Lisa Fischer, 7-‐1-‐2014
The influence of non-‐monetary sales promotions on
customer engagement and the moderating effect of the
2
The influence of non-‐monetary sales promotions on
customer engagement and the moderating effect of the
product-‐premium fit.
Master thesis
7-‐1-‐2014
Author:
Lisa Fischer
Student number: s2077272
Vissering 57, 3825 MK te Amersfoort
3
Management summary
In this study, the influence of non-‐monetary sales promotions on customer engagement is
investigated. The literature argues that after customers receive a non-‐monetary sales promotion in form of a premium, such as a free glass when buying three bottles of Coca-‐Cola, they show higher commitment which may lead to WOM, which is a form of customer engagement behavior (Wolney and Mueller 2012). Therefore, it seems that non-‐monetary sales promotions have a positive effect on customer engagement.
Furthermore, d’Astous & Landreville (2003) argue that when the product-‐premium fit is high, the premium is more effective and may lead to the intention to spread a positive WOM. Therefore, it is assumed that a high fit between the product and the premium strengthens the relationship between non-‐monetary sales promotions and customer engagement.
The aim of this study was to investigate the relationship between non-‐monetary sales promotions in form of premiums and customer engagement using the following hypothesis: H1: The use of Non-‐
monetary sales promotions compared to monetary sales promotions is positively related to customer engagement (behavior). On top of this, the moderating effect of the product-‐premium fit was
investigated by using the hypothesis: H2: The relationship between non-‐monetary sales promotions
on customer engagement is stronger when the product-‐premium fit is high.
The study was performed on the basis of a questionnaire with 116 participants in total. The results of this study are in agreement with the literature. The outcomes show that non-‐monetary sales
promotions have a positive significant influence on customer engagement. Hence, Ican say that non-‐ monetary sales promotion have a positive influence on customer engagement. Therefore, hypothesis 1 could be accepted. On top of this, it was found that a high product-‐premium fit has no significant effect on this relationship. Therefore, hypothesis 2 was rejected. Based on other parameters it seems that a high-‐product premium fit has a positive influence on the relationship between non-‐monetary sales promotions and customer engagement, but no certain statements about the moderating effect could be made.
The main implications for marketers of this study are that when engaging customers, it could be helpful to conduct non-‐monetary sales promotions in form of premiums. Preferably, the premium has a high fit with the particular brand/product. This because this may strengthen the promotion. On top of this, these outcomes help to align the focus of sales and marketing when conducting sales promotions. Since customer engagement leads to an increase in sales and to more loyal customers, both objectives are met when conducting non-‐monetary sales promotions.
5
Preface
After studying Commercial Economics for two years and Small Business and Retail management for three years at the Hanze University in Groningen, I received my HBO graduation called: ‘Bachelor of commerce’. Marketing was a subject which always integrated me. Therefore, I have chosen to extend my knowledge about Marketing in an academic way. In September 2010 I started with the pre-‐ master for Business Administration. After I finished this pre-‐master I started with the master Marketing Management.
In august 2012 I decided to do an internship in order to obtain some work experience in the FMCG. I was hired as intern Sales Promotion at Heinz Benelux. A company which was very high on my list. During this internship I learned a lot about the large company and the sales promotions. After 2 months of working in this position I was asked to fulfill a temporary job as marketing support. At long last this contract turned into a permanent contract. That was very great news! It was a function at academic level in the marketing and I was fulfilling it while I still hadn’t received my University degree. The plan was to write my thesis aside this very busy function, a tough job! In October there was a reorganization at Heinz globally and the higher management decided to liquidate my position and I was offered another function at the sales department. A function that wasn’t really my ambition. I decided to go my own way: writing my thesis, graduating and searching for a job in the marketing. Now I had enough time on my hands to write my thesis and to graduate in December 2013. And the other good news is that I start with a new job in January, as product manager for various brands in the drugstore branche at Remark Cosmetics. A job that I am very enthusiastic about and looking forward to start with.
