Zimbabwe is currently experiencing hyper-inflation. Prices are going up on a regular basis. The relevance of sales promotions has become a major talking point among many business leaders. In this article we are going to take a look at sales promotions and establish whether they are useful in a hyper-inflationary environment or are marketers merely putting lipstick on a pig.
The above analogy seeks to establish if sales promotions are merely a politically correct thing to do in times of hyper-inflation, or they are a useful tool in helping marketers achieve their objectives. Marketers are tasked with a number of objectives; one of the most important objectives is the need to generate profitable demand by selling to the right market.
A hyper-inflationary environment is characterized by low aggregate demand, as customers/consumers seek to store value in capital goods and other currencies. During these times marketers find themselves looking for ways to reverse the trend and stimulate demand. Sales promotions are one of the first ideas to come to mind.
According to Koekemoer (Marketing Communications;2004), a sales promotion is a blend of marketing communications activities and materials designed to intensify the efforts of the marketer’s sales force, induce intermediaries to stock and sell the marketer’s product offering, and/or persuade consumers to buy the product offering within a specified, limited time period. From this definition you can identify 4 main groups that a sales promotion affects; marketers, sales personnel, channel partners and consumers
Now let’s look at each group individually and establish whether they stand to benefit from sales promotions in a hyper-inflationary environment.
1. The Marketer
Sales promotions are meant help the marketer stimulate demand, enhance brand appeal and maintain or enhance profitability. During times of inflationary profitability is difficult to measure due to the constant increase in replacement costs. According to EY in a paper entailed, “Hyper Inflationary Economies,” (2018), during times of hyperinflation real profits can be reduced because profits reported do not take into account of higher replacement costs of the resources used in the period. Therefore, sales promotions face the risk of affecting profitability from a business standpoint. Sales promotional from a purely profit driven agenda are a risk to profitability. However, sales promotions can have a positive impact on brand appeal as they make products more appealing by enhancing product value, at a time when customers are faced with inflationary pressures.
2. The salesforce
Sales promotions are meant to help the sales team get better results than they would have, if the promotion was not running. Better results may be in the form of increased orders, more shelf space and prominence in store, and a boost to their sales figures. Sales growth is usually measured in comparison to a previous similar period in the past. This measure is based on the assumption that past and prior financial information is comparable. However, volume generally declines during times of hyperinflation due to a combination of factors, which range from product availability, elasticity of price and raising replacement costs.
3. Channel partners
Channels partners are always looking for products that maximize their return on investment. They objectives are mainly profit driven. They want sales promotions to increase sales volume, turnover and generate more traffic to their store. In a hyper-inflationary environment people tend to shop less and this affects traffic and subsequently reduces the number of consumers exposed to a promotion. However, due to the ever increase in prices sales promotions serve to help channel partners get better deals and, in some cases, make arbitrage profits. The risks are around overstocking leading to expiries if greed is not managed. For the marketer this may serve to improve availability and prominence.
Consumers are always actively looking for ways to get the most value for their money. Hence, sales promotions present them with this opportunity. However, during times of hyperinflation the overall price point remains high. The question is a reduced high promotional price that is relatively high enough to increase value and make the address the expectations of consumer. In this instance’s sales promotion can go beyond just price and build in other benefits that hence the overall value proposition.
In conclusion, sales promotions present many both benefits risks for marketers. What is important to is clearly define the purpose of the objective and make sure those objectives met.