BACHIIOR THISI S
Sales Promotion
in a B2B Setting
Bobby Andersson
Aman Hailemariam
Iulea University of Technology
Bachelor thesis
Business Administration
Department of Business Administration and Social Sciences
Division of Industrial marketing and ecommerce
2007: 202 - SSN: 1402-1773 - SRN: LTU-CUPP--07/ 202--SE
Acknowledgments
Acknowledgements
The last ten weeks we have been writing a bachelors thesis, a time full of both expected and
unexpected challenges. The thesis work have brought us lots of new impressions and
influenced the way we look at research and sales promotion. Today, when the writing of the
thesis finally has come to an end we hope that our thesis can contribute to fellow students
better understanding of sales promotion in B2B settings.
We would like to express appreciation to people who helped and supported us during our
thesis writing.
Thank you, Mr. Lars Vikstrm at Minelco AB for reserving time for an interview as well as
providing us with valuable information regarding sales promotion in a B2B setting. Finally
we would like to thank our supervisor Mr Tim Foster for his support and active supervision
through the whole time we were working with our thesis.
Aman Haile-Mariam Bobby Andersson
Lule University of Technology 2007-05-23
Abstract
Abstract
Sales promotion has been in constantly growth since the 1960s and have today become one
of the key factors in the promotional mix. The methods used have become more sophisticated
and an increasing number of companies are realizing the importance of a well structured
promotion strategy.
The purpose of this thesis is to provide a better understanding on how sales promotion is used
in B2B setting. In order to reach this purpose, research questions focusing on the objectives
of sales promotion, as well as which sales promotion tools that were used were stated. Based
on these research questions, a review of the relevant literature was conducted, resulting in a
conceptual framework, which was used to guide this study's data collection.
A qualitative, case study approach was used, using interviewing at an industrial company in
Sweden as the primary data collection tool. The findings indicate that, although the
individual objectives of the tools can be different they can still be used overall to lead to the
same overall goal. It was also found that the focus is not always on using sales promotion
tools to generate sales, but to improve relationships. As for the tools used, it was found that
there are commonly used sales promotional tools in B2B settings. More specifically, gift
giving can be deemed inappropriate in certain contexts and should be used carefully.
Sammanfattning
Sammanfattning
Frsljningsfrmjande aktiviteter har sedan 1960 befunnit sig i ett vxande stadium och har
idag kommit att bli en av de viktigaste faktorerna i marknadsfring. Metoderna som anvnds
har blivit allt mer sofistikerade och ett vxande antal fretag inser vikten av en vlstrukturerad
frsljningsfrmjande strategi.
Syftet med denna uppsats r att frbttra frstelsen angende hur frsljningsfrmjande
tgrder anvnds i Industriella sammanhang. Fr att kunna uppn detta syfte, s togs
forskningsfrgor fram som nmnde mlen med frsljningsfrmjande verksamhet samt de
olika frsljningsfrmjande tgrderna. Baserat p dessa forskningsfrgor, s togs en lista
fram p relevant litteratur, som resulterade i ett konceptuell ram, vilket fungerade som guide
nr data skulle samlas in till denna studie.
En kvalitativ forskningsmetod i form utav intervjuer som tillmpades p ett Industrielltfretag
i Sverige anvndes som frmsta data insamlingsmetod. Slutsatserna indikerar att trots de olika
frsljningsfrmjande tgrdernas olika syften s kan de generellt amvndas fr att n samma
ml. Det var ocks funnet att frsljningsfrmjande tgrder inte bara anvnds fr att ka
frsljningen utan ven fr att frbttra relationer. Fr verktygen som anvndes s visade det
sig att det finns verktyg som r mer vanliga vid frsljningsfrmjande tgrder i industriella
sammanhang. Mer specifikt, att ge bort gvor kan ses som opassande vid srskilda
sammanhang och br noggrant verses.
