Free Premiums

Free premiums are usually small gifts or merchandise included in the product package or sent to consumers who mail in a request along with a proof of purchase. In/on-package free premiums include toys, balls, trading cards, or other items included in cereal packages, as well as samples of one product included with another. Surveys have shown that in/on-package premiums are consumers’ favorite type of promotion. Package-carried premiums have high impulse value and can provide an extra incentive to buy the product. However, several problems are associated with their use. First, there is the cost factor, which results from the premium itself as well as from extra packaging that may be needed.

Finding desirable premiums at reasonable costs can be difficult, particularly for adult markets, and using a poor premium may do more harm than good. Another problem with these premiums is possible restrictions from regulatory agencies such as the Federal Trade Commission and the Food and Drug Administration or from industry codes regarding the type of premium used. The National Association of Broadcasters has strict guidelines regarding the advertising of premium offers to children. There is concern that premium offers will entice children to request a brand to get the promoted item and then never consume the product. The networks’ policy on children’s advertising is that a premium offer cannot exceed 15 seconds of a 30-second spot, and the emphasis must be on the product, not the premium. Since most free mail-in premium offers require the consumer to send in more than one proof of purchase, they encourage repeat purchase and reward brand loyalty. But a major drawback of mail-in premiums is that they do not offer immediate reinforcement or reward to the purchaser, so they may not provide enough incentive to purchase the brand. Few consumers take advantage of mail-in premium offers; the average redemption rate is only 2 to 4 percent.

Free premiums have become very popular in the restaurant industry, particularly among fast-food chains such as McDonald’s and Burger King, which use premium offers in their kids’ meals to attract children.38 McDonald’s has become the world’s largest toymaker on a unit basis, commissioning about 750 million toys per year for its Happy Meals (Exhibit 16-18). Many of the premium offers used by the fast-food giants have cross-promotional tie-ins with popular movies and can be very effective at generating incremental sales. McDonald’s gained a major competitive advantage in the movie tie-in premium wars in 1996 when it signed an agreement with Disney giving McDonald’s exclusive rights to promotional tie-ins with Disney movies for 10 years.

One of the fastest-growing types of incentive offers being used by marketers is airline miles, which have literally become a promotional currency. U.S. airlines make more than an estimated $2 billion each year selling miles to other marketers. Consumers are now choosing credit-card services, phone services, hotels, and many other products and services on the basis of mileage premiums for major frequent flyer programs such as American Airlines’ AAdvantage program or United Airlines’ Mileage Plus program.

Measuring the Effectiveness of the Sales Force

Probably for as long as there have been sales forces, managers have sought ways to determine whether they are effective or not. In the past, salespeople were evaluated on the basis of their sales—that is, did they reach their sales quotas? As the role of the sales force changed from being purely concerned with selling to becoming more involved in marketing and more responsible for maintaining customer relationships,managers recognized the need for expanding evaluative criteria beyond just the achievement of sales goals. The evaluation criteria of today are vastly different from those in the past. Sure, sales are still important, but now other measures are gaining in importance as well.

One of the more often discussed measures is ROI (return on investment).More and more top executives are asking their sales managers for accountability—as in “Are we getting the returns we seek from the sales force?” The idea is that by measuring the impact of programs designed to aid the selling process as well as measuring sales closures, the marketing team can be more effective and efficient. Unfortunately, it isn’t always that easy. In a survey conducted in 2002 of companies with a marketing budget of $1 million or more, 56 percent indicated they had no system for measuring the ROI on their marketing investments. As noted by David Reibstein of the University of Pennsylvania’s Wharton School of Business, “In marketing,benefits like advertising impact aren’t easily put into dollar returns. It takes a leap of faith to come up with a number.” Marketers know that it is often difficult to separate advertising, promotions, and other communications efforts from the selling effort.

Then what about ranking them? Many of the largest firms in America, including GE, Ford, and Microsoft, rank employees by categorizing them as top 20 percent, bottom 10 percent, and the like,with the top getting highly rewarded and the bottom likely to be let go. Others use A, B, or C grades,with two straight C’s constituting grounds for dismissal. Cruel? While Jack Welch, ex-CEO of GE, and Dick Grote, president of Grote Consulting (a performance management company in Texas), don’t think so, eight Ford employees did, and they filed a class-action lawsuit claiming discrimination. A study of 17 large companies, conducted by the American Productivity and Quality Center, corroborated the positions of Grote and Welch, concluding that forced rankings were the most effective way to identify and reward core competencies. Whether rankings outweigh discrimination is still to be seen, however, and may have to be decided in the courts rather than the marketing office.

