Immediate Rewards & Consumer Behavior

Immediate rewards are categorised as product based promotions, this includes three groups; bonus packs, multi packs and free-gifts. Bonus packs are special factory packs that offer consumers more of a product at the same price (e.g. 10%, 20%, 50% extra product free) or offering a large pack for the price of the small pack. Multi packs are two or more packs banded together and offered at a reduced price; the super deal in multi pack promotions would be the ‘BOGOF’ (buy one, get one free) and 3 for 2 offers.

Cross promotions can be classified as an immediate reward (buy pasta sauce and get pasta free).Free-gifts can be made available in a variety of ways; the on-pack free-gift, the in-pack free-gift, the with pack free-gift, and the pack itself being the free-gift.

There are also some contests such as the Walkers crisps �20 and �5 notes and free pack coupons giveaway in a form of a potential immediate reward as not all bags of Walkers contain these prizes.

Promotions similar to the Boots Advantage Card whereby bonus points are accumulated to save money off the next purchase or a free-gift depending on how many points have been collected; (even though the procedure of collecting points may be lengthy) the procedure of redeeming the points at a moment in time can be considered as an immediate reward.

“Bonus packs, on-packs, in-packs, with packs and speciality containers all make products more appealing to consumers. They appear to “reward” them for their purchases, thereby possibly generating positive feelings toward the brand.

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Crossruffed premiums that consist of samples of other products made by the same manufacture may cause people to try those brands, which may result in future demand for them”.

Non-immediate promotions such as coupons, self liquidating premiums (SLP) and free mail ins (FMI) have minimal trade interest, coupons may be removed from the pack and misredeemed or malredeemed, they can appeal to a limited audience and have a high drop-out rate if not targeted at strong prospects. High value coupons can equal high risk of coupon abuse and are less attractive at low face values, it can easily be countered by the competition with the same or stronger reward level and redemption levels are uncertain. There is a low participation rate, they can cause difficulties of premium stock control and have minimal sales effect.

Unlike non-immediate promotions, immediate rewards are attractive as they present an immediate gain to the consumer at the point of purchase; it has a direct impact. The promotions make the consumer feel good about themselves; the warm tingly feeling of getting a bargain and generates a positive feeling towards the brand. The packaging is usually eye catching, visual and exciting and the perceived value is higher than the cost to provide to the consumer; these offers have considerable on-shelf impact and high visibility and are a strong trial motivator as risk to consumer is removed. They allow consumers to make up their minds on complex or expensive propositions and can draw in applicants who would have declined otherwise, a strong gift can tempt even new users. Product based offers can generate high levels of motivation and participation and stimulate purchase; these promotions are instant.

In regards to the brand immediate rewards may gain display space, especially if off-pack, as extra point-of-sale material will be needed to announce the offer, they can produce high incremental sales and a good offer can make a statement about the brand’s qualities. It can be economical for manufactures than money-off, it adds value to the brand and some promotions require no changes to the basic packaging (multi-pack), carrier products offer added value and the carried product offer brand awareness and trial. The promotion can drive loyalty and lock in portfolio buyers and strong offers may encourage immediate multiple purchases and so drive volume. Brands want to create a positive aura about themselves, sales promotion can help enhance the qualities of the brand; as well as a product based promotion being executed, if it is tied in will a cause related promotion (e.g. every unit bought 15p will go to charity) this can help increase a positive image of the brand.

According to Lenard C. ‘et al’., (1998) consumers like promotions, they provide utilitarian benefits such as monetary savings, added value, increased quality, and convenience, as well as hedonic/pleasure benefits such as entertainment, exploration, and self-expression. Diamond and Sanyal., (1990) suggests that consumers perceive deals that are framed as presenting gains (“buy one get one free'”) as more attractive versus those that are framed as reducing losses (“get 50 percent off”). Inman ‘et al’., (1997) found that deals with restrictions such as ‘Limit 2 per customer’ or ‘Offer good until certain date’ elicit higher evaluations from consumers than the same deals without such restrictions. According to Seibert., (1997) even within diverse forms of equivalent extra product (known as bonus-pack or volume) promotions, 91 percent of surveyed consumers appeared to favour the deal when it (the identical deal) was stated as ‘percent more free’ rather than ‘percent free’ and ‘units free’. These results are important as they can emphasize the impact that framing of the promotional offer has on consumers’ deal evaluation.

Many of these types of immediate reward promotions can trigger the consumer to stockpile the product, and that alone can keep them away from the market place and competitors cannot have the chance to woo these consumers into buying a rival brand. The more the consumer has the more they will utilize or devour the merchandise; their consumption level increases, consequently, they will become familiar with the brand, which can ultimately result in brand loyalty.

Research conducted by Ehrenberg ‘et al’., (1994) suggests that price promotions do not generally encourage people to trial a new brand, this works in portfolio markets (frequently bought goods such as groceries, petrol, cosmetics and toiletries, etc). Immediate rewards can be seen to work in the same way as price promotions in that they can encourage consumers to switch between brands that are already in their portfolio (i.e. they have bought them in the past), accelerate purchases, stockpile the promoted product and expand overall sales.

To distinguish why immediate rewards are effective through consumer perception tools such as perceptual mapping and consumer surveys are useful. To observe whether immediate rewards are effective in regards to the company, sales data, AGB market research, Nielsen marketing research and tracking devices all provide a view of whether a promotion was successful/will be successful in the future.

There can be many factors effecting consumer perception; Grewal ‘et al’., (1996) found that consumer perceptions of transaction value will be greater under positive mood than under negative mood. Further more, shoppers in a positive mood are likely to attend more to the favourable side of discount offerings (e.g. obtaining products at lower costs) or they may retrieve positive toned material from their memory at the time of judgement. Consequently, even a small extra discount may add to their pleasure. (Grewal ‘et al’., (1996) model of the effects of comparative price advertising on perceptions of value and proposed mood effects on perceived transaction value are on page 10-11).