Table of Contents
TABLE OF CONTENTS
1. INTRODUCTION............................................................................................................. 1
1.1 Background......................................................................................................................................1
1.1.1 B2B....................................................................................................................................................1
1.1.2 B2B Sales Promotion.......................................................................................................................2
1.2 Problem Discussion ............................................................................................................................2
1.3 Purpose& Research Questions...................................................................................................... 4
1.4 Outline of the Thesis .......................................................................................................................4
2. LITERATURE REVIEW.................................................................................................. 6
2.1 Objectives of Sales Promotional Tools ......................................................................................... 6
2.1.1 Gift Giving.........................................................................................................................................6
2.1.2 Cause-related Promotions/Sponsorship.........................................................................................6
2.1.3 Price Discounts ................................................................................................................................7
2.1.4 Events ...............................................................................................................................................7
2.1.5 Free Trials.........................................................................................................................................7
2.1.6 Short-term vs. Long-term effects ....................................................................................................7
2.1.7 ntrinsic vs. Extrinsic Promotions ....................................................................................................8
2.2 Sales Promotional Tools................................................................................................................. 8
2.2.1 Gift Giving.........................................................................................................................................8
2.2.2 Cause-related Sales Promotions/Sponsorship..............................................................................9
2.2.3 Price Discounts ................................................................................................................................9
2.2.4 Events ...............................................................................................................................................9
2.2.5 Free Trials.........................................................................................................................................9
2.3 Conceptual Framework...................................................................................................................9
2.3.1 Conceptualization objectives of sales promotion.........................................................................9
2.3.1 Conceptualization Sales promotional tools ................................................................................11
2.4 Frame of Refer ences ..............................................................................................................12
3. METHODOLOGY.......................................................................................................... 13
3.1 Research Purpose......................................................................................................................... 13
3.1.1 Exploratory......................................................................................................................................13
3.1.1 Descriptive Research.....................................................................................................................13
3.1.2 Explanatory Research ...................................................................................................................14
3.2 Research Approach: Qualitative..................................................................................................14
3.3 Research Strategy: Case Study ...................................................................................................14
3.4 Data Coll ection ..............................................................................................................................15
3.5 Sample Selection ........................................................................................................................... 15
3.6 Data Analysis ................................................................................................................................. 16
Table of Contents
3.7 Validity and reliability....................................................................................................................16
4. EMPIRICAL DATA........................................................................................................ 18
4.1 Case Presentation Minelco AB ..................................................................................................18
4.2 RQ1- Obj ectives of Sales Promotions ......................................................................................... 18
4.2.1 Gift giving........................................................................................................................................18
4.2.2 Price Discounts ..............................................................................................................................19
4.2.3 Events .............................................................................................................................................19
4.2.4 Free Trial ........................................................................................................................................20
4.2.5 Education........................................................................................................................................20
4.3 RQ2- Tools of Sales Promotions .................................................................................................20
4.3.1 Gift giving........................................................................................................................................20
4.3.2 Price Discounts ..............................................................................................................................22
4.3.3 Events .............................................................................................................................................22
4.3.4 Free Trial ........................................................................................................................................22
5. DATA ANALYSIS ......................................................................................................... 24
5.1 Data Analysis- Sales Promotional Objectives ............................................................................24
When analysing and comparing data collected from previous studies with the empirical data
gathered from the case study of Minelco, one can see that the within case study and the theories
discussed by several researchers do to some parts fit with each other ..............................................24
5.1.1 Gift Giving.......................................................................................................................................24
5.1.2 Price Discounts ..............................................................................................................................24
5.1.3 Events .............................................................................................................................................25
5.1.4 Free Trials.......................................................................................................................................25
5.1.5 Education........................................................................................................................................26
5.2 Data analysis- Sales Promotional Tools ..............................................................................26
5.2.1 Gift Giving.......................................................................................................................................26
5.2.2 Price Discounts ..............................................................................................................................26
5.2.3 Events .............................................................................................................................................26
5.2.4 Free Trials.......................................................................................................................................27
6. FINDINGS AND CONCLUSIONS .............................................................................. 28
6.1 Which are the objectives of sales promotion in a B2B setting? .............................................. 28
6.2 Which sales promotional tools are commonly used in B2B settings?....................................29
Gift giving could be inappropriate in western business context and should be carefully
considered before given. ....................................................................................................................30
Price discrimination is not appropriate to use in B2B settings since it could hurt business
relationships. .......................................................................................................................................30
6.3 Implications....................................................................................................................................30
6.3.1 mplications of Theory....................................................................................................................31
6.3.2 mplications for Practitioners .........................................................................................................31
6.3.3 mplications for Future Research..................................................................................................31
LIST OF REFERENCES...................................................................................................... 33
Table of Contents
APPENDIX A ........................................................................................................................... 2
Sales promotion ....................................................................................................................................2
Sales promotional objectives/benefits ................................................................................................2
APPENDIX B ........................................................................................................................... 2
List of Figures
1
LIST OF FIGURES
Figure 1.1: Customer learning curve.4
Figure 1.2: Outline of the Thesis.5
Figure 2.1: Frame of reference...12
Figure 3.1: Schematic Presentation of Chapter 3.13
Figure 4.1: Volume Incitement Graph......14
Introduction
1
1. Introduction
The first chapter will introduce the the research area and provide the thesis with a
background. First the background will briefly discuss the concepts; sales promotion and
business to business (B2B) marketing, leading to the research area; sales promotion in
business to business markets within the problem discussion. The problem discussion will be
the fundament for the research purpose and research questions.