How about sales per employee as a measure of effectiveness? Saleforce.com, for example, uses sales per employee to compare the relative performance of its sales forces.A steady rise in sales per employee is a sign of improving efficiency. Siebel Systems also employees this system, releasing the lowest-performing 10 percent of its employees. Altera, Bea Systems, and Sun Microsystems also use measures of sales generated by employees to determine if they are operating “fat” or “lean.” James S. Pepitone, chairman of Pepitone,Berkshire, Piaget Worldwide, a management firm based in Dallas, is not sold on the concept.He considers it a relative metric, arguing that “it only has meaning in comparison to itself” and should be used only as an internal benchmark, and a ballpark figure, confounded by numerous other factors.

Well, then,what about quotas? Perhaps we should go to the old reliable and set sales targets and goals.Many companies are scrapping sales quota systems in favor of compensation packages that promote new behaviors among salespeople (like maintaining customer relationships), arguing that the old system doesn’t work anymore. Salespeople have both positive and negative attitudes toward quota dropping.While some feel that it may reduce their sales effectiveness and motivation, others recognize that in today’s customer relationship world, providing service and keeping old customers are as important as finding new ones. They are glad to see the importance of sales quotas diminished. Then what’s a company to do? Many successful companies now use a combination of measures. For example, Siebel Systems—yes, the same company mentioned above—notes that approximately 40 percent of each salesperson’s incentive compensation is based on his or her customers’ reported satisfaction with service and implementation of products purchased. Nortel, eBay, and AT&T employ similar measures. At JD Edwards, up to 20 percent of a sales rep’s earnings are based on two such surveys per year.Many other companies are also moving away from traditional quotabased systems, combining sales goals with less traditional measures such as customer satisfaction, repeat business, profitable revenues, and internal communications. Other measures include prospecting, qualifying, and generating sign-ups to the company’s website.Regardless of what measures are being employed— and there are many more than those mentioned here— the days of the sales quota–based system are on the way out. And no one could be happier than the salespeople themselves.

Relationship Marketing

Relationship marketing is defined as “an organization’s effort to develop a longterm, cost-effective link with individual customers for mutual benefit.” Rather than focusing on a short-term sale, the sales rep tries to establish a long-term bond. And rather than just selling, the sales department works with marketing to use techniques like database marketing, message differentiation to different target markets, and tracking of promotional effects to improve the relationship. For example, customer relationship management (CRM) tools have been used by a number of companies. These companies, including Sears, Wells Fargo, Sony, and GM, among others, make extensive uses of their databases on purchase behavior and frequency and duration of customer interactions to estimate profitability at the individual account level. A number of companies now offer software to assist in implementing CRM programs, including Seibel Systems, SAP, and PeopleSoft (Exhibit 18-1). AT&T builds databases of customers with similar profiles, flagging those with the most potential for up-selling. As noted by Copulsky and Wolf, such marketing uses a more personalized form of communication that crosses the previous boundaries between personal selling and the other promotional tools. Relationship building also requires trust, as noted by Pepper and Rodgers; if the customer does not trust the salesperson, there is no relationship and the sale will focus only on price. In a long-term relationship, the buyer and seller collaborate within the context of previous and future transactions.

Adoption of a CRM approach will require sales managers to develop nontraditional sales strategies, according to some observers. Ingram and colleagues note that companies will need to move to a more strategic, less tactical approach, using emerging technologies to support this effort. Bob Donath agrees, noting that traditional communications performance standards—the number of qualified and converted leads generated from a medium—will be less important. Donath notes that a company’s reliance on websites and banner ads, as well as ads in print publications, will need to be more strategic, direct marketing will assume a greater role, and the use of more sophisticated CRM programs will be required to be successful.

Combining Personal Selling with the Internet

The Internet has been used to provide product information, generate leads, screen prospects, and build and market from databases. While many marketing managers see the Internet taking business away from channel members and direct sales, few are ready to relinquish their sales forces. Even though at least one study predicts that 98 percent of all large companies would be on the Internet by 2002, and that the ROI for direct sales on the Web is five times that for traditional direct marketing, most companies still see the sales force as an integral part of the IMC process— particularly for relationship building.19 Many managers feel that the Web will be used to fulfill the more mundane tasks of order fulfillment and providing information. This in turn will allow the sales force to be more effective in closing orders, doing close selling, and focusing more attention on high-value and/or new customers. Future salespeople will do what is more profitable for the future—that is, sell and develop relationships, not take orders.

