Evaluating the effectiveness of marketing campaigns. Return on shares: calculation and formulas How to calculate the economic efficiency of a share

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From this article you will learn

How are promotions effective?
What is the basis for calculating the effectiveness of promotions?
How to evaluate the effectiveness of promotions
How to increase the effectiveness of promotions

To carry out consumer promotion campaigns, organizers need to spend a lot of effort and nerves, time and money. But how can you find out the feasibility of the work invested, and understand whether a given campaign is successful? To evaluate the effectiveness of promotions, you need to know the number of contacts with the target audience, how many purchases were made and in what volume, as well as the results of the communication effect. To achieve success, it is very important to set goals correctly and formulate them specifically.

How are promotions effective?

Translating the word “promo” from English, we learn that it means “development”, “promotion”. A promotion is a type of activity to promote a product, as a result of which people get acquainted with the product not through external sources (press, television, radio), but personally, by accidentally looking at the presentation of some new product and receiving a free trial sample.

Advertising agencies generally do not organize promotions. In most cases, they are arranged by special companies. They promote the product by coming up with various advertising events, for which there is even a special name - promotion, that is, “move forward.” Their purpose is to push a potential client to the desired action.

A promotion is considered effective if it solves the following problems:

The promotion should convey to potential buyers information about the release of a new product or service.
It should convince potential consumers to buy goods from your store, and not from your competitors.
The promotion should encourage the potential client to resolve the issue right here and now, at the moment, without postponing the purchase until later.

All this proves that the effectiveness of promotions cannot be underestimated and it is necessary to choose the right products that need advertising.

Some may think that a potential buyer will have too little time to get to know the product or service. But thanks to the colorfulness, sonority and brightness of the promotional campaign, it is remembered for a long time and leaves behind positive emotions and a good attitude towards the advertised products.

So, effective promotion helps promote a product on the market, pushes consumers to purchase, thereby increasing sales volumes, and also creates a positive image of the company for a long time.

There is a huge variety of promotions. Each time it is better to choose a new type so as not to repeat yourself. You can arrange presentations or tastings, organize sampling or distribution of gifts and advertising booklets, come up with your own original ways that reflect the specifics of your product. In any case, promotion will always justify the investment in it and help promote your company.

What is the basis for calculating the effectiveness of promotions?

The calculation of the effectiveness of a promotion is based on such indicators as an increase in sales volume, positive feedback from customers, an increase in brand image, and an improvement in partnerships with sales representatives.

For such a promotion to be effective, you need to accurately understand the purpose for which it is being carried out, and not forget about it while preparations are underway.

The promotion is designed to resolve the issue of increasing one of these six groups of indicators:

1. Indicators for improving brand strength

Two indicators determine the objective of the promotion - brand awareness and its image.

Recognition: choosing this particular brand when purchasing products.
Image: creating a favorable opinion in the market.

Possible goals for this group of indicators: dissemination of information about the release of a new product among potential consumers; creating a positive image.

2. Indicators of improvement in buyer behavior

An effective promotion encourages customers to purchase the products offered. Based on indicators such as growth in overall traffic, creating motivation for the first purchase, growth in volume and frequency of consumption, we can assess the effectiveness of the promotion.

3. Indicators of improving distribution quality

Half of its success among buyers depends on how the sales of a product are organized. The product must be presented to the customer in the best possible light to increase recognition and turnover.

Six indicators describe the quality of product distribution:

Impossibility of increasing product prices.
Increasing the quantity of goods on the shelf.
Distribution growth.
Increases shelf space for this product.
Choosing the most visible place to place the product.
Constant replenishment of shelves with these products.

It is possible to maintain the established retail price only if the product is distributed through various sales channels or if it is very popular in the market. The increase in value occurs as a result of high popularity and hype for the product. Resellers do not adhere to the price set by the manufacturing company. It may also happen that the intermediary himself will lower the price in order for potential customers to notice the product.

4. Indicators of improving consumer attitudes towards the product

A positive audience attitude towards the product will help increase sales. Goals that an effective promotion should achieve within the framework of this indicator:

Generating interest in products: attracting customer attention only to your product.
Become one of those products that the consumer wants to purchase.
To develop an emotional attachment among the audience specifically to this product.

