Incentive Outlay Ratios in Fast Moving Consumer Goods Sector in India

Abstract

Inflationary trends in the economy have led to increased media costs forcing many companies to increase their expenditure on sales promotion activities. It has been recognized that well-planned sales promotion activities have a strategic role to play in brand building and enhancing customer loyalty. This study examines the nature of schemes offered in the fast moving consumer goods (FMCG) category, finds out the ratio of incentive and outlay (which the consumer is expected to make/pay to avail sales promotion offers), explores the relationships, finds out the rationale behind these offers, and provides guidelines to managers designing sales promotion activities. Eight different product categories were selected for the study. Information on actual offers made in these categories in a quarter was compiled and tabulated through content analysis in terms of brand, maximum retail price (MRP), offer (size of the incentive offered), nature of the scheme, pack being promoted, and outlay. The following findings emerged from the data gathered and analysed: Variations in incentive outlay (I/O) ratios across product categories revealed that non-food category exhibits more variations (range) than food category. The level of incentive offered in non-food category was higher than that of food category. Bonus pack followed by free gift and price-offs were the popular tools used across product categories indicating use of similar type of schemes without much innovation. More often, medium to large pack-size was promoted in all categories except the toilet soap category indicating �load the consumer� as the main objective and thereby warding off competition temporarily. The findings suggest that managers need to be creative to create an impact; otherwise, consumers would tend to be less loyal to any brand in a category and drift from one promoted brand to another. They need to give careful thought as to what objectives need to be achieved from whom (loyal, competitive loyal, switchers or non-users). They also need to do a proper analysis by linking sales during promoted period to overall sales, baseline sales, competing brand sales, and impact on trade and consumer behaviour and evolve guidelines with respect to terms and conditions of the offer in terms of size of the incentive, terms, whether immediate or delayed incentive, what efforts are required on the part of the consumer, etc. Before determining the size of incentive to be offered to the consumers, managers need to consider several factors such as level of competition, available budget for the brand, reputation of the company introducing a brand, consumer behaviour, competitive promotional offers, and level of price of a brand vis-�-vis competition. A study of I/O ratios across product categories reveals interesting practices followed by companies. Exploring reasons behind such practices would give insights to managers as to why practices differ from theory and provide guidelines in managing these activities.