additional value for the consumer. But Disney promos used tactically have seen limited success in my experience.</p><p>So the key question to ask yourself when evaluating such a route is, are you taking a shortcut and trying to use a popular brand to sell your current product? If you choose to do so, what do you think the result would be on your own brand equity in the longer term?</p><p><strong><u>Offering Value</u></strong></p><p>These are of course the simplest of promos! So many of us get swayed by a 20% extra especially while buying commodities, like Atta, Shampoo, Soaps, and so on. I guess the only place where this doesn&rsquo;t work is in the impulse category.</p><p>And hence when evaluating such a promo, it&rsquo;s important to understand the shopper behavior for your category. Such promos are brilliant and the trigger to drive brand switch in a category driven by pantry stocking rather than impulse.</p><p>The fact is if you want to eat a Cadbury Silk a 20% extra of Five Star is unlikely to drive switch. However one is very likely to switch between a Good Day and a Moms magic. It usually plays out more when these categories are closer to commodities than brands.</p><p>A few top examples for me in this category of promos are:</p><p>1. Paytm Cashback: These have become quite popular in the past 2-3 years and were used by several youth brands on the basis of the coolness offered by digital payments. However, redemption rates still remain a challenge at sub 10%.</p><p>2. Data Free: This is another novelty being explored in today&rsquo;s world of growing digital awareness. However in my opinion the value offered is still more of freshness and novelty rather than genuine consumer value.</p><p>3. Lucky Draws: A number of brands offer one big gift say an international vacation or an SUV free to grab eyeballs and spread the same across a large number of consumers through a lucky draw. Again something that surely optimizes spending but only offers new news rather than sustainable growth.</p><p>4. 20% Extra: This is perhaps the most common consumer promo possible and has been extensively used in categories like Tea, Biscuits, etc where the behavior is low involvement and habit forming. A brand with a much lesser Market Share can nibble away at the market leader as they can run this promo with a much lesser hit to their bottom line.</p><p>This puts the market leader into a catch 22 position. If you watch the promo, you don&rsquo;t have money for Brand building, if you don&rsquo;t, you lose share. Hence this is an ideal weapon in the armory of a brand looking to steal share.</p><p><strong><u>In Conclusion</u></strong></p><p>Consumer promos from the point of view of a pristine marketer are a necessary evil. They give you popularity with the sales team and are an easy way to drive excitement and short-term business growth. However, in the long term, they weaken your P&amp;L and reduce your ability to build a branded play.</p><p>Hence, these are best used tactically and infrequently to deliver the job required at the time and not as a substitute for brand building. However, before one spends money for the same, it&rsquo;s crucial to understand how they speak to your brand task &amp; deliver the return on investment expected.</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p>
KR Expert - Saurabh Bajaj

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