5. Indicators of improving relations with resellers

Here, an effective promotion solves the problems of relationships with intermediaries, who play an important role in forming an opinion about your product among buyers:

Increasing the amount of product advertising by store staff. The seller can, through direct recommendations, encourage the client to purchase your product.
Increasing the volume of product purchases from you compared to competing companies.
Conclusion of long-term contracts.

6. Sales dynamics indicators

Improving the efficiency of the company - any marketing campaign must solve this problem. On the way to achieving this goal, it is necessary to provide such indicators as:

Increase in absolute profit.
Increase in turnover of a certain product in a specific store.
Increasing market share.

How is it possible to evaluate the effectiveness of promotions?

It is impossible to accurately calculate the effectiveness of a promotion. Therefore, Russian marketers have no choice but to invent their own evaluation systems - sometimes successful, sometimes not so successful. It is clear that it will not be possible to qualitatively predict the result of a particular advertising campaign, but it is possible to find out the sales revenue with the highest degree of probability. It is a mistake to think that the main criterion for the effectiveness of a promotion is the return on funds invested in its implementation, thanks to the income received during the time that the promotion lasted. In this case, what is important is not the number of products purchased, but the number of consumers who paid attention to the new product. But how many of them will make a purchase in the future? How to predict subsequent profits during the year?

There is one system invented by a Western FMCG company that can calculate the dynamics of profit growth after receiving the results of an organized promotion. That’s what they called it – “calculation of the long-lasting effect.”

This system is unique. True, it has some disadvantages. It doesn't always work effectively. The system can accurately predict sales growth only if the product has been on the market for a long time. Its work provides correct indicators and a qualitative assessment of the effectiveness of the promotion only if statistical data for previous years is provided. Based on them, the result is built.

Here is a possible option for calculating the effectiveness of a promotion. This is a real example of one project. We took as a basis the store where we carried out the advertising campaign.

First action. We obtain information from marketers about product sales before the promotion and analyze them:

We calculate the monthly and annual sales volume:

Index	Qty	Unit change	Designation	Calculation formula
Sales on regular days (1 month)				Vsale (day) × 30
Sales on regular days (1 year)				Vsale (month) × 12

Second act. We find out the income that we received from one unit of goods.

Third act. We calculate the income from one product per day, month and year, taking into account the sales volume and income from one unit of production:

Index	Qty	Unit change	Designation	Calculation formula
Income for 1 day				inc × Vsale (day)
Income for 1 month				inc × Vsale (month)
Income for 1 year				inc × Vsale (year)

This is how the initial data was formed. The next step is not easy. You need to find out the amount of income of the company in the year when the promotion was organized. This indicator is calculated in the same way as total sales. This is the total amount of income that was on the days of the promotion, on other days and due to repeat purchases.

Act Four. Using the supervisor's report, the number of products sold on the day of the promotion is revealed:

If the promotion lasted five days, then we get:

Index	Qty	Unit change	Designation	Calculation formula
Income in one day				Vsale (PromoDay) × Inc
Income in five days				Vsale (PromoDay) × 5

Sixth act. Let's add the number of sales for the year and the excess income received due to the promotion.

And we will calculate the income.

We receive excess income:

Act seven. Let’s begin to evaluate the “long-lasting effect,” the main indicator of the effectiveness of a promotion.

Index	Qty	Unit change	Designation	Calculation formula
Average purchase per person per month			VsalePers (month)
Average purchase per person per year			VsalePers (year)	PersVsale (month) × 12

Using the same formula, we find out:

Eighth act. We begin to process statistical data on the promotion:

Index	Qty	Unit change	Designation	Calculation formula
Number of contacts with the product during one day of the promotion			Qpers (PromoDay)
Number of contacts with the product during five days of promotions				Qpers (PromoDay) × 3

Act Nine. Calculation of the number of consumers who have become familiar with the product and will then purchase it.