A rapidly growing use of the Internet is that of conducting online meetings in which the sales force and/or clients and potential clients participate. Some companies have found that they can save both time and money by conducting their sales meetings online rather than at a central location. More involved presentations—often referred to as “webinars”—may include a variety of purposes, from conducting job training for employees to making presentations and providing in-depth product information to existing and potential customers.

It is important that the elements of the promotional program work together, as each has its specific advantages and disadvantages. While personal selling is valuable in accomplishing certain objectives and supporting other promotional tools, it must be supported by the other elements. Ads, sales promotions, and the like may be targeted to the ultimate user, resellers, or the organization’s sales force. IMC Perspective provides a few examples of companies that have successfully integrated personal selling and other IMC elements.

Motivating the Sales Force

Regardless of how good one’s advertising, public relations, and other IMC programs are, for many companies, it is the sales force that is called on to close the deal—particularly those in the businessto- business market. As you might imagine, there is always a need for good salespeople, and companies do whatever they can to attract and retain them and to motivate them to continue to do good work—regardless of the industry. As the business environment changes, so too do the needs and wants of the sales force. In the past, when the salesman was the breadwinner, money worked well. By providing the sales force with the opportunity to earn more money by working harder, motivation was easily achieved. But now, times have changed. Dual-worker families, more emphasis on lifestyles, and more opportunities are just some of the factors that are resulting in more diversified salespeople and that explain why money in and of itself doesn’t cut it like it used to. So companies have explored a number of options, as seen in the following examples:
• Jupiter Media Metrix. As the competition between Jupiter and its number-one rival Forrester Research (both provide Internet research services) intensified, Forrester hung a sign in its headquarters’ office inspiring employees to “Beat Jupiter.” In response, Jupiter initiated a motivation of its own: leather boxing gloves in the lobby showcase of its New York offices. Each quarter, the sales rep who “scores the biggest knockout” against rival Forrester gets to autograph the gloves.
• Hobart. The Ohio-based commercial food manufacturer—whose equipment is in the White House—outfitted the White House cafeteria on the TV show West Wing with its equipment. The product placement was well received by the sales force, but to add even more to the punch, the national sales force meeting was held in Hollywood and topperforming salespeople got to tour the set and meet actor Martin Sheen. As noted by Dean Landeche, vice president of marketing for Hobart, “It became the buzz around our campus for quite some time.”
• Guardian Life Insurance. Among the hardest groups to motivate are the sales forces of insurance companies. As noted by one ex-agent, “The industry is unique in a sense in that we are working with unmotivated buyers—people who have a need for what an agent sells, but do not believe they need to buy it yet. We all deny we are going to die.” Keeping salespeople motivated is critical, and companies have taken various approaches. Guardian Life Insurance has created an online “university,” available 24 hours a day, to provide its sales force with desired training. The company also holds regional motivational sales meetings and provides access to outside motivation sources. Sales reps demand, and receive, constantly updated information on “hot topics” to keep them as aware of trends as their increasingly sophisticated clients are. Other companies have come up with their own incentives, ranging from money to trips to trophies. Mark McMaster, writing in Sales & Marketing Management magazine, suggests 51 possibilities, including:
• Have each salesperson bring a joke to the sales meeting.
• Hold a meeting where the only agenda item is popcorn.
• Rent a Porsche Boxster for use by the top performer for the weekend.
• Adopt an animal at the zoo and name it after the top achiever.
• Bring in a comedian for a 7 A.M. sales meeting.
McMaster provides another 46 possibilities, including playing games of tag, providing hotel upgrades, and encouraging practical jokes in the office. Interestingly, none of these include paying more money. Maybe money just doesn’t motivate people anymore!