1.1 Background
Promotion is one of the key factors in the marketing mix and has a key role in market success.
Promotion is used to ensure that customers are aware of the products that the organization is
offering. The promotional mix is the combination of the different channels that can be used to
communicate the promotional message to the customers. The channels to be used are;
advertising, direct marketing, public relations and publicity, personal selling, sponsorship and
sales promotion. (Rowley, 1998)
The importance of sales promotion has increased since the 1960
s
and also the sophistication
of methods used. Sales promotion is sometimes considered as an activity of less importance
but companies increasingly realize the importance of having a well planed and structured
program for sales promotion. All businesses need to communicate to the customer what they
have to offer. (J obber & Lancaster, 2006)
Dwyer & Tanner (2006) states that Business customers are larger than individual customers;
meaning that each business customers is more important to the economic situation of the
business marketers company. There are also fewer business customers, so each business
customer is also more important to the economical situation of the company; unhappy
customers can affect the business marketers business in a noteworthy way. (Ibid) According
to Fill and Fill (2005) the B2B market for goods and services bought and sold is far larger
than the consumer market. The business market includes many different types and sizes of
organizations that cooperate and create relationships of different importance and duration.
(Ibid)
1.1.1 B2B
Today, there are several definitions explaining the concept of B2B marketing; Dwyer and
Tanner (2006) states that business marketing is about marketing services or products to other
companies, governments institutions, and other organizations.
The B2B marketing concept is also explained by Brierty, Eckles, & Reeder (1998) as;
Business marketing consists of all activities required to provide goods and services to
customers these customers include producers of both natural and fabricated products,
government agencies and service producing organizations including institutions, wholesalers
and retailers. These diverse customers can use products and services to fabricate their own
end products or to facilitate the operation of their business.
B2B marketing is totally differentiated from consumer marketing because the business buyers
are not acting as consumers consuming the products themselves. (Fill & Fill, 2005)
Introduction
2
The factors that are significant for business markets are the, nature of demand, the buying
process, international dimensions and the importance of development and improvement of the
relationship between organizations in the buying and selling process (Ibid).
1.1.2 B2B Sales Promotion
Sales promotion are marketing and communication activities that change the price/value of
a product or service perceived by the target, thereby (1) generating immediate sales and (2)
altering long-term brand value. (Shultz, Robinson, & Petrison, 1998)
According to Kwok (2005) there are two types of sales promotion; monetary and non-
monetary. These two types of sales promotion are separated and categorized by their
significant differences: Monetary sales promotion are transactional and recognized for
providing immediate rewards to the customer, e.g. discounts, coupons, rebates and price
packs; non monetary sales promotion are recognized for providing delayed rewards and being
relationship-based, e.g. sweepstakes, free gifts and loyalty programs. (Ibid)
Shultz, et al. (1998) says that sales promotion generally works on a direct behavioral basis
rather than effecting awareness or attitude. It is continuously said that most types of sales
promotions affect the decision-making and purchasing stages of the buying-process directly.
Compared with other tactics sales promotion generally has less long-term effectiveness, this
means that that sales promotion generally has less long-term effects and creates more
immediate results. (Ibid)
The extensive use of sales promotion has led to considerable debates concerning whether or
not it is effective. Critics mean that sales promotion are ineffective in the long run and lead to
loss in market share since it makes the consumers promotion prone. Other researchers have
shown the opposite; that sales promotion is effective in the long-run since it leads to increased
sales and profit. (Kwok & Uncles, 2005)
1.2 Problem Discussion
According to Low & Mohr (2000) manufacturers continue to spend a large amount from their
communication budget on sales promotion. They allocate around 75 percent of their
marketing communication budgets to sales promotion.
Blattberg & Neslin (1990) states that sales promotion activities conducted by manufacturers
and retailers can be divided into three categories:
Consumer promotions
Trade promotions
Retailer promotions.
