The role of consumer retail price promotions in the marketing strategies of manufacturers and retailers

Van Selm, Andre (2000-12)

Thesis (MBA)--Stellenbosch University, 2000.

Thesis

ENGLISH ABSTRACT: Retail sales promotions are one of the most fundamental and high profile concepts of retail marketing. Everyday consumers are bombarded with various forms of information regarding sales promotions. Manufacturers and retailers go to great expense, up to 75% of the United States' marketing expenditures are spent on promotions (Lewison, 1994), but very little is done to measure the effectiveness of these promotional activities (Walters, 1991). Price promotions form an integral part of the marketing strategies of both manufacturers and retailers, yet they are often neglected in terms of assessing their impact on the marketing strategies of individual products. Lewison (1994) supports this statement by saying, "the precise positioning of sales promotion in terms of marketing strategy is often vague". "The increase in sales promotion spending in consumer goods field is greater than that of advertising promotion. However, it is important to know that a substantial part of this money is being misspent, some of it through poor planning" (Shapiro 1977). This statement is dated and probably aimed at the American retail market in particular, but it evokes some relevant questions about the South African domestic market. Are our manufacturers and retailers misspending valuable promotional budget on poorly planned and illogical sales promotions? An article in Sales and Marketing Management (1979) made a good, and relevant, point that "sales promotion is an orphan child of marketing. Both sales promotion budgets and sales promotion objectives are virtually ignored by senior management". More than twenty years later one would expect that the effectiveness of promotions would be monitored more closely and the promotional budgets of both manufacturers and retailers would be subject to close scrutiny by marketing directors. This appears, however, not to be the case, and little study has been done, particularly in South Africa, on the profitability and marketing effectiveness of price promotions within the retail grocery market. The use of trade promotions has risen considerably during the late 20th century. Within companies intense competition and increasing sophistication in sales promotion techniques together with a greater pressure to increase sales has resulted in an increased frequency of promotions. .Market factors have also fostered an increase in promotions. These factors include a rise in the number of brands (especially generic brands) and a decrease in the efficiency of traditional advertising due to increasingly fragmented consumer markets and advertising 'clutter'. A review of the marketing literature on grocery retail price promotions appears to be indicating a move toward a new approach to retailing which sees more focus being given to cutting costs out of the system, usually through improvements to the supply chain. Retail giant Wal-Mart introduced a policy of Every Day Low Pricing (EDLP) and moved heavily toward certain supply chain methodologies like Quick Response and Efficient Consumer Response which focus on reducing inventories and increasing supply chain efficiencies. These policies shun the retail sales promotion in favour of more constant sales trends and supply of goods. It appears that this policy is working, and not just in America, but in Canada and Germany as well (Kalish, 2000). This paper will focus on the inefficiencies of the traditional South African retail price promotion, particularly prevalent in the grocery chains, versus the current American and European retail promotion techniques that focus less on temporary price reductions and more on eliminating costs out of the value chain. A current South African price promotion model is given and a price promotion model for the future is proposed. Without a more complete study it would be immature to think that this paper could be a definitive study of the reasons, cause, and effects of retail price promotions, rather it is intended as a stimulus for further research in this area. This mini-thesis looks at pricing policies in the South African grocery retail market relative to international trends. Particular detail is paid to the grocery value chain and the effects of retail price reduction promotions on the supply chains within the value chain. Inefficiencies in the current South African pricing system are highlighted from both a marketing and a supply chain management perspective. A future value chain is proposed and the migration to this new value chain discussed. International trends like EDLP are discussed with relevance to the South African grocery retail market.