First, let's outline those factors that may prevent you from purchasing a product:

High cost of goods. Poor quality workmanship. Lack of a positive opinion about the company. Big competition. Unfamiliar product due to lack of advertising. Misunderstanding why this product is needed. The product does not suit the buyer's social status.

And now, based on the opposite, an understanding of effective prerequisites arises:

The company needs to promote itself in a given product category (for example, “cigarettes” or “bakery products”). The company needs to create a positive image in the market, confidence that it sells only a quality product. The company must produce a unique product that competitors do not have. A company needs to research the market before launching a new product. The company needs to have an understanding of which buyer to target and assess its social and demographic status. The company must accurately determine the advantages of its product and its differences from competitors. All these factors need to be taken into account.

Western companies that have several brands (for example, Johnson & Johnson) are in a more advantageous situation. It is much easier for them to calculate the effectiveness of their promotions.

Advertising agencies also have the opportunity to estimate the percentage of “converted” buyers. To do this, they use data on income received at the beginning and end of the promotion. The basis for such research is sales statistics for a specific product collected over many years.

If we assume that a person visits a store twice a week, then he first gets acquainted with the product and purchases it to try it. On his second visit, the client specifically comes to the store for a specific product, and does this mainly on the last day of the promotion. It is quite possible that there will be a third and a fourth time. The promotion lasts for five days. We organize all customers who immediately purchased the product into five groups depending on what day of the promotion they made the purchase.

The sales volume will look like this:

Promotion day	Contacts	People who made a purchase	What does it mean?
1st day of promotion			1st group of consumers. Trial purchase.
2nd day of promotion			2nd group of consumers. Trial purchase.
3rd day of promotion			3rd group of consumers. Trial purchase.
4th day of promotion			4th group of consumers. Trial purchase.
5th day of promotion			5th group of consumers. Trial purchase. + 1st group of consumers who came for the 2nd purchase.

If in the first four days 30 people made a trial purchase, then on the last day there were also 30 of them. And the additional eight people are those same “converted” customers. There are 25% of them.

We get:

Profit from “converted” consumers per month and in the remaining 11 months:

Index	Qty	Unit change	Designation	Calculation formula
Sales volume due to “converted” consumers in 1 month.			VsaleConvPers (month)	ConvPers (PromoYear) × VsalePers (month)
Sales volume due to “converted” consumers in 11 months.			VsaleConvPers (year)	VsaleConvPers (year) × 11
Profit from “converted” consumers in the remaining 11 months.			IncConvPers (year)	VsaleConvPers (year) × Inc

Three indicators were obtained: sales volume per year without a promotion (Vsale (PromoYear)), sales volume taking into account the promotion (Vsale (PromoYear)), sales volume taking into account “converted” consumers (VsaleConvPers (year)):

Index	Qty	Unit change	Designation	Calculation formula
Total sales volume including sales on promotion days and sales from “converted” consumers			Whole Sale (year)	VsaleConvPers (year) + Vsale (PromoYear)
Total profit taking into account sales on promotion days and sales from “converted” consumers				WholeVsale (year) × Inc

We get the net profit minus the costs of the promotion at this point:

Index	Qty	Unit change	Designation	Calculation formula
Cost of promotion at this point
Net profit				WholeInc (year) - NetProf

And compare it with the annual profit in a normal year (Inc (Year)):

It turned out to be 11.01%.

This indicator is Incremental Volume. 11.01% is a basic estimate of the effectiveness of the promotion, that is, the annual increase in income received due to the marketing campaign.

What needs to be done for the promotion to be truly effective

Organizing promotions to introduce customers to a new product is a common practice for manufacturing companies. There are always many people who want to try a new type of cheese or drink a glass of juice, which the young girl helpfully offers in the store. But often things don’t move beyond this. To make real money with a promotion, you need to really work hard and organize something that the buyer has not seen before.

Today, all marketing campaigns are similar to one another: there is no originality, no creative approach, everything is done according to a standard scheme. Such events quickly become boring and interest in them is lost. For a promotion to be effective, serious market research is required. You need to start from the specifics of the product and follow an unconventional approach to creating the company’s image. All these actions will generate interest in your products in the market.

