137 EVALUATION OF PROMOTIONAL SPENDS Sales promotions which are often called as

137 evaluation of promotional spends sales promotions

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137
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EVALUATION OF PROMOTIONAL SPENDS Sales promotions, which are often called as below the line activities (BTL) as opposed to advertising which is also called above the line activities (ATL), are very focused on the buyers, be they the end consumer or intermediaries. Hence their effect can easily be measured and hence evaluation can be done more closely. Promotions can be directed at intermediaries – which is also referred to as trade loads, because they are used to load retailers shelves, or they can be directed towards the end consumer, either as a price off, or an extra free quantity, or a redemption coupon, or as a free additional item as a gift. Thus sales promotions result in a dilution in the gross margin, per unit of sale. Hence in this case a model for evaluation of the effectiveness or otherwise of the scheme can be done as under: Supposing 'g' is the gross margin earned per unit of sale of the product under promotion, 'd' is the worth of the dilution or cost that is being offered per unit as promotion, 'A' is the amount that will be spent in announcing and making known or communicating the promotion to the target audience, 'X' is the volume that is normally sold during a period, similar to the period during which the promotion will be run and 'Y' will the volume that is planned to be sold during the promotion period, needless to mention that 'Y' should be more than ‘X', then a promotion can be stated to be successful only if Y (g-d) – A > X(g). Which in other words mean, the increased volume sold under promotion multiplied by the reduced gross margin per unit, less the amount spent in announcing and communicating the promotion, should be more than the normal gross margin per unit multiplied by the quantity sold normally during similar period. 138
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EVALUATION OF PROMOTIONAL SPENDS 9.3 SUMMARY A financial model that is used to evaluate the effectiveness of advertising, called a return on promotional investment (ROPI), however has a big limitation in as much as it does not really show how much sales the advertisement is generating, but it becomes an indicative model to find out amongst a portfolio of products, which product is responding well to advertising. This model can only be used to evaluate, in which particular product amongst the entire portfolio of products, advertising is delivering. It will only help in focusing on products where the return is better than others. Sales promotions, which are often called as below the line activities (BTL) as opposed to advertising which is also called above the line activities (ATL), are very focused on the buyers, be they the end consumer or intermediaries. Hence their effect can easily be measured and hence evaluation can be done more closely. Promotions can be directed at intermediaries – which is also referred to as trade loads, because they are used to load retailers shelves, or they can be directed towards the end consumer, either as a price off, or an extra free quantity, or a redemption coupon, or as a free additional item as a gift.
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