Sales Promotions – Good or Bad?

Dr. James Manalel*

Jose M. C.**
Siby Zacharias***
Introduction
Sales promotions have become a vital tool for marketers and its importance has been increasing
significantly over the years. In India, sales promotions expenditure by various marketing
companies is estimated to be Rs 5,000 crores and the emphasis on sales promotion activities by
the Indian industry has increased by 500 to 600 percent during the last 3 to 5 years (Economic
Times, June 15, 2003). In the year 2001, there were as many as 2,050 promotional schemes in the
Rs 80,000 crore FMCG Industry (Dang et. al, 2005).
Given the growing importance of sales promotion, there has been considerable interest in the
effect of sales promotion on different dimensions such as consumers’ price perceptions, brand
choice, brand switching behaviour, evaluation of brand equity, effect on brand perception and so
on. One of the purposes of a consumer promotion is to elicit a direct impact on the purchase
behaviour of the firm’s customers (Kotler, 1998; Blattberg and Neslin, 1990). Research evidence
suggests that sales promotions positively affect shot-term sales (Priya, 2004). Research on price
promotion has consistently reported high sales effect and high price elasticity for brands which
are on promotion (Blattberg, Briesch and Fox, 1995). Studies have shown that price promotions
enhance brand substitution within a product category (Dodson et al, 1978), affect aggregate sales
(Gupta, 1998), and significantly affect stock piling and purchase acceleration (Blattberg, Eppen
and Lieberman, 1981, Neslin, Henderson and Quelch, 1985). However, there have also been
studies that suggest that sales promotion affects brand perceptions.
Researchers have found out that promotions, especially price promotions, have negative effect on
brand equity (Mela et al, 1997). In another study, Schultz (2004) argues that over dependence on
promotions can erode consumers’ price-value equation. The results of a study by Jedidi et. al
(1999) indicates that in the long term, advertising has a positive effect on brand equity where as
price promotions have a negative effect. Similarly, Yoo et. al (2000), based on structural equation
model, suggests that frequent price promotions, such as price deals are related to low brand
equity, where as high advertising spending, high price, good store image and high distribution
intensity are related to high brand equity. There is also a managerial belief that if a brand is
supported with frequent promotional offers, the equity of the brand tends to get diluted. On the
contrary, there have also been studies that indicate brands benefit from promotions. Amongst the
elements of marketing mix, sales promotions have long-term influence on brand equity (Yoo et.
al, 2000). Mariola & Elina, (2005), based on a sample of 167 buyers suggest that monetary and
non-monetary promotions are useful to create brand equity because of their positive effect on
brand knowledge structures.
The researchers in this study propose to explore whether the phenomenal growth of sales
promotion as a promotional tool in marketing products in India is perceived favorably by the
consumers and examine the differential effect, if any, of two types of sales promotion namely
cash discount and free gift on consumers perception.
Objectives of the Study
The specific objectives of the study are:
1. To examine the perception of customers on sales promotion
2. To examine the differential effect, if any of two types of sales promotions Viz., cash discount
and free gift on the perception of customers.

* Reader, SMS, CUSAT. E-mail: [email protected]

** Senior Scale Lecturer (Statistics), S. B. College, Changanacherry. E-mail: [email protected]
***Corresponding author: Assistant Prof., BIMS, S.B College, Changanacherry. E-mail: [email protected];
[email protected]
Part IV – Advertising & Society

Hypotheses of the Study are:

