MaRS Library Startups and sales promotions: What to know in your efforts to boost sales
As tech startups look for ways to boost sales, they may consider a sales promotion. But startups should be aware that not all sales promotions work well for startups—and discounts should be avoided altogether.
What is a sales promotion?
A sales promotion is an incentive offered by a seller designed to persuade a target customer to purchase a product now rather than later. Sales promotions are usually directed towards individual consumers, but can also be directed towards distributors (i.e., if your startup uses indirect distribution channels).
The American Marketing Association defines sales promotion as:
The media and nonmedia marketing pressure applied for a predetermined, limited period of time at the level of consumer, retailer, or wholesaler in order to stimulate trial, increase consumer demand, or improve product availability.
As the definition above notes, a key purpose of a sales promotion is to drive urgency in a buyer’s decision-making. Sales promotions that work for established companies, however, are often not effective for startups. For tech startups, the most effective types of customer-directed sales promotions involve free trials and product bundling (see below).
Sales promotions and startups: Avoid discounts
In general, for established companies, sales promotions can help make a sale. They can make a single purchase more attractive, and if the customer has a positive experience with the product, the sale may translate into word-of-mouth publicity for your product. However, what holds true for an established company has different implications for startups.
Discounts are ineffective to boost sales for a startup. Startups do not yet have an established brand value, and so customers will not have a point of comparison against which to judge the value of the discount.
In B2B sales, customers instinctively recognize the value of a deal in an established product category. But a large discount on an unfamiliar widget may not attract customers, and can cause startups to actually lose the revenue they need to cover related costs, such as training the customer on the product. (To ensure you avoid this, always build the training costs into your internal price.)
Ultimately, whether your startup is engaging in online or B2B sales, avoid discounts and build customer value through marketing and a superior customer experience.
Sales promotions and startups: Free trials and bundling can boost sales
For startups engaging in online sales, free trials are a popular and effective way to reach customers. Free trials are the lowest end of the high-low pricing strategy. Apple’s App Store is a prime example of the success of the free trial model. Free trials help you get your product in the hands of customers and have them see the value of your product. This model helps you obtain and generate leads for your premium product: you can spur trial users to upgrade and become paying customers. Additionally, apps that have functionality that users can post to social media (e.g., an exercise tracking app that posts the distance you cycled) creates free advertising for your startup.
If you are thinking of bundling your product, make sure the company you partner with has a known brand and is one with which you would like to be affiliated. Bundling with this established brand will lend credibility to your own product, and credibility is needed by startups. Be cautious about bundling your product with that of another startup. The combined offering will present the customer with two unknown entities and will have less appeal.
Classic examples of bundling occur in the travel industry, with airlines marketing and receiving cuts on offers that include hotels, rental cars and insurance.
Consider the lifetime value of your customer
Consider the lifetime value of your target customer. Gauge whether these customers would buy from you again. Is your product one that would likely need to be purchased again soon, or not? Does your customer experience encourage repeat purchases? What other products might these customers buy? Ensure you reduce the customer risk as much as possible—think through the entire customer experience and streamline it for the customer.
If there is even a chance of a repeat purchase, a sales promotion might be worth it, with aggressive upfront marketing.
Avoid offering sales promotions until you can reasonably expect the long-term value of your customer to offset the revenue lost from the promotion.
Sales promotions and your startup’s marketing strategy
If you startup does offer sales promotions, use them sparingly and with a clear strategy. Bear in mind that overusing sales promotions can give customers the impression that you do not believe your product is worth its regular price, which can damage your brand over the long term. Ensure your sales promotions enhance, rather than detract from, your brand image.
To develop your startup’s sales promotions strategy, plan what the promotion is meant to achieve. This may involve a target number of sales, certain customer data or the opening of a specific distribution channel. Make sure that you understand how the sales promotion’s objectives will help your startup reach its long-term goals. Once your sales promotion has served its purpose, discontinue it unless you have a compelling reason to think it will continue to help.
Sales promotions: Further reading
- The marketing mix in marketing strategy: Product, price, place and promotion
- E-Commerce and retail
- Getting started with advertising at your startup: Digital advertising
Sales promotions and stages of startup development
The Startup Genome (Compass) model defines five stages of venture development:
This article relates to startups in the efficiency stage.
Sales promotion. (2014). In American Marketing Association Dictionary. Retrieved from https://www.ama.org/resources/pages/dictionary.aspx?dLetter=S
Inc. (n.d.). Sales promotions. Retrieved from http://www.inc.com/encyclopedia/sales-promotion.html
Schenck, B.F. (2010, January 31). Three Steps to Effective Sales Promotions. Retrieved from http://www.entrepreneur.com/article/204860