Free-gifts can often be linked to pester power; Kellogg’s, McDonalds, Burger King are big users of free-gift items. Pester Power is the name given to marketing techniques which encourage children to nag their parents to purchase a particular product. For instance, advertisers use famous pop stars such as S Club 7 and footballers such as David Beckham to entice children into wanting their products. Link-ups with children’s films and cartoon characters are another enormous money-spinner. In July 2002 McDonald’s Happy Meal, came with a free Smurf character – one of nine characters which children are encouraged to collect.

Children love collecting toys and McDonald’s in particular have made this a key element in encouraging children to eat their food. Therefore, in large part, understanding the children’s market necessitates knowledge of the complex inter-relationship between parents, primarily mothers, as purchasers and children as end users. Even though the children may not pay for the items, the growth in the appreciation of pester power is indicative of the fact that children, like their adult counterparts, are becoming accomplished consumers at an even younger age. In recent years, pester power has been one of the buzzwords of the children marketing industry. Harnessing its power has become a holy grail for those who believe it to be the key to parents’ purse strings.

The shortcomings with immediate rewards are as follows: bonus packs require changes to packaging and this is not available to all brands, it may be very costly to short-run and can present shelving problems to trade, bonus packs can have drawbacks in terms of production capability, warehousing, shipping, inventory, and shelving. Some oversize containers need significant modifications in the filling process. In some cases, the bonus pack bottle may be an inch higher or the ‘buy-one-get-one-free’ pack twice as big, and so will not fit on the shelf. Multi packs can also cause shelving difficulties, they may be costly to run as banding is labour intensive (especially for smaller manufacturers) and requires considerable lead-time (manufactures do not produce the normal amount of their product when banding them together, the amount decreases). Free-gifts can be potentially expensive, merchandise is subject to pilferage, if the item is missing the consumer is less likely to buy the product, it can be difficult to identify suitable products and may affect brand image if the gift is not of an adequate quality.

When stockpiling occurs companies need to ensure that there is enough of the product available to suit demand as this can result in the consumer buying a rival brand and in bad publicity for the company that can consequently effect the brand image. Additional promotion to the trade may need to be implemented in return for efficient stocking of shelves/a point of sale/extra shelving space/allowing wobblers or footprints leading to the promoted product to be used in-store; meaning more money spent by the company, the more a company wants to be noticed the more money is needed to do so. Promotions are not as profitable as when the volume of merchandise is sold normally, after a promotion is conducted it may be difficult for companies to sell their product at the regular price and quantity.

If a retailer is providing an immediate reward and the manufacture disagrees with it because it may potentially damage and undermine the brand image problems may occur, such as court hearings, as happened in the past with Levi and Calvin Klein objecting to their product being sold at an inferior price at supermarket chains such as Tesco.

“Bonus packs are generally unappealing to consumers who do not usually buy the product (‘if I don’t usually use margarine, why would I want an extra 6oz of the product?’). Also, in many cases, consumers may not believe that they are getting extra product for their money, suspecting that the price had been raised or that the new quantity offered is actually the regular amount”.

Can the quotes above really reflect the truth about what consumer’s think, if we stop to observe a supermarket floor when the store is executing big deals such as buy-one-get-one-free (which in theory is 100% free) and the product is in the consumer’s portfolio, do we see the majority of consumers not buying into that product? The answer would be a strong no! Stores such as Safeway often put a limit to the amount a customer can buy because the products offered are swiftly purchased, this can be proof enough that consumers tend to be pleased of promotions and stock-up.

According to Ehrenberg, (2002 e-mail) 1. If immediate rewards have big effects, they are usually up and then down again (like with promotions). Put another way, immediate reward schemes are usually too costly to sustain over time. 2. Most market changes are slow. At any one time, any ‘effect’ therefore looks small. Accumulated over time the ‘effect’ can be bigger. However, it is then likely to be confused by other marketing-mix inputs.

Smith ‘et al’., (2000) discovered that the results for price points suggested that subjects generally preferred price promotions for higher priced categories; however, they preferred volume promotions for lower priced categories, again demonstrating the importance of transaction value.

Sales promotions affect brand sales in numerous ways for instance brand switching, stock piling, purchase acceleration and category expansion. However, not each and every one of these effects need to be present for all types of sales promotions. In the case of a short-term shelf-price reduction valid only for a week, customers will have more incentive to stockpile the product as opposed to a coupon promotion with a longer validity period.

Sales promotion activities are by no means going to be uniformly profitable to all players in the market place but almost all companies need to utilize sales promotions as either offensive and/or defensive tools in the never ending battle for markets, Smith ‘et al’., (2000). Companies need to weigh out their objectives and link them to the effective type of promotion right for them, what is the promotion that will achieve the factor they want? Sales promotions are unique in their ability to respond in quick, focused, and flexible ways to motivate consumer or trade or counter attack the sales promotion activities of competitors.

There are many types of sales promotions, from coupons to contests and sweepstakes, refunds and sampling to continuity programs and trade deals. Blattberg and Neslin,. (1990) summarises the popular sales promotional tools on page 10.

Sales promotion is all about getting the brand noticed, to build brand awareness, to induce trial of a new brand or modified brand, to retain previous customers and create brand loyalty. The greater the sample group the brand entices the bigger the number of consumers likely to stay with the brand, the longer the promotion the greater the figure of samplers, however the longer the promotion the more expensive it becomes.

An integrated effort of all marketing communication tools can achieve better results for a long-term benefit for the brand, than just singular tools used.