Hence, it was very important for me to graduate before January. This put a lot of pressure on myself and on my supervisor Hans Risselada. I would like to thank him for all his help and feedback. It really helped me to make large steps in small time zones. On top of this, I would like to thank my fellow student Charlotte van der Lei for the discussions we had about this thesis. It really helped me to achieve more insights.
Amersfoort, 7 Januari 2014 Lisa Fischer
6
List of tables
Table: Page number:
Table 1: Definitions of customer engagement 12 Table 2: The five degrees of customer engagement behavior 16
Table 3: Manipulation product-‐premium fit 29 Table 4: Outcomes Pre-‐test 31
Table 5: Number of participants per version 32 Table 6 Sample characteristics 33 Table 7: Sample characteristics (means) per version 33 Table 8: Customer engagement scores 34 Table 9: Description of the variables 35 Table 10: Outcomes regression analysis H1 36 Table 11: Outcomes regression analysis H2 38 Table 12: Importance of product-‐premium fit 38
List of figures
Figure:
Page number: Figure 1: Types of sales promotions 17
Figure 2: Monetary sales promotion 18 Figure 3: Non-‐monetary sales promotion 18
Figure 4: High product-‐premium fit 21 Figure 5: Low product-‐premium fit 21 Figure 8: Conceptual model 22
List of abbreviations
The following abbreviations were used in this study:
CE Customer engagement CEB Customer engagement behavior
e.g. For example Et al. And others Etc. Etcetera
FMCG Fast Moving Consumer Goods
H Hypothesis
Sig. Significance WOM Word of Mouth
7
Table of contents
Page:
Management summary……….3
Preface………..5
List of tables………..6
List of figures……….6
List of abbreviations……….6
Table of contents………...7
1. Introduction……….9
2. Theoretical Framework……….13
2.1 Customer Engagement………..13
2.1.1 Customer Engagement……….13
2.1.2 Customer engagement behavior……….16
2.1.2.1 The role of Social media……….17
2.1.2.2 Five degrees of customer engagement behavior……… 17
2.2 Sales Promotions……….19
2.2.1 Sales promotions……….19
2.2.2 Non-‐monetary versus monetary sales promotions………20
2.2.3 Premium promotion………..21
2.2.4 The benefits of Non-‐monetary sales promotions……….22
2.3 Effects of non-‐monetary sales promotions on customer engagement behavior..22
2.4 Base product-‐ Premium fit………23
2.5 Conceptual Model………25
3. Methodology………26
3.1 Choice of research……….26
3.2 Choice of sample……….26
3.3 Measures of the major variables……….27
3.3.1 Use of non-‐monetary sales promotions-‐ Product -‐ premium fit………27
3.3.2 Pre-‐test………..……….28
8 3.3.4 Manipulation check……….………..28 3.3.5 Tests………29 4. Results……….31 4.1 Pre-‐test……….31 4.2 Sample characteristics ……….32
4.2.1 Definitive number of participants………..32
4.2.2 Description of the sample……….32
4.3 Customer engagement scores……….34
4.4 Reliability check……….34
4.5 Manipulation check……….34
4.6 Hypothesis testing.………..34
4.6.1 The influence of non-‐monetary sales promotions on customer engagement…35 4.6.2 The moderating effect of a high product-‐premium fit……….37
4.6.2.1 Importance high product-‐premium fit ………38
4.7 Summary and major findings……….39
5. Conclusion……….40
5.1 Conclusions……….40
5.2 Managerial and Academic implications……….41
5.3 Limitations and further research directions..……….42
References………43
Appendix 1: Questionnaire Pre-‐test………..49
9
1. Introduction
In order to attract customers and to motivate them to buy the company’s products, many companies make use of sales promotions (Rao 2009). Due to the large competition between organizations, sales promotion activities in marketing communication campaigns will keep on growing in numbers, scale and variety (Peattie, Peattie and Emafo, 1997). Nowadays, consumer sales promotions on average account for one quarter of the total marketing budgets of organizations (Schultz, Robinson, and Petrison 1998).