And promotional printing plays not the least role in this. Advertising printing is considered the most effective means of promoting products and services of large companies. Printed materials allow you to convey to potential clients the most important and relevant information about the company’s activities. Only original, creative advertising can fulfill its purpose to the maximum - to interest the end consumer and convince him to order a product or service.

The SlovoDelo company offers its assistance in the production of such advertising products and printing. The presence of modern equipment and experienced personnel allows us to produce products of the highest quality that fully satisfy customer needs. Printing house specialists always listen to the wishes of customers, therefore the creation of a design project, as well as its full implementation, occurs only after all details have been agreed upon with the client.

The printing house's catalog presents a wide range of gift and promotional printing products, which you can purchase at the best prices.

The SlovoDelo company produces the following printed products:

Calendars.
Corporate cards.
Individual packaging.
Paper bags with branding.
Advertising brochures, leaflets (any advertising and promotional products to attract customer attention).
Notepads and diaries.
Postcards created according to individual design.
Advertising booklets, etc.
Other souvenir and promotional printing, including those with your company logo.

If among the proposed options there is not what you need, then the printing company is ready to consider the order individually.

Maximum benefit from printed products:

Information or promotional material for participation in presentations, seminars, exhibitions.
Attracting new customers or clients, as well as maintaining interest among partners cooperating with you.
Supporting material for marketing and promotions.
Informing your potential or existing customers about future events (promotions, discounts, seasonal sales, openings, etc.).
Gift printed products will be an excellent souvenir for your regular partner.

Why should you use the services of the SlovoDelo printing house? Because she:

Offers only original and high-quality products.
Takes on the development of the design of printed products (flyers, brochures, etc.).
Prints logos and corporate symbols on notepads, diaries, business cards and any other products.
Provides discounts to advertising agencies.
Provides free delivery of orders throughout Moscow.

Specialists of the SlovoDelo company will develop especially for you a unique design project for booklets, leaflets, business cards and any other promotional items that will help your company in promoting goods and services. Order printing of marketing products now and get a powerful sales tool in your hands.

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A BTL campaign can be called successful if it has a good response from customers, ensures high profitability of sales, emphasizes and improves the brand image, strengthens partnerships with resellers (benefits both sides of the trade marketing program).

It is possible to develop such a promotion if you clearly establish the goal of the BTL activity and adhere to it throughout the entire period of development of the promotion.

Main types of goals of trade marketing campaigns

A promotion objective is a clear, measurable measure of growth or improvement in one of the following six groups of indicators: brand strength improvement indicators, customer behavior indicators, product distribution indicators, consumer attitude towards the product, reseller attitude towards the product and sales performance indicators.

Indicators for improving brand strength

Within this group, the goal of an action can be two indicators: knowledge growth and brand image.

Increased brand awareness: increasing product recognition at points of sale or increasing the memorability of the company name.

Improving the image characteristics of the product, creating the right associations with the product, evoking certain feelings when purchasing a product

An example of goals for improving brand strength: increasing the target market’s knowledge of the company’s new product from 0% to 30% based on the results of a promotion; improving the image of “stable”, “reliable”, “competent”.

Indicators of improvement in buyer behavior

Promotions are designed to create additional motivation among buyers in order to stimulate additional demand for the product. The following 4 types of indicators will help assess whether the activity carried out was truly noticeable by market consumers and created a motive for a trial purchase of the product.

Increase in overall traffic

Trial purchase incentive

Increasing the frequency of purchasing company products

Increasing the volume of one purchase

Indicators for improving distribution quality

The quality of product distribution directly affects the turnover of the company’s product at points of sale, helps increase product knowledge and demonstrate the product to the buyer in the most advantageous way. 50% of the success of a product on the market depends on the quality of distribution.

The quality of distribution or distribution of goods can be described by 6 indicators:

Compliance with the recommended retail price of the product

Increasing product distribution

Increasing the share of goods on the shelf in the Republic of Tatarstan

Allocation of additional places for display of goods (secondary placement)

Increasing the quality and visibility of display on the shelf.

