Sales promotion is the arm of marketing that deals with creating special short-term incentives to increase demand for particular brands or products. Examples of common sales promotions include coupons, buy-one-get-one offers, loyalty cards and in-store sales. Sales promotions strategies are based on specific theories of marketplace behaviour and psychology. Understanding the theories of sales promotions can be useful for both business owners and consumers.
Push Demand Theory
One objective of sales promotions is to create what is termed "push demand." The theory behind it is that if a company can convince its suppliers to stock up on a particular product by offering a promotion, the supplier will then push the product onto its own customers with its own promotional offers.
As an example, consider a manufacturer of tinned soup. The manufacturer may offer grocery distributors free samples of a new soup and offer deep discounts for buying in bulk. When the distributor buys the new soup, it will be overstocked on the item, and will then offer the soup at a discount to grocery store chains, which will in turn offer a special price discount to move it off of their shelves.
Pull Demand Theory
The pull demand theory operates from the consumer side of the equation. Creating pull demand involves offering a special promotion to customers for a product that is not yet stocked in a wide range of outlets. The theory is that consumers seeking the promotion will ask their local stores for the product, and the stores will then purchase and stock the product in response.
A major contributing theory to sales promotions strategies is that consumers tend to be highly price sensitive for certain product categories. In these generally undifferentiated industries, offering a temporary reduction in price or increase in services for the same price can allow companies to gain market share from their competitors for a short time.
Consider automobiles, for example. Auto manufacturers as a whole often create "classes" of cars by creating very similar products for the same target markets. Automakers can sway short-term demand in their favour away from competitors' nearly identical offerings with cash rebates and financing promotions.
Consumer psychology plays a major role in every aspect of marketing, and promotions is no exception. Once an individual develops a pattern of behaviour, that pattern can be difficult to break, even if circumstances slightly change. Sales promotions capitalise on this theory by encouraging purchase habits for a short time in the hopes that consumers will continue to purchase their brand when the promotion has ended. This tactic can be highly effective when you offer a product that is truly superior to competitors' offerings at a similar price.