Data Mining as a Marketting Strategy

Internet-based marketing strategies generate extremely large data sets from customer interactions. Purchase histories, financial records, customer service records, and Web site usage are just some of the data that reside in customer databases. In order to transform this mountain of diverse data into operationally useful information, marketers are increasingly using data mining procedures. Data mining is the computerbased exploration and analysis of large quantities of data in order to discover meaningful patterns and rules for the purpose of improving marketing, sales, and customer support operations. The combination of data mining procedures with data warehousing enables the MDSS to move beyond just support for the operational processes in the marketing organization and to focus on actual customer behavior. Data mining and data warehousing provide the means and the infrastructure for extracting strategic opportunity from knowledge of the customer.

a. The Data Mining Process
Large, multinational organizations produce much more marketing data per day than its managers can assimilate. The Internet facilitates the rapid growth of data on a worldwide basis. However, exponential growth of data can, paradoxically, lead to a situation where more data leads to less information as managers become swamped by the flood of data that defies ready interpretation. Marketers need to develop procedures for processing, filtering, and interpreting this data for strategic marketing purposes. Data mining is essentially the engine for a knowledge-based marketing strategy. It provides the ability to collect, process, disseminate, and act upon information more rapidly than the competition which is essential for the creation of first-mover advantage.

The first step in the process is to collect data on what the customer does. On-line transaction processing (OLTP) systems do precisely that. Virtually everything a customer does when purchasing a product or service generates a string of transaction records. If the customer calls an “800” number to order a product, the phone company will capture data on the time of the call, the number dialed, and the duration of the call. The marketing company will generate similar data in addition to that on products and services purchased, catalog referenced, special offers, credit card number, order size, and time since last purchase. Further transactions are generated by the order entry, billing, and shipping systems. The bank and the shipping company will log further transactions. The customer may need to call customer service to solve postpurchase problems. Internet transactions can generate even more data as the customer’s purchase behavior can be linked to Web-browsing behavior within a site and throughout the Web. This data can then be linked to purchase histories, financial history, and other personal-identity information.

Magazine Ads

For years magazine publishers focused most of their attention on selling ads in their magazines and devoted less attention to proving the ads were effective. At many magazines, efforts at measuring effectiveness were often limited to tracking consumer response to 800 numbers that appeared in print ads. However, the carefree days are over as many new advertising media have emerged, such as niche-oriented cable TV networks, narrowly targeted radio stations, and the Internet. Moreover, there are more than twice as many magazines competing for media dollars as there were a decade ago.With so many media options available,marketers now want tangible proof that magazine advertising is effective and can build brand awareness, help position a brand,or actually deliver sales.

Magazines have typically promised advertisers exposure or access to a well-defined audience such as fashion-conscious young women, sports-obsessed men, or automotive buffs. However, advertisers want evidence of more than exposure. They want proof that seeing an ad for Calvin Klein jeans in Cosmo makes readers more likely to spend $80 to buy them or that placing an ad for a Volkswagen Jetta in Rolling Stone helps the brand stick in consumers’ minds long enough to influence their next auto purchase. The executive vice president of Conde Naste Publications, Inc.,which publishes popular titles such as Vogue, GQ, Glamour, and Vanity Fair, says: “Twenty years ago, our only obligation to advertisers was to gather people who would see the ad. Now we must prove the ad actually does something. Sometimes, that’s possible; sometimes it’s not.”

Magazines increasingly have to compete against media that can provide evidence that their ads do indeed do something. For example, the Internet can show accountability instantly because consumers’ movements and purchases can be tracked through their mouse clicks. And with new digital technology, television sets will soon become transactional tools, allowing consumers to order information and goods right from their sofas with a remote control. Magazines can ill afford to wait any longer to prove that they work.

The magazine industry is taking steps to address the accountability issue. The industry’s lead trade group, Magazine Publishers of America (MPA), recently spent half a million dollars investigating ways to prove magazine effectiveness. One of the group’s studies found that boosting ad spending in magazines increased short-term sales of products and also generated more sales over time. Sales increased among magazine-exposed households for 8 of the 10 brands measured. Individual magazines are also trying to prove how advertising in their pages can help build a brand or move the sales needle. Another phase of the study found a significant relationship between advertising awareness and purchase intention. Moreover, awareness attributed to a combination of both television and magazines was most strongly related to positive changes in purchase intention. This “media multiplier” effect occurs because the heavy magazine reader is traditionally a light TV viewer and magazines deliver a new audience when added to a heavy TV schedule and can also help build frequency. Consumers’ loyalty to magazines and their willingness to spend uninterrupted, focused time with them has always been a powerful selling point for the medium. Now, however, magazines must prove that their connection with readers will generate sales for the companies that advertise in them. As Chris Miller, the MPA’s head of marketing, notes: “One of the most important questions for this industry is the bottomline question—does it drive sales?”