Filling shelves and reducing shortages of goods on shelves (reducing out of stock)

The recommended retail price is effective if the product is distributed through several different sales channels, as well as if the product is highly popular among the market audience. The high popularity of a product and the existence of rush demand often leads to a situation where resellers inflate the price of the product and do not sell it on the market. The opposite situation may arise: a significant reduction in price by a reseller to attract more buyers. Such actions have a negative response from other intermediaries of the company.

Indicators of improving consumer attitudes towards the product

A positive attitude towards the product forms audience loyalty and increases business profitability. Possible goals in this direction:

Drawing attention to the product: focusing consumer attention only on your company’s product

Enter the relevant set of products from which the consumer makes a choice

Form an emotional attachment and loyalty to the company’s product

Indicators of improving relationships with resellers

Within this group of indicators, the goal of the campaign is to strengthen relationships with intermediaries that can influence the company’s product:

Increasing direct product recommendations to the consumer from sales personnel: may be necessary in the case where the store salesperson plays an important role in making a purchase decision or can influence and push the consumer to make a purchase of your product.

Increasing the frequency of purchasing goods from your company, reducing switching to competitors, increasing the period of cooperation

Create and strengthen partnerships with key intermediaries to achieve additional benefits in the long term

An example of the goals of this type of promotion: increasing the recommendations of the drug by pharmacists of large pharmacies for colds, increasing the volume of average monthly purchases of goods by 30%.

Sales dynamics indicators

The ultimate goal of any promotion is to improve business performance. Therefore, each marketing campaign must include the following sales performance indicators, without which the promotion cannot be considered successful:

Growth in sales or profits in absolute terms

Increase in turnover of a specific product item at a retail outlet (moving off the shelves)

Market share growth

Marketing promotions and product life cycle

The goals of BTL shares directly depend on. Each individual stage of product development requires different support from the trade marketing department.

At the market entry stage, the key goals are to increase trial purchases, increase knowledge about the product, and attract attention to the product

At the growth stage, the main goals of the promotion are: increasing the frequency of purchases, stimulating decision-making in favor of purchasing a product, creating image characteristics of the product.

At the maturity stage, attention should be paid to increasing the purchase size per customer, creating an emotional commitment to the product, strengthening the brand image

At the recession stage, key goals should be maintaining the frequency and volume of purchases, strengthening emotional commitment and loyalty to the product, updating the brand image, including creating visible newness

An investor can receive income from shares in two ways: through an increase in the market value of shares and through dividends.

The investor's main income from shares is the increase in the stock price. If a company is doing well, its revenue and profits are growing, the company is developing, paying dividends, which are also growing, this has a positive effect on the share price, and it is growing. An investor, seeing this state of affairs and assessing the prospects, buys companies. If the company continues to do well, the share price rises, then the investor can sell the shares at a higher price and make a profit.

It consists of an increase in the market value of shares and dividends. The return on shares shows how much income, in percentage or nominal terms, the shares brought. Profitability in a general sense is calculated as the amount of profit divided by the amount of invested funds. Since you can get not only a profit but also a loss on shares, the return can be negative. Let's look at how to determine stock returns.

Dividend yield of shares

Dividend yield of shares is characterized by the ratio of the dividend size to the share price. Dividend yield is calculated using the formula:

d — dividend amount for the year
p — market price of the share

For example, dividends on Gazprom shares for 2013 were equal to 7.2 rubles. The share price is 130 rubles.

Dividend yield is 7.2/130*100%=5.53%

Market (current) stock return

The market return of shares, that is, due to the increase in market value, is calculated using the formula:

P1 - sale price of the share
P0 — share purchase price

The current yield of the stock is also calculated and shows the return that the investor will receive if he sells the stock at the current market price.

If the purchase price of Gazprom shares is 120 rubles, and the sale price is 135 rubles, then the yield is equal to (135-120)/120*100%=12.5%.