There are two forms of sales promotions: non-‐monetary sales promotions ( e.g., free gifts in form of a premium) and monetary sales promotions (e.g. 30% discount). Non-‐monetary sales promotions are more preferred by customers because non-‐monetary promotions are framed as segregated gains rather than reduced losses (Lowe and Barnes 2012). Therefore, a more positive customer behavior is expected. Based on this, I will focus in this paper exclusively on non-‐monetary sales promotions. It is known that non-‐monetary sales promotions have a positive effect on sales (Delvechio et al. 2005). On top of this, various authors argue that non-‐monetary sales promotions also affect brand attitude and perception image (Buchanan, Simmons, & Bickart, 1999; Dickson & Sawyer, 1990; Hunt & Keaveney, 1994; Kahn & Louie, 1990; Krishna, Currim, & Shoemaker, 1991; Papatla &
Krishnamurthi, 1996). But in this study the effect of non-‐monetary sales promotions on customer engagement is studied.
Customer engagement is a relatively new phenomenon in marketing, in which increasing interest has emerged during the last decade (Harvey, 2005; Haven, 2007; Sacks & Graves, 2012). Customer engagement is seen by Triphati (2009) as the best way to retain/ improve the customer loyalty and thereby achieve long term sales. So, building customer engagement seems to be very important for a company in order to be successful.
Investigating the relationship between non-‐monetary sales promotions could help the marketing and sales department to align their opinions. There are often conflicting opinions about the focus of sales promotions between marketing and sales. It is widespread, that the focus of the sales department is to increase (short-‐term) sales with the sales promotion, while the marketing department focus is to achieve loyal customers (Atteya, N.M, 2012). By investigating the relationship between non-‐
10 non-‐monetary sales promotions on customer engagement will be investigated in this paper and is very interesting
D’Astous & Jacob (2002) argue that the fit between the product and the premium influences the judgments of the customers about premiums. They suggest that when there is a better fit between the base product and the premium, the premium is more effective. Their study shows that a good fit may lead to a higher liking, purchase intention and intention to spread a positive word-‐of-‐mouth for the premium. Based on this information, I assume that a high product-‐premium fit strengthens the relationship between sales promotions and customer engagement. Hence, the moderating effect of the product-‐premium fit seems very relevant to investigate.
Therefore, the following two research questions are formulated:
1) What is the effect of non-‐monetary sales promotions compared to monetary sales promotions on
customer engagement behavior?
2) How does the product-‐premium fit moderates the relationship between non-‐monetary sales promotions and customer engagement?’
Nowadays, the conceptualization of customer engagement is not very clear. There are competing definitions of what customer engagement is about. Van Doorn et al. (2010, p. 253) define customer engagement as “behavioral manifestations towards the brand that go beyond transactions resulting from motivational drivers”. Examples of these behavioral manifestations are word-‐of-‐mouth (WOM), giving recommendations, willingness to help other customers, writing a blog, co-‐creation, being loyal to the brand and providing customer ratings. These expressions are called ‘customer engagement behaviors’. Kam Fung So et al. (2012) identify the five dimensions of customer engagement, namely; enthusiasm, attention, absorption, interaction and identification. These are the motivational drivers of customer engagement behavior.
Hence, customer engagement behavior is all about interactions between the customer and the brand/other customers. With its interactive nature, social media play an important role when engaging customers (van Doorn et al. 2010). Social media are platforms that make it possible for consumers to interact with each other and the brand (van Doorn et al., 2010 and Nair, 2011). Social media allow every consumer to be an online commentator, reviewer and/or publisher in the market place (Smith, 2009).
