Sales incentives have been used effectively by many companies, and some depend on them heavily to promote their business.

However, for most businesses, sales incentives should only be a part of a total promotional plan, and should be carefully selected and planned so they reach and motivate primarily new, preferred customers.

Sales incentive methods can be the most risky and the most costly. Too intense a focus on short-term gains can adversely affect long-term vision. Further, the increased volume may not justify the cost, especially if no increased customer base results.

Sales incentives are attractive because they can have a dramatic, instant effect on sales by targetting first-time buyers, or enticing customers to buy more. A product manager can look like an overnight hero.

However, marketing experts have long agreed that all good incentives must do four things to be successful.

First, they should support and enhance the image of the business and help improve the company’s position in the marketplace.

Second, they should inspire the user not only to buy the product once, but should be designed to encourage repeat sales.

Third, they should be aimed at potential new customers, effectively motivating them to buy.

Finally, they should create some sense of urgency. Prospects should feel that if they do not act now, they will lose an important opportunity.

Contests and games make good sales incentives. They attract customers and have a broad appeal. Companies should get legal advice before holding a contest or sweepstakes in their area.

The disasters that have arisen from sloppily conceived and executed contests are enough to make a product manager’s hair stand on end.

Although cash is the most attractive prize, other items such as company products can be effective incentives. The more closely the contest fits the company, the better.

One art supply chain held a children’s coloring contest by offering free, blank posters at the checkout counter. Interested parents naturally made additional purchases of crayons, magic markers and colored pencils.

To enter, the completed poster had to be returned to the store, thus creating another buying opportunity. The mailing lists of contest participants developed further promotion opportunities. And, since the promotional expenses were shared by the three stores in the chain, the cost was low.

If you take this same idea and bring in Crayola as a co-sponsor, then costs are further reduced and two companies stand to benefit.

My company developed a Spanish trivia contest for Dry Sack Sherry that tied in a radio station with a newspaper chain such that benefits went three ways (the radio station attracted more listeners, the newspaper more readers, and the product more sales.)

Other contests emphasize heavy incentives to the merchandiser to gain store presence and shelf space, which, on the surface, satisfies the sales force but may not attract more sales.

With so many contests out there, it takes a lot of creativity to captivate the customer.

Does increased store presence justify a contest if sales stay flat? If sales go up, but do not cover the cost of the contest, was the expense justified by attracting new customers who may become loyal ones?

Was the company’s image enhanced in the eyes of the customer? In the eyes of the store manager?

Was there the added bonus of a tie-in with charity which gave customers a general good feeling about the product?

All these factors need to be weighed, along with sales volume, to determine the true value of a contest.

The discount coupon is a commonplace and popular method to get people to try products or services for the first time.

They can be attached to the product for immediate redemption, given away with free samples, and mail-dropped separately or with others in a pack.

They provide a great opportunity to further promote brands or products by including an enticing photo and product description.

infoShelf

By strategically placing coupons right beside the product on the shelf, infoShelf claims that brand sales increase an average of 22.5%, with at least 30% redemption.

However, this is effectively ‘dressed-up’ price reduction. Do the sales make up for the loss in income per item? Do they lead to repeat sales?

Nielsen Marketing Research offers software packages and sales management services to help determine the complete picture comparing volume and profit data of various promotions on their own, or in combination with others.

A version of the discount coupon is the two-for-one offer.

‘Twofers’

‘Twofers’ are often better than offering 50% off, because they either move two items with each purchase, or in the case of theatre tickets, for example, introduce two customers to the product.

Businesses often offer products or services for ‘free’ trial. Feminine hygiene products have been deposited on the doorsteps of Torontonians several times over the past few years, as have shampoo and coffee samples.

Sometimes a free trial size of a new product is attached to a complementary product (such as a conditioner with a shampoo) which increases purchase of the regular product as well as achieves trial of the new.

To evaluate whether these types of programs can be effective, the trial conversion rate needs to be determined.

For example, Tampax knows it has a high rate of conversion to customers after trial. Therefore, free trial programs are an important part of that product’s marketing mix.

Offering a free gift or premium with purchase can be an incentive to get the customer to buy.

J. A. Henckels, makers of a gourmet line of knives, offers customers a free special knife care video with the purchase.

Companies can lower the cost of the gift when the promotion is tied in with another compatible company wanting to achieve trial of a complementary product.

When we wanted to achieve trial of a General Foods coffee, we tied in with Spring Valley, who distributed it to their customers as a free gift to encourage them to use spring water in their coffee.

Multiple purchase offers are a good way for companies to get the customer back several times.

Second Cup coffee shops, Moneysworth & Best shoe repair stores and Legs Beautiful hosiery shops all offer customers multiple purchase cards which allow them to get a free item after a certain number of buys.

Family rates

When offering family rates, student and senior discounts, and group discounts, a business can effectively attract new markets or a certain segment of the market.

If, for example, a theatre company determines its subscriber base is too heavily dependent on seniors, then a push into schools and universities with deep discounts for students may be the key to stop ticket sales from dying off.

Companies can stimulate sales by offering a cash rebate. If the buyers must complete a form and provide proof of purchase to obtain the rebate, many will not bother even though they made the purchase enticed by the offer.

Small-ticket items can offer rebates of $1 to $5 and can be successful in moving goods. The higher the rebate, the greater the sales stimulation, but the greater the likelihood of redemption. Therefore, cost versus return must be weighed based on short-term gain in volume, compared with effect on profit and long-term sales.

Gifts, prizes and merchandise offered as referral incentives can be an effective means for companies to get other people to send them customers. Obviously, big-ticket products and industries dependent on referrals for business benefit the most from this kind of incentive.

All referral incentives should be in keeping with industry practices and the company image.

I have seen this technique used effectively by real estate companies, car dealerships, service industries (beauty salons, etc.), rental operations and, in a limited way, by professionals.

Sales incentives have some pitfalls that must be addressed before a business owner decides to include incentives in the company’s promotional plan.

Most sales incentives mainly provide short-term gains. Stop the incentives and you usually stop the sales.

In addition, people who are enticed by sales incentives are often not the type who become loyal customers. They will need another sales incentive to buy again.

Finally, all sales incentives have a big impact on profit per item – they reduce it.

Therefore, a sales incentive program must make up in volume what it will lose in profit margins. Nevertheless, in most highly competitive businesses, it is not possible to completely avoid incentive programs and still survive.

The key is to pinpoint the optimum promotional mix, and achieve the greatest price value.

Margaret Swaine is president of Pierce Communications, a full-service marketing company in Toronto. Swaine and Barbara Lambesis are co-authors of the book 101 Big Ideas for Promoting a Business on a Small Budget.