Total stock return

Total return consists of dividends and market value growth

Let's take the same numbers as in the previous example: (7.2 + (135-120))/120*100% = 18.5%

Return on shares as a percentage per annum

You can hold a share for either less than or more than a year. Therefore, in order to compare the profitability of shares with the profitability of another instrument, for example, a deposit, it must be brought to an equivalent value - the yield as a percentage per annum. To do this, the yield is multiplied by the coefficient k = 365/number of days of holding the share. If the stock was held for 250 days, the return as a percentage per annum is calculated as follows:

(7,2 + (135-120))/120 * 365/250 * 100% = 27,01%

Before moving on to a direct description of the types of discounts and their economic evaluation, we should dwell on the principles of their application, the implementation of which should ensure the effectiveness of the entire discount system.

Firstly, the use of a discount system should lead to a positive economic effect. That is, discounts should not be perceived as a necessary evil that the company has to put up with. On the contrary, they should serve to at least maintain the level of profitability, and better yet, increase it.

Secondly, the discount provided should arouse real interest in the buyer and a desire to fulfill the agreed conditions.

Thirdly, the discount system should be simple and understandable to customers and company employees. The presence of a large number of different types of discounts in one system at the same time can create confusion and misunderstanding among the buyer and significantly complicate the work of the sales department.

Main types of discounts

Progressive discounts for large purchase volumes

This is the most common type of discount. The company sets their progressive scale depending on the volume of the product batch or the volume of purchases for a certain period. However, in most cases, such systems are compiled intuitively and very often are not effective enough.

To calculate the scale of discounts, the principle of not reducing the level of profit can be used - profit at a discount price and a new sales volume should be no less than at the initial values of the price and sales level.

Taking this principle into account, we can derive a formula for calculating discounts.

Where current margin is revenue minus variable costs for a manufacturing enterprise or the cost of purchases for trading companies. If a trading company has a large amount of its own variable costs, then they should also be added to the purchase cost;
desired margin increase is an indicator of the desired margin increase relative to the current level.

As can be seen from the formula, to calculate the discount scale, aggregated data (margin and markup percentage) for the product category are used. Moreover, the product category itself may contain a large number of product items with different prices, units of measurement and sales volumes.

The use of initial data for a product category makes the formula easily applicable in practice, since the discount scale has to be developed entirely for product categories, and not for individual items.

There are two possible options for applying the formula:

EXAMPLE 1

The client asks for an additional discount

Let’s say a client monthly purchases a certain category of goods in the amount of 40,000 rubles, taking into account the 2% discount provided to the client. That is, according to the price list, such a batch costs 40,816 rubles (40,000 rubles/(1-2%/100%)). The average trade margin for this product category is 25%. Thus, the purchase price of the batch of goods in question is 32,653 rubles (40,816 rubles/(1 + 25%/100%)), and the current margin is 7,347 rubles (40,000-32,653).

So the client asks for a big discount. For example, 4% or 7%. What counter-conditions should the company offer in order to maintain profit levels? Let’s say that for a discount level of 7% or more, the company has set a desired margin increase of 1,000 rubles compared to the previous level of 7,347 rubles. Using the above formula, we calculate the required sales volume in monetary terms for each discount level (see Table 1).

Table 1. Calculation of required sales volume

Index	Discount amount
Index	0 %	2 %	4 %	7 %	10 %
Desired margin increase

Required increase in sales volume relative to current sales
Price according to price list
Purchase cost

EXAMPLE 2

Development of a general discount scale

To do this, you need to make the following calculations:

For the option when the trade margin is 20%, we obtain the following table (see Table 2).

Table 2. Calculation of the discount scale

Index	Discount amount
Index	0 %	2 %	4 %	7 %	10 %
Desired margin increase
Required sales volume with discount
Rounded discounted sales volume
Price according to price list
Purchase cost

Contract discounts

This group of discounts should motivate the client to fulfill such contractual conditions that are beneficial for the company. Contractual discounts may be conditional on the payment term, a certain type of payment or currency, the purchase of a certain product line, etc.

To establish conditions for the payment term, payment currency and type of means of payment, an economic assessment can be bank interest, costs of conversion and banking services, and for line and grade - costs of freezing working capital and other benefits from a complex order.

