|
|
|
|
|
       
|
CASE GAME The Case Of Sales Promotion Should VK Appliances continue with its sales promos to ratchet revenues? Consultant A. Marfatia, M.G. Parameswaran of FCB-Ulka, and V. Crishna of Godrej Appliances debate. By R. Chandrasekhar
In the 40 minutes that D'Costa had already spent at the showroom, he was getting mixed signals from observing customers. But he knew that a clearer picture would emerge once the army of 'ghost' customers unleashed by the company last week returned to the headquarters with its findings. For now, though, one thing seemed clear. The dealer's salesman was the biggest influencing factor on purchase decision. Even if a customer walked in with pre-conceived notions about a particular brand, the salesman almost always managed to sell the customer what he thought was the best option given the customer's budget and need. Surprisingly enough, the customer invariably seemed happy delegating the decision-making to the salesman. ''Promotional incentives,'' D'Costa said to himself, ''seem to figure low on the list of priorities of a customer.''
As he got into his car, D'Costa wondered whether VK's promo schemes for its range of durables-washing machines, air-conditioners, refrigerators, and CTVs-were worth it after all. Heading for a luncheon appointment with Ravi Pandey, the head of the ad agency that was handling the VK account, D'Costa called his Vice President (Marketing) Mohan Dubey on his mobile and asked him to join them at the Oberoi Palms. ''I had reservations about the promos even before launch,'' said D'Costa, as they settled down with starters. ''But I allowed myself to be overruled by you. I have just spent almost an hour at a showroom and I am convinced that the best way to attract customers is to strengthen the hands of the dealer and enhance our brand equity.'' ''So, what's new?'' asked Pandey. ''It is the season of the year when we keep having these debates.'' ''Yes, for sure,'' said D'Costa. ''But you can't deny that a promo is in the nature of a knee-jerk reaction. The shoppers are not in a mood to buy, or sales are flagging? Give a freebie. And the goods begin to move. It works. But, the point is: at what cost? A promo, in my view, is like administering a steroid. It peps up the structure, but weakens the system in the long run. But what is it doing to the brand equity of VK? Are we creating brand value? Is there a long-term perspective in what we have done? Are we ensuring that a customer buys VK without a bait next time round?'' ''We are not the only one to have taken the promo route,'' said Dubey. ''Nor is this the first time. Remember what happened last year? Six of our competitors also went in for promos. Four of them offered a straight price-reduction of between 15 and 20 per cent for the festival season. The other two ran a raffle for the period with the lure of an all-expenses paid trip to an overseas destination for the winner drawn from lots. The schemes, as we know, bombed. Their sales went up by only one or two percentage points and they were stuck in single-digit growth rates. The consumer saw them for what it was: a gimmick. Everyone thought that they were clearing up unsold stocks. But VK's was different.'' ''Tell me,'' asked D'Costa, ''how was it different?'' ''In two ways,'' said Dubey. ''Take our washing machines. We gave away a four piece set of non-stick cookware (costing Rs 1,200) free with every purchase of our low-end washing machine (costing between Rs 5,500 and Rs 8,000). First, there was product synergy. Washing machines and cookware offer several common consumer benefits: functional utility, operational safety, and ease of maintenance. The target customer is common: a housewife belonging to the median income household. Second, the scheme was cost-effective. KitchenAid, which owns the cookware brand, billed the dealer only Rs 720-amounting to 60 per cent of the price-while under writing the remaining Rs 480. The dealer recovered 80 per cent of the bill-amounting to Rs 576-from VK, while the balance was adjusted through reducing his commission from VK to the extent of Rs 144. KitchenAid made up the unit loss by volume sales. The dealer made up his cut in the margin on VK through increased turnover. VK spent Rs 1 crore towards direct reimbursement to the dealers on KitchenAid account and another Rs 50 lakh towards promotional costs.'' ''My point is that the expenditure towards the promo was diverted from our budgeted ad spend of Rs 1.75 crore for washing machines,'' pointed out D'Costa. ''We spent 86 per cent of the budget on a promo, which yielded quick results all right. After all, our washing machine sales grew by 14 per cent compared to the industry average of 8 per cent. But, unlike an ongoing advertising campaign, it is unlikely to impact on the sales of later years. The spin-off would have been possible only if we had gone in for a regular brand promotion through advertising.'' ''I think we should look at it in relation to what we sought to gain from the promo,'' said Pandey. ''The main objective was to prop up sales in a sluggish market. There were other related objectives: induce the first-time customer to buy; get the retailers on our side; accelerate stock movements from dealer shelves; break out of the clutter through a value-added product offering; and hold on to our marketshare. We managed to achieve all of these objectives.'' ''Pandey spoke of cost-effectiveness,'' said Dubey. ''There is another issue here: the cost of carrying inventories. It is better to offer a discount of 20 per cent-in whatever form-and move the tonnage than incur a 3 per cent interest cost per month, which works out to 18 per cent for a six-month season.'' ''I am somehow not convinced,'' said D'Costa. ''I don't see the big picture. A promo has a habit of self-perpetuation. And I think that's bad for our brand.'' |
|
Issue Contents Write to us Subscription Syndication INDIA
TODAY | INDIA
TODAY PLUS | COMPUTERS
TODAY | © Living Media India Ltd |
 |
 |
Pretending
to check the side panel of a double-door frost-free refrigerator, Otto
D'Costa used the opportunity to check if his false french beard was still
in place. The CEO of VK Appliances was incognito: he was at a durables
showroom to check how his company's 15-day-old sales promotion campaign
was doing. D'Costa had chosen to visit the biggest dealer in Mumbai for
two reasons. One, this dealer got all kinds of customers from places as
far as Vashi and, two, his product returns were low compared to the
industry average. And that intrigued D'Costa. He wanted to know why he
sold better than VK's other dealers.