Readership and Total Audience

Advertisers are often interested in the number of people a publication reaches as a result of secondary, or pass-along, readership. Pass-along readership can occur when the primary subscriber or purchaser gives a magazine to another person or when the publication is read in doctors’ waiting rooms or beauty salons, on airplanes, and so forth. Advertisers generally attach greater value to the primary in-home reader than the pass-along reader or out-of-home reader, as the former generally spends more time with the publication, picks it up more often, and receives greater satisfaction from it. Thus, this reader is more likely to be attentive and responsive to ads. However, the value of pass-along readers should not be discounted. They can greatly expand a magazine’s readership. People magazine commissioned a media research study to determine that its out-of-home audience spends as much time reading the publication as do its primary in-home readers.

You can calculate the total audience, or readership, of a magazine by multiplying the readers per copy (the total number of primary and pass-along readers) by the circulation of an average issue. For example, a magazine that has a circulation of 1 million and 3.5 readers per copy has a total audience of 3.5 million. However, rate structures are generally based on the more verifiable primary circulation figures, and many media planners devalue pass-along readers by as much as 50 percent. Total readership estimates are reported by major syndicated magazine research services, but media buyers view these numbers with suspicion.

Circulation

Circulation figures represent the number of individuals who receive a publication through either subscription or store purchase. The number of copies distributed to these original subscribers or purchasers is known as primary circulation and is the basis for the magazine’s rate structure. Circulation fluctuates from issue to issue, particularly for magazines that rely heavily on retail or newsstand sales. Many publications base their rates on guaranteed circulation and give advertisers a rebate if the number of delivered magazines falls below the guarantee. To minimize rebating, most guaranteed circulation figures are conservative; that is, they are set safely below the average actual delivered circulation. Advertisers are not charged for any excess circulation.

Many publishers became unhappy with the guaranteed circulation concept, since it requires them to provide refunds if guarantees are not met but results in a bonus for advertisers when circulation exceeds the guarantee. Thus, many publications have gone to a circulation rate base system. Rates are based on a set average circulation that is nearly always below the actual circulation delivered by a given issue but carries no guarantee. However, circulation is unlikely to fall below the rate base, since this would reflect negatively on the publication and make it difficult to attract advertisers at prevailing rates.

How Effective Is Advertising?

There is a widespread belief by the general public that advertising has powerful effects. This belief sometimes results in demands for the governmental regulation of advertising, especially regulations designed to protect certain groups (in particular, children) and to outlaw deceptive practices. Despite this belief in the power of advertising, economic time-series studies have found small or no effects of the amount a firm spends on advertising on either growth in market share or total product-category sales. Similarly, experimental investigations of single exposures to advertisements find that few people pay attention to any specific advertisement exposure and what little effects are created usually dissipate quickly. However, given the pervasiveness of the mass media, even small effects can be socially significant.

Although the perception that advertising always produces strong effects is probably untrue, there are numerous examples of advertising effectiveness under specific conditions. For example, great advertising campaigns – Ogilvy’s Hathaway shirt man, Leo Burnett’s Marlboro man, Doyle Dane Bernbach’s Volkswagen advertisements, and Chiat/Day’s 1984 Macintosh advertisement – all produced measurable results. Political advertising is especially effective when the candidates are relatively unknown. Econometric studies find that advertising is effective when a brand has hidden qualities or a relative differential advantage. Copy-testing of specific advertisements indicates that communication objectives are often obtained. Advertisers have attempted to specify what makes an effective advertisement (see Ogilvy, 1983). For example, Rosser Reeves argues that an advertisement should have a “Unique Selling Proposition”; Leo Burnett believes an advertisement should portray the inherent drama of the product; John Caples and David Ogilvy have developed guidelines for creating effective advertisements. Social critics also point out that advertising can have indirect effects including: maintaining social stereotypes (see STEREOTYPING), creating a consumer culture, producing a nation of conformists, and specifying false choices (i.e., Chevy versus Ford as opposed to cars versus mass transportation). As with direct effects, it is difficult to state how many of these social effects are attributable to advertising versus other aspects of a mass-market society. However, both correlational and experimental research lend support to the argument that advertising does create pictures in our heads of what the world is and should be.
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