1. H0: The customers perceive sales promotions favorably.
2. H0: There is no differential effect on consumer perception about type of promotions Viz. cash
discount and free gift.
Defining the Terms Used in the Study
For the purpose of our study, we follow the definition of sales promotions as a “diverse collection
of incentive tools, mostly, short term designed to stimulate quicker and/ or greater purchase of
particular products/services by consumers” (Kotler, 1998). Sales promotions are classified as
price and non- price based on the nature promotions (Campbell and Diamond, 1992; Blattberg
and Neslin, 1990). Price promotions are defined as ‘promotions such as Coupons, Cents off,
Refunds, and Rebates that temporarily reduce the cost of the goods or service’ (Cooke, 1983).
Non- price promotions are defined as promotions such as giveaways (freebees), or contests in
which value is temporarily added to the product at full price.
Methodology
The study is based on primary data derived through sample survey using pre-tested structured
instrument (questionnaire). In order to study the perception of customers on sales promotion, the
researchers used fast moving consumer durables, CTV, Washing machines, refrigerator etc.
customers as respondents.
The instrument consisted of questions pertaining to experience in availing schemes, interest in
schemes, perception about the scheme etc. The questions were framed such a way that
researchers can identify whether they will recommend the scheme or not and any difference
between two types of sales promotions Viz. cash discount and free gift. Data was collected from
120 consumers in Kottayam District.
For testing the hypotheses, Chi-square tests were administered at 5% level of significance.
Findings of the Study
1. Experience in availing schemes
Inferences
Table 1 shows that, among the 120 respondents, 41 (34.2%) have availed promotional schemes
while purchasing the products and 79 (65.8%) have not availed any such schemes
Table No. 1
Availed Scheme Number Percentage
Yes 41 34.2
No 79 65.8
Total 120 100
2. Perception about Promotional Schemes
Inferences
Table 2 shows that, 33 (27.5%) of the respondents have perceived that promotional activities are
genuine, 42 (35%) have perceived negative and 45 (37.5%) are doubtful.
Table No. 2
Genuine or not Number Percentage
Yes 33 27.5
No 42 35.0
Doubtful 45 37.5
Total 120 100

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Part IV – Advertising & Society

3. Interest in Promotional Schemes

Inferences
Table 3 shows 39 (32.5%) of the respondents are interested in purchasing products under
promotional schemes, 31 (25.8%) are not all interested in availing schemes and 50 (41.7%) will
respond to the scheme on merit.
Table No. 3
Interested Number Percentage
Yes 39 32.5
No 31 25.8
Depends on scheme 50 41.7
Total 120 100
4. Cash Discount Vs Free Gift
Inferences
Table 4 shows that 67 (55.8%) of the respondents are for cash discount while 53 (44.2%) consider
free gift better than cash discount.
Table No. 4
Promotional schemes Number Percentage
Cash discount 67 55.8
Free Gift 53 44.2
Total 120 100
5. Promotional Scheme Vs Satisfaction
Inferences
Table 5 shows that out of the 120 respondents only 41 have availed some or other promotional
schemes. Only 13 (31.7%) are satisfied with promotional schemes while 28 (68.3%) are not at
all satisfied with schemes. Proportion of unsatisfied customers is significantly higher than the
unsatisfied respondents.
Chi square test indicate that cash discount and free gift are not significantly different as
far as satisfaction is concerned.
Table No. 5
Observed Frequencies
Are you satisfied
Scheme availed Yes No Total
Cash discount 8 14 22
Free Gift 5 14 19
Total 13 28 41
Critical Value = 3.841455, p-Value = 0.490541
6. Whether Promotional Schemes Will Be Recommended
Inferences
Table 6: Chi square test shows that irrespective of whether a respondent have availed
scheme or not they are not going to recommend this scheme to friends.
Table No. 6
Observed Frequencies
Will you recommend scheme
Have you availed scheme Yes No Total
Yes 13 28 41
No 20 59 79
Total 33 87 120
Critical Value = 3.841455338, p-Value = 0.457119007

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7. Reason for not recommending

Inferences
Table 7 shows that respondents are not recommending sales promotion schemes because products
thus purchased having less quality, not proper after sales service, schemes are not credible and
durability of the products are in question.
Table No. 7
1 Product Quality 23 29.1%
2 After Sales Service 18 22.8%
3 Genuineness (Credibility) 17 24.7%
4 Durability 21 30.4%
Conclusion
The study finds ample evidence to conclude sales promotion schemes are not perceived favorably
by respondents and there is no differential effect between two types of promotional schemes Viz.
cash discount and free gifts. In summary the conclusion drawn from the study are :-
¾ The customers are not perceiving sales promotion scheme favorably (Null Hypotheses 01 is
not supported).
¾ There is no differential effect on consumer perception about type of schemes Viz. cash
discount and free gift (Null Hypotheses 02 is supported)
Scope for further research
The study should be extended to different product categories in fast moving consumer durables.
The study will be conclusive if Fast Moving Consumer Goods (FMCG) consumers are also
considered for study. The profiles of the respondents, the geographic, demographic or
psychographic are to be considered for further studies.
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