The Impact of Sales Promotion on Organizational Performance (a Study of Nigeria Bottling Company Plc)
CHAPTER ONE
Objectives of the study
This study generally sought to examine the effect of sales promotion on the profitability of Nigeria bottling company plc. The specific objectives entail:
- To examine sales promotional activities used by Nigeria bottling company plc.
- To examine the relationship between sales promotion and financial performance of NBC.
- To examine the effect of sales promotion on non-financial performance of
- To identify challenges surrounding sales promotion activities undertaken by NBC
CHAPTER TWO LITERATURE REVIEW
Sales Promotion Concept
Despite being widely used in the management sphere (Bertrand, 1998; Wierenga & Soethoudt, 2010), sales promotion has scarcely been explored in the academic field (Alvarez & Casielles, 2005; D’Astous & Landreville, 2003). The widespread use of consumer sales promotions in product management has sparked considerable debate over their effectiveness. Critics argue that sales promotions are ineffective as they make consumers more promotion prone, resulting in market share losses in the long run (Ehrenberg et al., 1994; Totten and Block, 1987). Meanwhile, the term “promotion” means different things to many people depending on the context and discipline being used. That is, the concept is used ordinarily here to mean an element of a “marketing mix”. In one sense, it denotes any technique designed to sell a product (Ricky et al, 2005). To others, it refers to any attempt by a seller to influence a buying decision (Blanchard et al, 1999). Like promotion, the marketing concept of “sales promotion’ has also been numerously conceived by many scholars. Equally, Blanchard et al (1999) also opine that sales promotion as “the array of short-term promotional techniques that marketers use to stimulate an immediate purchase”. Likewise, sales promotion can be described as materials that act as a direct inducement, offering added value, or incentive for the product, to resellers’ sales persons or consumers. The International Chamber of Commerce (ICC) defines sales promotion as “Marketing devices and techniques which are used to make goods and services more attractive by providing some additional benefit, whether in cash or in kind, or the expectation of such a benefit ” (Boddewyn & Leardi, 1989, p. 365). Similarly, Smith (1998) opined that there are three main categories of Sales Promotion:
- Consumer promotions (premiums, gifts, competitions and prizes, e.g. on the back of breakfast cerealboxes)
- Trade promotions (point-of-sale materials, free pens and special terms, diaries, competition prizes,etc)
Sales promotions are comparatively easy to apply, and are likely to have abrupt and considerable effect on the volume of sales (Hanssens, Parsons and Schultz 2001). Resultantly, according to Currim and Scheinder (1991) the finances of companies regarding the marketing increase constantly. Research conducted by Ailawadi and Neslin (1998) had revealed that consumer promotions affect the consumers to purchase larger amount and consume it faster; causing an increase in sales and ultimately profitability. A study conducted by Hanssens et al. (2003) depicts that the effects of sales promotion on firms’ revenue which they call as first line performance, firms’ income which is bottom line performance and on market to book value ratio which is named as firms’ values is encouraging for the short term. While in the long run the sales promotion is positive for top line performance but it is negative for bottom line performance and firm’s value (Hanssens et al. 2003).
This work adapts the definition of the International Chamber of Commerce (ICC) as a working definition. This is because it is more concise and simple to comprehend.
CHAPTER THREE
RESEARCH METHODOLOGY
Research Design
A research design influences the choice of analysis and sampling technique to use. It refers to the overall strategy chosen to integrate the different components of the study in a coherent and logical manner (Brown, 2006). Three main types of research designs identified by Saunders et al. (2007) include exploratory, descriptive and explanatory studies.
Exploratory research, as the name suggests, intends merely to explore the research questions and does not intend to offer final and conclusive solutions to existing problems. It is conducted in order to determine the nature of the problem, exploratory research is not intended to provide conclusive evidence, but helps to have a better understanding of the problem (Brown, 2006). Saunders et al. (2007, p.134) warn that when conducting exploratory research, the researcher ought to be willing to change his/her direction as a result of revelation of new data and new insights.
Exploratory research design does not aim to provide the final and conclusive answers to the research questions, but merely explores the research topic with varying levels of depth. “Exploratory research tends to tackle new problems on which little or no previous research has been done” (Brown, 2006, p.43). Moreover, it has to be noted that “exploratory research is the initial research, which forms the basis of more conclusive research. It can even help in determining the research design, sampling methodology and data collection method” (Singh, 2007, p.64).
Explanatory research sometimes referred to as analytical study seeks to identify any causal links between the factors or variables that pertain to the research problem (Saunders et al., 2007). Such research is also very structured in nature.
CHAPTER FOUR
DATA ANALYSIS, FINDINGS AND DISCUSSIONS
Introduction
The purpose of this chapter is to analyze the study data and interpret the results so as to answer the research questions. The study sought to examine the effect of sales promotion on profitability and non-financial performance measures such as new product development and customer acquisition. To address the study objectives, both primary and secondary time series data over 30 years span was collected and analyzed. Thus objective 1 and 4 were addressed using primary data whilst objective 2 and 3 were addressed with secondary.
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
Introduction
This chapter presents summary of findings, conclusion and recommendations for the study. Specifically, the study sought to examine sales promotional activities used by Nigeria bottling company plc, the relationship between sales promotion and financial performance of NBC, examine the effect of sales promotion on non-financial performance of NBC and identify challenges affecting sales promotion activities undertaken by NBC.