Throughout the years, the use of social media (the use of social media by the customer) and social media marketing (the use of a social media account by an organization) has been growing rapidly (Kozinets et al., 2010). Social media technologies like Facebook, Twitter and YouTube have generated more than a billion users over the last decade. Therefore, new opportunities for customer
11 by Sashi (2012) argues that the ability of social media to facilitate relationships may help realize the promise of relationship marketing by using social networks to satisfy customers in order to build customer engagement.
In order to investigate the relationship between non-‐monetary sales promotions and customer engagement and the moderating effect of the product-‐premium fit, a survey with 116 participants is used. After all the data had been collected, a regression analysis was applied to analyze the results. The results show that non-‐monetary sales promotions lead to WOM. Therefore, sales promotions has a positive influence on customer engagement (behavior). Furthermore, the results show that a high fit (versus a low fit) between the base product and the premium strengthens the relationship between non-‐monetary sales promotions and customer engagement. Unfortunately, this outcome was not significant. Therefore, no assumptions about the moderating effect of a high product-‐ premium fit could be made .
The main contribution of this study to the marketing literature is a better understanding of customer engagement. It is found, that when customers are engaged, they show loyalty/commitment to the organization. On top of this, it is found that customer engagement leads to an increase in sales. This study has shown that non-‐monetary sales promotions have a positive effect on customer engagement. Therefore, customer engagement serves as one solution to solve the conflicting opinions about the focus of non-‐monetary sales promotions between marketing (loyal customers) and sales (increase in sales). Hence, a good understanding of this phenomenon is essential for marketers.
Despite the increasing popularity of this term, not many authors have tried to define customer engagement (Brodie et al. 2011). Therefore, additional research about this topic is needed (van Doorn 2011). By giving a clear definition of customer engagement behavior based on the competing definitions of various authors, this thesis contributes to the understanding of this term in an
academic way and thereby contributes to the body of knowledge. Thereby, this paper fills a gap in the existing literature.
On top of this, the insights of this study allow marketers to improve their marketing strategy. This study shows that by using non-‐monetary sales promotions, customer engagement can be achieved. This leads to an increase in sales (Delvechio et al. 2005) and to loyal/committed customers towards the product/brand (Nagar 2009). Therefore, as mentioned before, both objectives of sales and marketing (sales versus loyalty) can be met, when using non-‐monetary sales promotions, and the conflicting opinions of the two departments are solved.
12 promotions and customer engagement may help organizations to decide whether to use non-‐
monetary sales promotions in order to create superior value.
13
2. Theoretical Framework
This chapter is based on various theories, concepts, and conclusions that were drawn by previous research on the concepts of customer engagement, customer engagement behavior and sales
promotions and is aimed at giving a better understanding regarding these concepts and their mutual
relationship.
2.1 Customer engagement 2.1.1 Customer engagement
This section endeavors to provide an explanation of 'customer engagement'. Because this is a quite new concept in marketing, not one conclusive definition has been established for this concept so far. As yet, researchers are discussing what customer engagement is about and they hold conflicting opinions in regard to this subject. In this section these conflicting opinions are scrutinized.
A couple of years ago, while investigating the term ‘student engagement’ research found out that the engagement of the student was the best way to obtain the support of the teacher (Skinner &
Belmont, 1993) and thereby achieve good results (Bryson & Hand, 2007).
When investigating the concept ‘engagement’ in the field of organization behavior, research found that the effects of employee engagement are strengthening job satisfaction, organizational
commitment, citizenship behaviors, increasing presence and improving financial performance (Harter, Schmidt, & Hayes, 2002; Saks, 2006; Salanova, Agut, & Peiro´, 2005).
Due to the valuable insights which were drawn from investigations like these, the interest in the ‘engagement’ phenomenon in the academic marketing literature was growing (Bowden, 2009; Heath, 2007 and Appelbaum, 2001). According to Bowden (2009) this term was applied as ‘customer engagement’, in which case customers’ individual ‘engagement’ with particular products,
organizations or brands was investigated (Sprott, Czellar, & Spangenberg, 2009; Patterson et al., 2006).
