Background of the study
The growing managerial importance of sales promotion has generated a great deal of research on how sales promotion affects profitability (Loudon and Bitta, 2002; Perreault and McCarty, 2002; Schiffman and Kanuk, 2004). There is no doubt sales promotions have become a vital tool for marketers and its importance has increased significantly over the past 2 decades. In Nigeria, sales promotions expenditures by various companies is estimated to be in thousands of Nigeria Naira and the emphasis on sales promotion activities by the various industry players continue to increase year on year (Hinson, 2005). Sales promotion is an initiative undertaken by organizations to promote sales, usage or trial of a product or service (i.e. initiations that are not covered by other elements of the marketing communication/promotional mix). It is an important component of an organization’s overall marketing strategy along with advertising, public relations, and personal selling (Schiffman and Kanuk, 2004). Sale promotion acts as a competitive weapon by providing an extra incentive for the target audience to purchase or support one brand over another. It is particularly effective in spurring product trial and unplanned purchases (Aderemi, 2003).
As presented by Achumba (2002), sales promotion refers to marketing activities, other than personal selling, advertising and publicity that stimulate consumer purchasing and dealer effectiveness, such as displays, shows and expositions, demonstration etc. Sales promotion has been defined as a direct inducement that offers an extra value or incentive for the product to the sales force, distributors or the ultimate consumer with the primary objective of creating an immediate sale (George, 1998). Elsewhere, Strang (2006) reviewed major trends in the management of sales promotion in a sample of U.S. package goods companies. He documented the shift of funds from advertising to sales promotion budgets. However, the author did not explore specific promotions nor specific success factors associated with promotions. Analyzing Nielsen data, Peckham (1998) observed thousands of individual promotions. He concluded that sales promotions are most effective in stimulating sales during the introductory and growth phases of the brand's life cycle. Peckham further asserted that sales promotions frequently mortgaged the brand's future sales and he doubted the profitability of many sales promotions. Similarly, Lembeck (1999) found that only 40% of sales promotions are effective but there was no definition of success or effectiveness. Other studies suggest that sales promotions do not have a constant or continued effect on volume of sales of a firm which tend to diminish and come at the initial level at which it was before the sales promotion is being offered (Dekimpe et al. 1999; Pauwels et al. 2002; Srinivasan et al. 2000). Still some researchers argue about the usefulness of sales promotion, that whether it promotes the long term growth and profitability among brands for which it is projected is not compulsory (Kopalle, Mela and Marsh, 1999). In contrast, a study conducted by Ailawadi and Neslin (1998) revealed that sales promotions motivate the consumers to make immediate purchases and also positively impacts the consumption volume. In the midst of the above controversies, this research sought to examine the effect of sales promotion on organisational profitability using Nigeria Bottling Company (NBC) as case study.