Summary of Findings
Summary of findings from the previous chapter are presented as follows.
Sales Promotional Activities of Nigeria Bottling Company (NBC
Study used one sample t-test to examine sales promotion activities of NBC using 10 items. The found that average ratings were statistically higher than 3 for items such as: “We provide gifts to our distributors and retailers to maintain a good relationship (Dealer gift), We provide attractive materials at sales point (i.e fridges, openers etc) reinforce purchase, We use display contest to encourage dealers to buy a minimum quantity to display in shops, We use draws and scratch cards to reward customers who emerge winners, We use coupons to reward loyal customers, We use roadshows to promote consumption of our brand and New products are promoted with point of sales displays”
The t-test result showed positive mean difference for majority of the items and their corresponding p-values were less than 0.05. This suggests that the respondents agree to the use of such sales promotional by Nigeria Bottling. The three highest mean values were: “We use draws and scratch cards to reward customers who emerge winners (3.70), We use roadshows to promote consumption of our brand (3.43) and New products are promoted with point of sales displays (3.43).
Effects of Sales Promotion on Financial Performance Measures
This section used simple regression model to examine the impact of sales promotion on Gross Profit. The R-squared, indicates the percentage of variation in Gross Profit explained by the variation in the independent variable – Sales Promotion. The R-square value was 0.276 and it implies that 27.6 percent of the variation in Gross Product can be explained by variations in Sales Promotion.
The estimated effect of sales promotion on gross profit was 1.399 with a p-value of 0.003, which is less than 0.05. This implies that, even at 99 percent level of confidence, the coefficient 1.399 is statistically different from zero. This means that sales promotion positively and significantly impact on Gross Profit. In terms of magnitude, the result implies that, one thousand Nigeria cedi increase sales promotion expenditure increases Gross profit by 1399 Nigeria naira.
With respect to the effect of sales promotion on turnover, the coefficient of determination was 0.1503 and implied that 15 percent of the variation in logged turnover can be explained by variations in sales promotion. The coefficient of sales promotion was 0.4436 and this is elastic. It is statistically different from zero given the p-value of 0.023. It implied that 1 percent increase in sales promotion was associated with 0.44 percent increase in sales turnover. In other words, a 100 increase in sales promotion was associated with a 44 percent increase in sales turnover.
Effect of Sales Promotion on Non-Financial Performance Measures
This study also examined the effect of sales promotion on non-financial performance measures. The study considered new product development, number of customers acquired and productivity. The study used simple regression to examine the effect of sales promotion expenditure on new product development. Given that the level of new product development was not stationary, the first difference was used.
The coefficient of sales promotion (-0.00000107) was not statistically different from zero at the 5 percent level of significance given the p-value of 0.072 which is higher than 0.05. It indicates that sales promotion did not significantly affect new product development.
Again, the effect of sales promotion on customer acquisition was examined. The coefficient of determination of the model was 0.097 and it implies that 9.7 percent of the variation in customer acquisition has been explained by variations in sales promotion. The coefficient of sales promotion was 0.0953 with a p-value of 0.029, which is less than 0.05. This means that at the 5 percent level of significance, the coefficient 0.0953 is statistically different from zero. It implies that, sales promotion positively and significantly influences customer acquisition.
Sales promotion challenges
In investigating sales promotional activities facing NBC, the study found that there was no consistent relationship between sale promotion and financial performance. This has been a major problem for the marketing department as many managers question the expected returns for committing huge company resources to sales promotional budget.
The study also found that sales promotional activities have not been well integrated. Management also disclosed that NBC is forced to invest more in sales promotion budget because of stiffer competition from other players.
Finally, management hinted that consumers are becoming less enthused with promotional gimmicks used by bottling companies as a result, the company is exploring new options to cut down cost.
Conclusion
Whilst some researchers found a positive relation between sales promotion and financial performance (Anderson et al (1999; Kumar et al (2005), others found otherwise (Vecchio et al. 2006). For this study, the researcher found a positive and significant relationship between sales promotion and profitability. The study concluded that 1 percent increase in sales promotion was associated with 0.44 percent increase in sales turnover. In other words, a 100 increase in sales promotion was associated with a 44 percent increase in sales turnover. However, when it comes to non-financial performance, the study found that sales promotion did not significantly affect new product development. Finally, the relationship between sales promotion and customer acquisition was positive and significant. The coefficient is elastic and implied that, 1 percent increase in sales promotion expenditure is associated with 0.09 percent increase in customer acquisition.
Recommendation
Based on the above findings, the researcher recommends the following.
Management of NBC should ensure effective integration of communication tools to ensure that the intended objectives for all promotional tools are achieved.
It is equally important for management to fully utilize technology to attract consumers to the Coca cola brand. Social media tools have become more appealing to the youth hence NBC must explore its full benefits.
To deal with the question of whether sales promotion affects financial performance, the study supported the position that sales promotion has a positive and significant effect on profitability. However, it is recommended that management periodically evaluates the contribution of sales promotion relative to other promotional tools.
Finally, the study recommends that management of NBC involves key distributors and supply chain members in sales promotional activities if they need to meet the goals stipulated for such campaigns. This is because distributors and retails deal directly with consumers hence they can give adequate feedback on promotional activities used.
Areas for future research
The following are suggested for further investigation.
- The interactive effect of sales promotion and advertising on profitability
- The effect of sales promotion on brand equity
- The effect of sales promotion on new customer acquisition.
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