New retail imperatives drive consumer premiums
Premiums: Offers that Consumers Can't Refuse

By Nancy Rooks

Everyone knows that marketing consumer products is tougher and more challenging than ever before. The poor global economy is a given, as are tighter margins and competition at every turn. The real question is how creative marketers can successfully maneuver in this fast-moving market.

One smart strategy is to re-evaluate every tool in your marketing toolbox. Marketers are rediscovering one of these tools—premium promotions—since it is one of the few promotional vehicles that also leverages the three key marketing components and sales lift:

• Consumer promotion (achieve short term sales and volume lift);
• Trade (support retailer and manufacturer relationship); and
• Advertising (build long-term brand equity).

Perhaps the oldest form of promotion, premiums engage consumers in new ways to immediately increase sales and velocity while building and supporting brand equity. Whether in-pack, on-pack, near-pack, mail-in or container-pack, premiums offer marketers unique methods for influencing sales at the critical P-O-P. Keep in mind that premium promotions are a solution, not a tactic. All key brand objectives are achievable via premium promotions—including trial and awareness, purchase frequency, continuity, alternate usage and multiple purchase.

Several retail trends have converged to make premium promotions more valuable to today’s consumer products marketers. For one, the in-store environment changed dramatically as retail has evolved from a means of distribution to a marketing channel. While thousands of advertising messages are delivered to consumers outside of the store environment, the decisive moment comes when the consumer is in the store, cash in hand. Indeed, 70% of decisions are made in store; at mass merchandise outlets this figure is an even higher 74%. That means product marketers need an added advantage at retail—the kind of advantage that on-pack, in-pack and near pack promotions can deliver.

Of course, mass marketers aren’t the only ones seeking novel ways to move product. U.S. grocery store sales ($682.3 billion a year, according to the U.S. Department of Commerce) are driven by consumers who assess the performance, quality and value that brands offer relative to other products. On any given day, the average supermarket outlet has 400 to 500 different brands being promoted at point of sale. With this level of competition, a brand marketer needs higher shelf profile—the kind a P-O-P promotion can deliver.

Another key marketing trend is retail consolidation. Bigger, more powerful retailers have seized control of distribution, moving it from manufacturers/marketers to buyers at a handful of giant chains. Marketers can no longer dictate terms to retailers; to be successful, they must bring something extra to the table when trying to convince retailers to carry and support their products. Marketers must work with retailers in a coordinated team effort to influence and persuade customers well after the advertising message has been delivered.

Marketers are getting the point; in-store promotions are the fastest growing promotional vehicle today and P-O-P expenditures are increasing faster than any other in-store vehicles.

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Smarter Spending
Premium promotions integrate well with traditional trade promotion and can make it more efficient. Today, almost 60% of marketing dollars go to trade promotion (including account-specific spending); this is nearly 17% of gross sales for a typical packaged goods company, according to estimates from Cannondale Associates. This doesn’t include other promotions targeted to consumers through retail, which represents at least another 5% of total marketing dollars.

Managing trade spending is a major concern, particularly since many marketers have identified inefficiencies with trade. Instead, premium promotions can ensure that retailer allowances are precisely channeled into effective programs. Since premium promotions are a tangible, direct marketing vehicle, increased premium spending provides measurable and often dramatic results. They fit perfectly with “the store as media” concept.

And, since retailers are always looking for “exclusive advantages” over their competition, premium promotions can be easily tailored to key accounts such as Wal-Mart, Kroger and Target. These retailers understand that such programs can move product quickly: In supermarkets, there is a 2.78 times greater likelihood that a consumer will buy a product when a near-pack display is present.

Before offering premium promotions, however, understand the nuances of different retail environments. For example, traditional retailers will allow in-, on-, or near-pack premiums for a promotional period, after which they must be removed. Mass merchandisers typically do not allow freestanding displays in their stores, so marketers must create “kits” or self contained units that contain the premium on store shelving

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Who wins?
Premium promotions typically create a “triple win” for marketers, retailers and consumers. Marketers can expect:

• A point of difference over competing trade offers;
• Additional display and merchandising;
• Good “ammunition” for their sales force;
• Motivated consumers: Two out of three consumers who buy an item promoted via P-O-P say the display or kit influences their decision.

For retailers, premiums provide:

• Fast-moving product;
• Potential for exclusivity;
• Self-liquidating promotions;
• An alternative to price discounting;
• Consumer loyalty.

And finally, consumers benefit from premium promotions by gaining:

• Added value from the shopping experience;
• Instant gratification;
• Better perceived value.

Don’t confuse premium promotions with trinkets and trash, or ignore their strategic
and “brand lifting” power. Well-designed premium programs reinforce and enhance brand value. Like any marketing tool, they must be carefully created, timed, manufactured and delivered. Further, safety and regulatory issues must be addressed throughout all stages of the program.

Consider the goals of the overall marketing program to determine if a premium will be effective, and only then decide which premium “fits” best. Consumer product markets should create a marketing program that includes a premium—not a premium program that needs to be marketed. Premiums are almost never the main point of a promotion—but they can make it work a lot better than you ever imagined.

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