Despite the large interest and the scholarly inquiry, there is as yet a limited academic understanding of customer engagement (Hollebeek 2011). While customer engagement is a hot topic nowadays, there are still conflicting definitions of what this term is about.
The table below shows the definitions of various authors who have written about customer engagement.
14
Van Doorn et al. (2010, p 253)
'Customer engagement are behavioral manifestations towards the brand that go beyond transactions resulting from motivational drivers.'
Kumar et al. (2010, p 297) 'Active interactions of a customer with a firm, with prospects and with other customers, whether they are transactional and non-‐ transactional in nature, can be defined as Customer Engagement.’ Brodie et al. (2011, p 253) Customer engagement includes all consumer to firm as well as
consumer to consumer communications. Thereby it entails the interactive experiences of the customer with the brand which could enhance the experienced brand value.
Table 1 : Definitions of customer engagement
Van Doorn et al. (2010) argue that the behavioral manifestations they are mentioning in their
definition, can be expressed in both a positive (i.e., posting a positive brand message on a blog) and a negative (i.e., organizing public actions against a firm) way. Like bad publicity is also publicity,
negative customer engagement is also customer engagement. Thus, customer engagement can be both positive as negative. The majority of the existing literature considers customer engagement as a positive expression in their studies. Since the information in this section is based on the existing literature, I will consider customer engagement as positive in this paper. Therefore, all expressions of customer engagement which are described in this paper could be considered as positive.
Kumar et al (2010) say that engagement is all about the creation of a deeper, more meaningful and long lasting relationship between the organization and the customer. They support the definition of customer engagement of van Doorn et al. (2010) by agreeing that customer engagement is ‘a customer’s behavioral manifestation toward a brand or firm’ and that it ‘results from motivational drivers,’. But with regard to the statement that customer engagement only goes beyond
15 motivational drivers as described above. On top of this, Kumar at al. (2010) also argue that customer engagement next to the interaction towards the firm, also encompasses the interaction towards other customers. This is supported by Litvin, Goldsmith, & Pan (2008) and Bolton et al. (2011) who say that customer to customer interactions are also involved in customer engagement. Since van Doorn (2010) describes ‘ writing a blog about a product’ (customer to customer interaction ) and ‘protest against an organization’ ( customer to firm interaction) as a behavioral manifestation towards the brand, it seems that she is agreeing with this. Therefore, the behavioral manifestations she is mentioning in her definition can be explained as the interaction between the customer and the organization/other customers.
Brodie et al. (2011) complement with their definition that these interactive experiences between the customer and the brand/other customers could enhance the experienced brand value .
Brand value is the extra money the customer wants to pay because of the name of the brand (also called: brand equity) ( Ailawadi et al., 2003). For example, customers are willing to pay more money for a bottle of Coca-‐Cola than a bottle of private label coke.
Based on the discussion above, I can conclude that customer engagement can be perceived as behavioral manifestations towards the brand, resulting from motivational drivers (van Doorn et al. 2010). These behavioral manifestations go beyond transactions (e.g. writing a blog). Due to the fact that when a customer interacts/engages with an organization, a purchase from the organization in particular is incorporated (Kumar et al. 2010), the transactional nature should also be taken into account in a customer engagement definition.
Based on these outcomes, the definition in this paper of customer engagement will be as followed: 'Customer engagement are behavior manifestations towards the brand, transactional and non-‐
transactional in nature, resulting from motivational drivers'.
In order to create customer engagement, the focus lies on providing superior value (compared to competitors) to satisfy customer needs (van Doorn et al. 2010). By doing this, a company can build trust and commitment as a basis for a long-‐term relationship.
16 organization (Bhattacharya, Rao, & Glynn, 1995).
These five dimensions are referred to as the ‘motivational drivers’ in the definition of customer engagement above. Therefore, these dimensions lead to the behavioral manifestations towards the brand and thereby to customer engagement.
