NIKE: RUNNING OVER THE COMPETITION

Nobody takes the admonition Just do it more seriously than Nike, the company for whom the
slogan was written. Whether it's entering a new sport, moving into a new geographic market, or
developing a new product, Nike approaches its mission with the dedication and singlemindedness of an athlete training for competition. And whatever the task, the goal is always the
same: To turn in a peak performance, one that leaves no doubt as to who the best is. That's
because at Nike, winning isn't merely a corporate philosophyit's the company's business.
This brand is all about building products for athletes, high-performance products, very authentic
products, innovative products, bringing new technology to athletes so they can perform better
at a higher level in their sport, says Bill Zeitz, global director of advertising development at
Nike.
Liz Dolan, the company's marketing director, puts it in even more basic terms. We have a really
incredibly simple mission, which is, serve the athlete. If you're in product development that
means you have to make sure that the products really work, that they're really great for whatever
sport you are assigned to. If you're in the communications area, it means that you have to
communicate with an authenticity about the sports experience, what athletes know to be true of
what it feels like to win a basketball game, or run a marathon, or whatever.
This near-obsession with authentic athletic performance comes naturally to the Beaverton,
Oregon, company started in the 1960s by Phil Knight, a sports enthusiast and runner who
believed the needs of serious athletes were being neglected by Adidas and Puma, the German
companies that dominated the athletic shoe industry. With the help of Bill Bowerman, his former
track coach at the University of Oregon, Knight set out to develop a shoe that would make a
difference in a runner's performance.
The rest, as they say, is history. Nike has become a dominant player in sports apparel. With track,
basketball, tennis, and other traditional sports in the win column, Nike recently has turned its
attention to building its franchise in soccer, cricket, rugby, hockey, and in-line skating, among
others. After all, Dolan explains, being a global sports brand requires an intensely local focus.
Being a global brand is extremely important to Nike because its home market, the United States,
is nearing saturation. According to John Horan of the newsletter Sporting Goods Intelligence,
sporting-goods chains have overexpanded and profit margins are threatened. When Nike
announced that its second quarter earnings in 1997 would not live up to Wall Street's
expectations, its stock dropped 13 percent. With these spurs at home, Nike has to look overseas
there it has only 27 percent of sales compared to 43 percent in the U.S. to generate additional
revenues.
But going overseas is not a sure win for Nike. Understanding what sports the people in [a]
country play, and then being great at those sports... that's always the challenge. In the U.K., for
instance, we are a really good basketball brand, but they don't play that there. And we are a really
good tennis brand, but they kept telling us. Other than the two weeks during Wimbledon,
nobody in the U.K. really cares about tennis. So in the U.K. soccer is what they play. Rugby is

what they play. So we had to really concentrate on being great at two sports that were not really
something that came from our American tradition at all. That took years of product development
and talking to consumers about, What does this sport really mean to you when you play it, and
what does it really mean to you when you watch it? The brand attributes for Nike in the U.K. are
the samewe really want to be the authentic sports brandbut the sports that are the building
blocks for that are very different in the U.K. than they would be in the United States or than they
would be in Japan.
Outside the United States soccer is the main sport, and Nike has pursued the soccer player and
fan with a vengeance. In the United States, Nike has signed a multiyear contract with major
league soccer that calls for it to spend $3.75 million a year to sponsor 5 of the league's 10 teams.
In addition, the contract contains a clause that allows Nike to retain sponsorship of half of the
League's teams as it expands. Overseas, Nike spent $20 million in a sealed bid process to
sponsor the Italian national team. During last year's European championships, it bought up all the
billboards around stadiums where matches were held, effectively undermining the event's official
sponsor, Umbro. In the spring of 1997, it sponsored a worldwide soccer tour that featured top
teams. It has also spent millions on global advertising campaigns and signed leading national
soccer stars such as Eric Cantona (captain of the national champion Manchester United soccer
team in the U.K.) to highly lucrative contracts.
But nothing matches Nikes sponsorship agreement with the Confederacao Brasil de Futebol,
Brazil's soccer federation, which cost the company a breath-taking $200 million. Why Brazil? It
won the 1994 World Cup soccer match. The contract is a 10-year deal that includes appearances
in Nike-produced exhibition matches and community events. Nike will supply Brazil's national
teams with sports kits. In return, the teams will participate in five annual friendly soccer games
that Nike is arranging, and to which Nike retains the television rights. Nike will also have access
to training clinics in Brazil and to the infrastructure of the game.
Nike has applied the same technical skill and drive to soccer shoes that it applied to the
basketball shoes. For example, when Nike couldn't find equipment for testing the best stud
configurations and traction in cleated soccer shoes, it decided to build its own. The goal is to
create the world's best soccer shoe, but that won't be easy. First, the competition isn't yet ready
to roll over and play dead. Adidas retains sponsorship of many top teams and players, including
the national teams of Germany, Spain, and France. It also sponsors World Cup 1998, with the
rights to sell official soccer balls and sports apparel. Further, Adidas has invaded Nike's home
turf, sponsoring three U.S. teams and featuring players from those teams in its U.S. advertising.
We don't think that anybody can get near to us on the product side, says Peter Csandai, an
Adidas spokesman. Reebok, Nike's main competitor in the U.S., has also signed contracts with at
least 30 professional soccer clubs throughout the globe.
And there's competition at home from firms such as Vans, a small California company that aims
directly at the teenage market by targeting the California adolescentan Internet-surfing
latchkey kid. As the number of teenagers in the United States grows from 25 million in 1997 to
over 31 million in 2010, this move could prove shrewd. These kids are not into team sports;
instead they are attracted by individual sports such as skateboarding, snowboarding, surfing, and
mountain biking. Within two years of entering the market for snowboard boots in 1995, for