Consumer promotions (e.g. coupons, samples, contests, sweepstakes, and price packs) are
typically directed by manufacturers to increase the incitement for purchases by consumers.
Trade promotions, such as case allowances and bill-backs, are designed by manufacturers to
inspire marketing intermediaries or channel members to stock and promote products. Retailer
promotions (e.g. price cuts, store displays), are started by retailers to attract shoppers and in-
store purchasing. (Ibid)
Introduction
3
The sales promotional tools companies are using are divided in value increasing and value
adding tools. Value increasing tools are such as price deals, coupons and refund offers while
value adding promotions are leaving the price and quantity of the core product untouched.
Instead value are added to the product, for instance a free gift could be added. (Peattie &
Peattie, 1995)
The advantage of value adding is that they do not risk being involved or starting any price
wars. Trying to put effort on value adding and value increasing promotions often lead to
success but there is no guarantee. The main difficulty for companies trying to be competitive
through the use of sales promotions is to choose the tool most appropriate to the companys
brand and to the market where the companys products exist. (ibid)
Alvarez & Casielles (2005) say that sales promotion is a stimulus that is offered from time to
time, and encourage publicity that will lead to action for purchase of a certain product. Sales
promotion techniques are techniques that immediately try to affect customers buying
behavior. Research is telling that sales promotion activities should be done infrequently, when
the customers do not expect it. If the customers are aware when the sales promotion activity
will be headed, then the results will not be as successful.
Alvarez & Casielles (2005) continues by saying that because the sales promotion is conducted
from time to time, this is not something done on impulse, sales promotion activates have to be
well prepared, organized and integrated in the companys marketing plan. It is also crucial for
the companies to decide what the objectives for the sales promotion are. When the objectives
are decided, the choice of promotion technique can be decided. The sales promotion activities
chosen will depend on the objectives.
However no matter what sales promotional tool one company will choose it will increase
brand awareness and it will also encourage customers to try new goods if they are managed in
a strategically and well organized way. (Ndubisi & Moi, 2005)
Any successful B2B strategy has to help the customer to be loyal and supportive to the firm
and its products. The customer do not just get a need, the B2B marketer have to help the
customer though getting him to feel a need and then buy the product and finally become loyal.
(Hellman, 2005)
When a B2B marketer wants to develop strategy driven promotions that motivate B2B
customers, they have to find a solution to the problems with purchase barriers. First some key
questions have to be answered; who is the true decision-maker at the targeted company; what
excites the decision-maker; what is holding the buyer back. When these questions have been
answered then the type of promotional strategy can be chosen and the sales promotional
technique derived will be depending on the companys objectives. (Hellman, 2005)
In order to develop a successful sales promotion strategy a clear definition of the targeted
market must be included. It is important to understand why the potential customers are not
buying the products and develop a specific program to overcome these barriers. To
understand the customers mental process the Customer learning curve can be of importance
(see figure 1.1).
Introduction
4
1. Need
2. Awareness
3. Access
4. Motivation
5. Purchase
6. Know-how
7. Experience value
8. Retention/loyalty
Figur 1. 1: Customer learning curve
Source: J ournal of business & Industrial Marketing, Vol. 20, number 1, 2005, p. 4-11
There are different types of sales promotional tools and they affect sales, profitability and
value added to the brand in different ways. (Srinivasan & Anderson, 1998)
Therefore, it is appropriate to study sales promotion from a B2B perspective and further
investigate the impact that different sales promotional tools have in an industrial market.
1.3 Purpose& Research Questions
The purpose of this study is to provide a better understanding on how sales promotion is used
in a B2B setting. Based on the problem discusson the following research questions are stated:
RQ2. Which are the objectives of sales promotion in B2B settings?
RQ1.Which sales promotional tools are commonly used in B2B settings?
1.4 Outline of the Thesis
As shown in figure 1.2; this study consists of six chapters. The first chapter provides the
background of the thesis subject which leads to the problem discussion. From the foundation
of the problem discussion; purpose and research questions are formed. Chapter two provides
with theories presented in previous research related to the area of B2B sales promotion. The
methods we used to conduct our research are presented in chapter three. In Chapter four
empirical data collected from our case study are presented. Chapter five will go within the
case and compare the empirical data to theories discussed in the conceptual framework.
Finally, Chapter six will present findings and conclusions of the thesis.
Introduction
5