AFRIKAANSE OPSOMMING: Kleinhandel reklame promosies is een van die mees fundamentele and hoë profiel begrippe van kleinhandel bemarking. Daaglikse verbruikers word gebombardeer met verskeie vorms van inligting betreffende reklame promosies. Vervaardigers en kleinhandelaars gaan groot kostes aan, tot 75% van die Verenigde State se bemarkingsuitgawes is gemik op promosies (Lewison, 1994), maar daar word baie min gedoen om die doeltreffendheid van hierdie promosionele aktiwiteite te meet (Walters, 1991). Prys promosies vorm 'n integrale deel van die bemarkingstrategie van beide vervaardigers en kleinhandelaars, nogtans word hulle dikwels afgeskeep in terme van die beraming van hulle impak op die bemarkingstrategieë van individuele produkte. Lewison (1994) steun hierdie bewering deur op te merk dat, "the precise positioning of sales promotion in terms of marketing strategy is often vague". "The increase in sales promotion spending in consumer goods field is greater than that of advertising promotion. However, it is important to know that a substantial part of this money is being misspent, some of it through poor planning" (Shapiro, 1977). Hierdie opmerking is verouderd en waarskynlik spesifiek gerig op die Amerikaanse kleinhandel mark, maar lok sekere relevante vrae uit in verband met die Suid Afrikaanse plaaslike mark. Is ons vervaardigers en kleinhandelaars besig om waardevolle promosie begrotings op ondeurdagte en onlogiese reklame promosies te verkwis? 'n Artikel in "Sales en Marketing Management" (1979) maak die goeie en relevante punt dat "sales promotion is an orphan child of marketing. Both sales promotion budgets and sales promotion objectives are virtually ignored by senior management". Meer as twintig jaar later sou mens verwag dat die effektiwiteit van promosies in detail gemonitor word en die promosie begrotings van beide vervaardigers en kleinhandelaars noukeurig bestudeer word deur bemarkingsdirekteure. Dit blyk nie die geval te wees nie en, veral in Suid Afrika, is daar min navorsing gedoen oor die winsgewendheid en bemarkings effektiwiteit van reklame promosies binne die kleinhandel kruideniersmark. Die gebruik van handelspromosies het merkbaar gestyg in the laat twintigste eeu. Binne ondernemings het intensiewe kompetisie en toenemend gesofistikeerde handelspromosietegnieke tesame met groter druk om reklame syfers te laat styg gelei tot 'n toename in die frekwensie van promosies. Hierdie faktore sluit in 'n styging in die aantal handelsmerke (veral generiese handelsmerke) en 'n afname in die doeltreffendheid van tradisionele advertering weens toenemend gefragmenteerde verbruikersmarkte en advertensie "romme!". 'n Hersiening van die bemarkingsliteratuur op kruideniershandel reklamepromosies blyk daarop te dui dat 'n verskuiwing plaasvind na 'n nuwe benadering waarin meer fokus daarop geplaas word om kostes in die sisteem te sny, gewoonlik deur middel van verbeteringe aan die verskaffingsketting. Kleinhandel reus Wal-Mart het 'n beleid van "Every Day Low Pricing (EDLP)" ingestel en sterk beweeg na sekere verskaffingsketting metodologie soos "Quick Response" en "Efficient Consumer Response" wat fokus op die verminderde inventarisse en verhoogde doeltreffendheid in die verskaffingsketting. Hierdie beleide vermy die kleinhandel reklame promosie ten gunste van meer konstante reklame tendense en verskaffing van goedere. Dit blyk dat hierdie beleid besig is om te werk, nie net in die Verenigde State nie, maar ook in Kanada en Duitsland (Kalish, 2000). Hierdie werkstuk sal fokus op die ondoeltreffendheid van die tradisionele Suid Afrikaanse reklame prys promosie, veral heersend in die kruidenierskettingwinkels, teenoor die huidige Amerikaanse en Europese reklame promosie tegnieke wat minder toegespits is op tydelike prys verlagings en meer op die eliminasie van koste in die waardeketting. 'n Huidige Suid Afrikaanse prys promosie model word daargestel en 'n prys promosie model vir die toekoms voorgestel. Sonder 'n meer deeglike studie sal dit naief wees om te dink dat hierdie werkstuk 'n beslissende studie kan wees vir die redes vir, oorsaak en gevolge van kleinhandel prys promosies. Die bedoeling is eerder dat dit dien as 'n stimulus vir verdere narvorsing op die gebied. Hierdie mini-thesis ondersoek die prys beleid in die Suid Afrikaanse kruidenierskleinhandelmark relatief tot internasionale tendense. Veral word daar aandag gegee aan die kruidenierswaardeketting en die invloed van kleinhandel prysvermindering promosies op die verskaffingskettings binne die waardeketting. Tekortkominge in die huidige Suid Afrikaanse sisteem van prysbepaling word uitgelig uit beide 'n bemarkings en verskaffingskettings bestuur oogpunt. 'n Toekomstige waardeketting word voorgestel en die migrasie na hierdie nuwe waardeketting bespreek. Internasionale tendense soos EDLP work bespreek met betrekking tot die Suid Afrikaanse kruideniers reklamemark.

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