Thus, the company sets conditions for the client, the fulfillment of which is interesting for the client and beneficial for the company. Conversely, it is possible to set markups on conditions that are unfavorable to the company.

EXAMPLE 3

Discount due to payment deadline

An example of establishing conditions for payment terms is the following scheme. There is a base price for goods when paid upon delivery. In this case, it is possible to provide a deferment to the client for 30 days or to receive an advance payment from the client for 30 days. If it is beneficial for the company to motivate the client to pay earlier, you can set a discount for prepayment and, conversely, a markup for deferred payment.
The comparison rate can be bank interest. Let's take for example 18% per annum or 1.5% per month. Thus, the company can set conditions a little better than the bank rate (for example, a 2% discount for prepayment and a 2% markup for deferred payment) so that the client is interested in paying for the goods earlier.

EXAMPLE 4

Discount due to settlement currency

Clients of a company engaged in the sale of auto parts for foreign cars had the opportunity to pay for goods in different types of cash currency (rubles, dollars and euros). But with the existing payment system, there was an abundance of dollars, there were not enough rubles, and the euro at that time had not yet received sufficient distribution.

Then a “currency flow map” was compiled and analyzed - that is, it was assessed to what extent the company receives different currencies and to what extent there is a need to spend it, taking into account all the conditions for conversion and the cost of banking services. After which, the conditions for accepting currency and the internal exchange rate were carefully changed towards more favorable conditions from the company’s point of view.

EXAMPLE 5

Discount subject to a set of conditions

You can often come across a “retro bonus” scheme (payment of a discount amount at the end of the month if a number of conditions are met). The total amount of the discount consists of a set of conditions that the company needs to fulfill. For example:

for fulfilling the planned volume - 3%;
for timely payment - 3%;
for the selected line - 2%.

Thus, if all conditions are met, the client receives a total discount of 8%.

However, this scheme does not always work either. Sometimes clients (especially small ones) say: “Give me 3% now and I won’t need any more.” It is important not to forget the principle of attractiveness of a discount for a client and to track what really arouses his interest.

The next important point of the contract is the terms of delivery of the goods. The company may provide additional actions to encourage customers to comply with conditions favorable to it. For example, if there is a permanent fleet of vehicles, the seller must try to deliver goods using his own vehicles (within the limits of vehicle loading standards), since vehicle downtime will one way or another affect financial results. And stable utilization of the vehicle fleet can bring benefits, both direct economic and indirect (in the form of convenience for customers).

A markup when providing an additional delivery service can be justified by the fact that its amount is slightly less than the cost of an alternative delivery service when the client uses hired transport.

On the contrary, if the client has his own transport, he has the right to demand a discount. But in this case, the seller can set a discount slightly lower than its own delivery costs.

Seasonal (holiday) discounts to redistribute demand

The use of seasonal discounts allows you to redistribute demand over time - to ensure uniform load and reduce total demand during peak periods.

Seasonality of demand is a common situation when a company’s production capacity is limited, when during a peak period it cannot satisfy all requests, and during a recession it is forced to stand idle. In this case, discounts are designed to redistribute demand over time and encourage buyers to purchase goods earlier than the season and, accordingly, reduce demand during peak periods.

Glossary

Switching costs are the costs a buyer will have to incur when switching to a new product or a new seller. Costs can be both monetary (loss of discount) and psychological (habit, convenience for the buyer). — Note. author.

Seasonal fluctuations can occur both over a long period of time (for example, during the summer months or New Year's holidays) and in short periods - a week and a day. Then the peak hours may be weekends and evening hours, respectively. Therefore, some supermarkets provide discounts to pensioners when they make a purchase before 12 o'clock. An economic criterion for the effectiveness of such discounts can be an assessment of the benefits from the redistribution of demand and lost profits if peak demand is not met.

If a company is purposefully preparing for an increase in purchasing activity, holiday discounts are sometimes applied, the main purpose of which is to revive trade and attract customers to their store during a period of a previously predicted increase in purchasing activity.