2.1.2 Customer engagement behavior
As described above, customer engagement is all about behavioral manifestations towards the brand. These behavioral manifestations can be described as customer engagement behavior. Customer engagement behavior includes the total of consumers decisions made in respect to the acquisition, consumption and disposure of the products (Hollenbeek, 2011).
Customer engagement behavior differs from (normal) customer behavior. While customer behavior is only transactional in nature (just buying the product) , customer engagement behavior is also non –transactional in nature. Next to purchasing the product of the brand, by customer engagement behavior consumers show their engagement towards the brand or towards other customers. This engagement can result in various behavioral manifestations like: WOM, blogging, recommending, posts/likes on Facebook etc. , which are forms of customer engagement behaviors.
On top of this, various researchers argue that customer engagement behavior also encompasses customer co-‐creation ( van Doorn et al. 2010, Lusch and Vargo 2006). Bolton (2011) argues that customer engagement is creating and improving the value of the firm, co-‐created by the customers and the firm itself and thereby enhancing the business performance. According to Lusch and Vargo (2006), customer co-‐creation embraces the participation of the customer in the creation of the (core) offering itself. By letting the seller and the customer collaborate in creating value, customer
engagement leads to a convergence in the roles of the seller and the customer (Prahalad and Ramaswamy, 2004).
Co-‐creation can be based on co-‐design, shared inventiveness or shared production. Therefore, we speak of co-‐creation when a customer participates through spontaneous, discretionary behaviors that uniquely customize the customer-‐to-‐brand experience (Lush and Vargo 2006). An example of a behavior of co-‐creation is making suggestions to the brand to improve a product (Lush and Vargo 2006).
Hollebeek (2011) argues that customer engagement behavior encompasses immersion
17 willingness to spend effort en time to interact with the brand/other customers ( taking time to write a post on Facebook, make suggestions to the brand).
In sum, behavioral manifestations like WOM and co-‐creation are forms of customer engagement behavior. Customer engagement behavior encompasses immersion, passion and being active about the brand.
2.1.2.1 The role of Social media
Social media play an important role in customer engagement behavior. Social media make it possible for consumers to interact with each other and the brand (van Doorn et al 2010). This subsection sets out to give a better understanding in regard to this phenomenon.
By making it possible to write a message about/to the organization/brand, social media give the customer the ‘tools’ to engage to the brand/organization. Thereby, social media can be seen as one of the enablers of customer engagement behavior.
Sashi (2012) argues that social media with its ability to facilitate relationships is able to better satisfy customers’ needs an thereby build customer engagement. On top of this, Mangold & Faulds (2009) argue that consumers feel more engaged with products and organizations when they are able to submit feedback. Based on that information, they claim that the higher the degree of interaction between customers and/or organization about the engagement subject (like a brand, organization etc.), the higher level of customer engagement.
Hence, by facilitating the interactions between customers and/or organizations, social media seems to be essential when engaging customers.
2.1.2.2 The degrees of customer engagement behavior
In order take away the uncertainty about when a customer is showing engagement behavior or not, this subsection will explain how to measure whether the customer is showing engagement behavior. In their research, Roberts and Alpert (2010) developed a model which indicates the five degrees of customer behavior. Furthermore, they show which degrees are representing customer engagement behavior.
The model ranges from low customer engagement to high customer engagement. At the first level a customer is purchasing a product, at the second level the customer is loyal to the service and continues to use it, at the third level the customer readily purchases other products from the same brand, at the fourth level the customer recommends the product to others if presented with the opportunity and finally, at the fifth level, the customer is an advocate and promotes the product at every opportunity.
18 Level one and two are excluded because these two levels ( wherein just one off purchases are
incorporated) do not lead to a dramatically increase in business performance ( including sales and growth).
Table 2 shows the graphical representation of the above.
Table 2: The degrees of customer engagement behavior
As can been derived from the table, customer engagement goes beyond only just one purchase and the loyalty of the customer.
