Abstract
Let us come straight to the point. What are the steps of a good promotion planning? Some suggest a 10-step process of an effective sales promotion programmes (Wroblewski, 2019), whereas some others recommend a simple 7-stage model (Nordmeyer, n.d.). We will go through the following steps to help Mr Rath and Mr Giri to plan a realistic, simple and easy-to-execute promotion for TML sales team.
Step 1: Define the Objective
Like any other campaign, a sales promotion programme must begin with a clear sense of purpose; it should support the sales strategy and spell out the objectives in the clearest possible terms. What are the objectives of TML to run this promotion? The two goals are to: (a) achieve the yearly sales target of ₹220 million and (b) recover the profit shortfall of ₹7.5 million. But to achieve the second goal, TML sales team has to accept an additional target of ₹55 million over and above ₹220 for November and December 2018. This additional ₹55 million will provide gross profit of ₹22 million, out of which the sales promotion cost would be ₹14.5 million and the balance ₹7.5 million is the shortfall recovery. So, in nutshell, Mr Giri needs to develop a sales promotion plan which will support sales team to achieve a sales value of ₹275 million with a promotional spend not crossing more than ₹14.5 million.
Some more factors need to be kept in mind while defining the objective. First, this promotion should not be used to stock up at dealers’ warehouse but actually to sell the products to the end consumers; the consumers should be aware of this special scheme. Second, the promotion should motivate the sales teams and dealers by taking care of their extra efforts avoiding any free riders. Third, the promotion must not result in increasing market pipeline and outstanding. Last but not the least, it should focus more on framed luggage (FL) sales because TML finds FL more difficult to sell than integrated moulded luggage (IML) and the factory does not have spare capacity of production in the IML line.
Step 2: Identify the Target Group
An effective sales promotion programme may or may not target everyone on a business; it depends on the purpose and the size of the outcome expected of the said promotion. Narrower the target group, more optimal is the promotion from efficiency viewpoint, but sometimes if a promotion is expected to offer big business results, it may incorporate everyone and not the selected few. There are so many target groups for TML, for example, the regional managers (RM), sales executives (SE), branch accountants (BA), branch godown keepers (BGK), dealers, consumers buying moulded luggage and consumers buying FL. Who should TML target for this promotion? From our Step 1 analysis, we identify the target groups; it is a mixture of ‘everyone’ and ‘selected’. We plan an incentive scheme for ‘everyone,’ for example, RM, SE, BA, BGK and the dealers. We also plan a consumer promotion for ‘selected’ few, for the FL consumers only.
Step 3: Design the Promotion
This is the most critical and complicated step of any sales promotion planning process. It needs high level analytical skills along with market and consumer insights to design and develop an effective promotion. After establishing promotion objectives and target groups, let us determine how to allocate company resources and the promotion mix. We divide our promotion mix into two parts:
Sales incentives scheme (slab based) for sales team and dealers. Consumer promotion (price discount) for FL consumers.
Sales Incentive Scheme (Slab Based)
Please refer to Table 1.
Consumer Promotion (Price Discount)
Buy 1 FL get 50 per cent discount on 2nd IML:
Target customers are FL purchasers Assumption: 100 per cent target will be achieved with this attractive ‘consumer promotion’.
Step 4: Estimate the Budget
Once the design part is over, the promotion needs to be budgeted. It means we need to estimate the total budget required to run the programme. To fit the budget basis the objectives (refer to Step 1) sometimes we may need to tweak the design a little. The budget calculation for sales incentive scheme and consumer promotion are shown in Tables 2 and 3, respectively.
Sales Incentive Scheme (Applicable on Sales Achieved by Dealers to Consumers)
Budget calculation of Sales Incentive Scheme
Budget Calculation for the Consumer Promotion
Step 5: Output Plans
Once the budgeting is done, the promotion needs to be glanced through output planning process. This step provides a clear idea about the uplift (additional sales over the baseline) against estimated spends. Please refer to Table 4.
From the output plans, we find that we are well covered with profit objectives. Hence, if needed, the GM, marketing manager and marketing executive could also be included in the incentive scheme. The spend will have insignificant increase but it will certainly deliver significant engagement and motivation to the total sales and marketing team to drive the promotion and focus on the performance.