Seasonal discounts for liquidation of goods

Another type of seasonal discounts are discounts for getting rid of goods, the main purpose of which is to stimulate demand to eliminate stock. If the company was unable to sell all the goods that are in seasonal demand during the peak sales period, then it has two options: store these balances until the next season or provide discounts for the possible liquidation of balances. Therefore, the economic assessment for calculating such discounts is the assessment of the costs of storing products. In this case, both direct costs (mainly the use of occupied space) and indirect costs (risks of physical and moral aging of the product, loss of presentation, etc.) should be taken into account. Thus, if the costs of storing goods are high, and the calculated discount is really capable of attracting a sufficient number of buyers, then the use of this type of discount is advisable.

Avoiding Adverse Tax Consequences

When applying discounts, it is necessary to take into account the provisions of Article 40 of the Tax Code of the Russian Federation, which establishes the principles for determining the price of goods, works, and services. As a general rule, for tax purposes, the price of goods, works or services indicated by the parties to the transaction is accepted, and, until the contrary is proven, it is assumed that this price corresponds to the level of market prices. But it should be remembered that if the price deviates by more than 20% upward or downward from the level of prices applied by the taxpayer for identical (homogeneous) goods within a short period of time, the tax authorities can check the correctness of the application of prices for transactions (subclause 4 clause 2 of article 40 of the Tax Code of the Russian Federation). If a deviation is detected, they have the right to charge additional taxes and penalties.

Therefore, if the maximum discount is 20% of the regular price (if prices are kept at the market average), then the tax authorities have no reason to find fault with the seller. If discounts of more than 20% are expected, then such actions must be explained by the fact that the discounts are determined by the marketing policy of the taxpayer organization. Or seasonal and other fluctuations in demand. Tax authorities are required to take these factors into account when calculating the market price. The taxpayer has the right to refer to these and other circumstances listed in paragraph 3 of Article 40 of the Tax Code of the Russian Federation in protecting his interests.

However, such actions must be confirmed by relevant documents. They must be enshrined in special internal documents. This may be an order or instruction from the head of the organization. In addition, an indication of the formation of the transaction price taking into account discounts as part of the marketing policy can also be reflected in the text of the purchase and sale agreement for goods sold at a discount, in the invoice for payment for the goods. This is proof that the price of the product is not reduced due to other reasons.

Attracting new clients and retaining old ones

The main task of discount systems aimed at attracting new customers is to create conditions over a certain period of time that would ensure interest and encourage the buyer to contact this particular seller. Moreover, to achieve this result it is not necessary to reduce the price of all goods. It is enough to reduce it only by a few so-called “indicator” goods, the prices of which the buyer remembers and by which he judges the price level of the entire company.

“Indicator” products should occupy a small volume in the total mass of goods sold, since a reduction in price for most of the assortment or for the “main” product can lead to significant economic losses. There can be no more than 3–5 such goods in each product category, and it is for them that the buyer should know the price level. Covering losses from lower prices for some goods should be carried out through additional sales of other goods, for which the price may be inflated.

After the company has managed to attract new customers, the next task is to retain them - creating conditions under which the customer who made the first purchase will be interested in purchasing goods from this seller in the future. In this case, the ideal option can be considered a situation in which each subsequent purchase will increase this interest more and more. This problem can be solved quite successfully using a system of cumulative discounts: they must be significant for the buyer and must exceed the switching costs when contacting another company.

Dealer discounts

A separate category of discounts are discounts for dealers, distributors, wholesalers, and companies that participate in the distribution system of the selling company’s products. A rough economic estimate for dealer discounts can be a discount value approximately equal to the cost of product distribution services (or it is slightly less than the cost of organizing your own promotion channel)*.

So, if you correctly develop and calculate a system of discounts, they will be economically beneficial both for the company itself and for the buyer. Moreover, the effect that a discount produces is measured not only by economic benefits. A company that provides a discount to its customers demonstrates care, respect and increased interest in them, which most often provokes their loyalty to the company. And customer loyalty is worth more than money

* For more information about the pricing policy when organizing product distribution channels, read the article “Price for the distributor” in the last issue of the magazine “Sales bussines/Sales” (No. 11, 2005). — Note. editors.

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