This is in line with the definition of customer engagement which is formulated in the first section ; 'Customer engagement are behavior manifestations towards the brand, transactional and non-‐
transactional in nature, resulting from motivational drivers'. Level three to five are all behavioral
manifestations towards the brand. On top of this all three behaviors are transactional; ,a purchase is incorporated (happened in level 1) and more purchases occur (level 3), and non-‐transactional in nature (level 4 and 5).
Furthermore, this outcome is supported and complemented by existing literature of Gallup (2010) and Sashi (2012).
Firstly, Gallup (2010) argues that engaged customers are not just “satisfied” or “loyal,” but that they are emotionally attached to the organization. Secondly, Sashi (2012) concluded that customer engagement goes beyond awareness, beyond just one purchase, beyond satisfaction, beyond loyalty and beyond retention.
Hence, just customer loyalty/satisfaction is not enough. In order to engage customers to a brand, the customers should be emotionally attached to the brand and therefore also purchasing other
products from the brand and recommending the brand at every opportunity.
19
2.2 Sales Promotions
In order to attract customers and to motivate them to buy the company’s products, many companies make use of sales promotions (Rao 2009). This chapter endeavors to give a better understanding about sales promotions and how it relates to customer engagement behavior.
2.2.1 Sales promotions
Nowadays many organizations make use of sales promotions. The intention of sales promotions is to encourage unplanned purchases, cause stockpiling, trigger buying non-‐promoted merchandise and accelerate store traffic (Laroche et al. 2003).
Prendergast et al (2008) argue that sales promotions are frequently offered in categories with a lot of competition, in order to stimulate brand switching. On the other hand, sales promotions are used in order to reward and retain the loyal customers and to enhance the brand image (Prendergast et al 2008).
Nowadays, it is more common to use sales promotions. In the FMCG (fast moving consumer goods) industry, expenditures on sales promotions are increasing and thereby outweighing the expenditures on advertising (Yi and Yoo 2011). These days, consumer promotions are taking up on average one quarter of the total marketing budgets of organizations (Schultz, Robinson, and Petrison 1998). Existing research of Rao (2009) argues that the fast mover consumer good (FMCG) industry/ sector is making the most use of sales promotions. This is supported by the fact that in most of the companies in this sector, the use of sales promotions is now a regular fixture. In this industry, the largest sector that makes use of sales promotions is cosmetics, where 60% of the department store makeup articles are offered with sales promotions. (Sexton 1987).
Figure 1 below shows the dimensions of sales promotions. Per dimension the type of sales promotion that will be used in this paper is marked in red and will be discussed in the next paragraphs.
20
Figure 1: Types of sales promotions
2.2 Non-‐monetary versus monetary sales promotions
As a marketing tool, the principal aim of sales promotions is to create an immediate need by adding an extra incentive to buy the product. Such additional incentives can be subdivided into monetary (e.g. price offs) and non-‐monetary (e.g. premiums, samples) promotions (Lowe and Barnes 2012). Firstly, a monetary sales promotion can be explained as a price discount, for example 30% discount or buy two products and get the third product for free. On the other hand, an extra free product promotion, in form of a free gift (called: premium) , sweepstakes, contests and bonus packs, can be described as a non-‐monetary sales promotion (Chandon, Wansink, & Lauren, 2000).
Figure 2.1 shows an example of monetary sales promotions and figure 2.2 shows an example of non-‐ monetary sales promotions.
Figure 3: Non-‐monetary sales promotion Figure 2: Monetary sales promotion
High product-‐
premium fit
21 Research of Lowe and Barnes (2012) shows that consumer favor non-‐monetary sales promotions rather than monetary sales promotions in general. This is because non-‐monetary promotions are framed as segregated gains rather than reduced losses (Lowe and Barnes, 2012). This is supported by Raghubir (2004) who argues that the experienced transaction value is enhanced by non-‐monetary promotions. This is because the value of the premium is often unknown and the gift is perceived as free.