Output Planning: Slab Level
1. Additional sales turnover of ₹55 million.
2. Total turnover must cross ₹275 million.
3. Net profit must cross ₹7.5 million.
Step 6: Validate and Take Approval from Stakeholders
In this step, we need to create a formal promotion programme document (preferably in power-point), which includes situation analysis, objectives, target groups, complete promotion design, budgets, output plans timetable and a performance review mechanism. Once this document is ready, we need to validate and get it approved by the relevant stakeholders (e.g., Central Leadership Team members, especially the CEO and the finance controller)
Step 7: Develop a Supportive Communication Strategy
This step is often skipped by time-pressed management, either for paucity of time or due to lack of importance. It is true that often the management may not have time to go ‘all out’ on a detailed communication plan, but it should not be ignored completely, either. CLT should develop a communication plan to share this promotion with full energy and excitement. The sales team should feel motivated to run that extra mile; hence the management should ideally call the sales team in a meeting to share the full-fledged execution plans with special mention of performance rewards. If not a meeting, management should at least send a comprehensive email to every member of sales team explaining the complete promotion plan. One thing must be kept in mind that well-planned strategies, if not communicated well, end up with bad execution. To get the optimum output from this promotion, it is mandatory that the sales team understands the scheme in detail. And to ensure the complete understanding of the sales team, a simple communication strategy (with the team’s benefits) is a must.
Step 8: Determine Programme Effectiveness and Efficiency
This final step is to determine the effectiveness and efficiency of the sales promotion programme. As soon as the promotion planning is over, go for an evaluation of the estimated outputs. The programme effectiveness and efficiency are determined through two important ratios:
Spends/incremental sales indicates the cost incurred for incremental sales (effectiveness). Net profits/spends indicate the size of profits against the money spent (efficiency).
Please refer to Table 5. The above two metrics help the company to determine the effectiveness and efficiency of a promotion from two important aspects of business; the cost of sales and the return on spends. From the above indicators, we can decide which of the three slabs would be most effective and efficient for the company? If the management is more focused on sales growths, it would prefer to achieve slab three. On the contrary, if profitability is the focus, then obviously slab one will be preferred over the other two.
We can do the same exercise exclusively for the consumer promotion also. Please refer to Table 6.
Now let see how small tweaking in the promotion parameters impacts changes on the above determinants. Let us replace the present consumer promotion with an apparently similar one; instead of ‘Buy 1 FL and get 50 per cent discount on 2nd IML’ let us offer ‘Buy 2 FL and get 1 IML FREE’ (both look similar schemes) and let us assume that we get the same 30,000 units of FL sales. Now how does the calculation look? Please refer to Table 7.
Let us have a comparative look on effectiveness and efficiency of two apparently similar promotions. Please refer to Table 8.
Total Promotion Evaluation (Sales by Incentives + Consumer Promotion)
Consumer Promotion Evaluation
Budget Calculation for the Consumer Promotion ‘BUY 2 FL AND GET 1 IML FREE'
1. With 30,000 units of FL sales, we give 15,000 free units of IML.
2. Average Cost Price/IML = (Selling price – gross profit) = {₹700– 40% of 700)} = (₹700–₹280) = ₹420.
3. Total spends = 15,000 units multiplied by ₹420 = ₹6.3 mio.
It is clear from the above indicators that offering a price discount is marginally more effective and efficient than to offer a free unit because it gives relatively higher turnover with lower costs to sales and better returns on spends. But with the changes in other factors (e.g., total sales value, selling price, cost of goods sold, gross margins, assumptions, promotion mix (Business Jargons, n.d.), etc.) the whole maths may change.
Comparison of Effectiveness and Efficiency Parameters of Two Consumer Promotions
Conclusion
Developing a sales promotion plan is a high-level strategic expertise which depends on varied skill sets. One needs to have in-depth business knowledge, aptitude for big data analysis, sharp financial acumen, customer and consumer insights of the related industry, clear understanding of organization’s long and short term business goals, information on relevant competitors and their activities, awareness of channel partners’ and sales teams’ capabilities and finally the expertise to weave all these components with an innovative mind to design and develop a winning sale promotion plan.