On top of this, they claim that monetary promotions may have negative consequences. An example of a negative consequence is that when the introduction price of a new product is lower (penetration strategy) than the original price, consumers may undervalue the product and see the original price (the higher price) as expensive (Estelami & Maxwell, 2003).
By diverting the attention of the customers to the financial incentives, switching behavior is
encouraged. Therefore, monetary sales promotions have a negative effect on brand preference and brand trust (Aaker, 1996 and Keller, 1998). This is supported by Gedenk and Neslin (1999) who argue that monetary sales promotions lead to a significant decrease in loyalty.
As mentioned before, customer engagement goes beyond, beyond just one purchase and beyond loyalty Sashi (2012). Therefore, loyalty can be seen as condition of customer engagement. Since, monetary sales promotions lead to a decrease in loyalty, it seems that there is no effect of monetary sales promotions on customer engagement.
Because of the various reasons why non-‐monetary promotions are more favored than monetary sales promotions, and because of the fact that no influence of monetary sales promotions on customer engagement is expected based on prior research, I will focus on non-‐monetary sales promotions in this paper.
2.2.3 Premium promotion
This paper focuses on premiums. Premiums are the most used type of non-‐monetary sales promotions (Palazon and Delgado-‐Ballester 2010).
A premium is a product offered for free or at a relatively low price when buying one or several products from a specific brand. This is also called free product premiums (Palazon and Delgado-‐ Ballester 2009) or self-‐ liquidating premiums, when the customer pays a small amount that is covering the cost-‐price of the premium (d'Astous and Jacob 2002). In this paper I will focus exclusively on the free product premiums.
22 the premium is perceived to be attractive by the customer. Therefore, creating high perceptual promotional value is mandatory in order to succeed. When the value of a free gift is considered as being low, consumers will not be interested in the deal. On the other hand, when the value of the premium is considered to be high compared to the base product, consumers may perceive the deal as being ‘too good to be true‘ , resulting in a lower perceived value of the deal (Chang 2009).
Therefore, the marketer has to find the right balance between the value of the base product and the premium product. In this research, this non-‐linearity will be taken into account, in order to draw reliable results.
2.2.4 The benefits of non-‐monetary sales promotions
Next to benefits for the organization, non-‐monetary sales promotions should also have benefits for the customer. What these benefits are, is covered in this subsection.
Non-‐monetary sales promotions in the form of premiums provide hedonic benefits to the customer (Luk and Yip, 2008). Since by definition the free premium is offered for free in return to the purchase of one or several products, premiums focus more on the gain instead of the price (Palazon and Delgado-‐Ballester, 2009). The free product can be seen as a gift which means that the fun factor of the promotion strengthened. The fun of the free product makes that consumers feel more like buying and trying new products (Chandon et al., 2000).
Hence, the hedonic benefits of premiums for customers are entertainment (like fun) and exploring the new products (Chandon et al., 2000; Luk and Yip, 2008)
2.2 Effects of non-‐ monetary sales promotions on customer engagement
So far I have acquired knowledge about customer engagement behavior and non-‐monetary
promotions. But how do non-‐monetary sales promotions effect customer engagement behavior? Do customers show more engagement behavior towards products/brands when a non-‐monetary sales promotion in form of a premium is offered? As mentioned before, in this paper the effect of non-‐ monetary sales promotions in form of a premium on customer engagement behavior will be investigated. This chapter endeavors to give more insights about this relationship based on existing scientific literature.
In their research, Palazon and Delgado-‐Ballester (2009) showed that when the gain of the premium is small relative to the product price, the buy intention is high. On the other hand, in case of normal -‐ high value premium, a favorable attitude towards the product/brand may be created. It should be pointed out, that the value of the premium should not be too high, because otherwise, as mentioned before, the customer may perceive the premium as ‘too good to be true’ (Chang 2009).