example, Vans has become the third largest company in the business. So, its in a position to
make a move on Nike.
Competition is not Nike's only problem; some of its actions haven't left fans cheering either.
Signing bad boy Eric Cantona generated a lot of criticism and infuriated the soccer establishment
in the U.K. In 1996, Nike flew eight of soccer's hottest players to Tunisia to film an
advertisement in which the athletes competed against the devil. Not surprisingly, this ad drew
angry letters from many offended fans. Even the Brazil deal has been heavily criticized. As part
of that deal, Nike had to pay Umbro an undisclosed amount to cover the remaining two years of
its contract with the Brazilian federation. Nike is going in and almost encouraging teams to
break contracts, says James R. Gorman, president of Puma North America. Finally, not all
soccer athletes are convinced Nike is better. Many pro players continue to get their equipment
from companies such as Umbro, Puma, and especially Adidas, which has been part of the sport
for decades, not just the last few years like Nike.
Still, with over $8 billion in sales in 1997, Nike remains the biggest player in the game. Adidas is
a distant second with $3 billion. With its free spending, Nike appears to have changed the
economics of the game. Nike intends to be the number one supplier of soccer gear by World Cup
2002, but so far its efforts have produced only $200 million in annual sales. It has a long way to
go before it scores a match-winning goal in the global soccer market.
Questions
1. Identify Nike's markets and Nikes positioning in these markets?
2. Describe the companys global soccer marketing mix?
3. What marketing recommendations would you make to help Nike achieve its quest for global
soccer dominance? How serious is the threat of a firm like Vans? Is Nike likely to be successful
in global soccer?
Sol:
1. Identify Nike's markets and Nikes positioning in these markets?
Ans: Nikes global market share was an impressive 30.4% in 1998. Despite a slight decline from
prior years, Nike continues to have the greatest market share in the U.S. branded athletic
footwear market. In 1998, the closest competitor, Adidas, held 15.5% of the market share while
Reebok held 11.2%. The remaining competitors, including Fila, Timberland, Asics, Converse,
and New Balance, among others, each hold approximately 3-5% of the remaining market share.
While Nikes market share is still in the lead, it is expected to increase with new products. Nikes
market share is expected to do especially well as a result of sponsoring the summer Olympics in
2000 in Sydney, Australia, the 2002 World Cup in Japan and Korea, and the U.S. Speedskating
team
in
the
2002
Winter
Olympics
in
Salt
Lake
City,
Utah.
Distribution through E-commerce Strength.
Nike has taken the lead in e-commerce by being the first to market with its e-commerce web-site.
Nike launched its e-commerce site in April 1999 by offering 65 styles of shoes to the U.S. market

for purchase. Nike increased its e-commerce presence by launching NIKEiD in November 1999.
NIKEiD enables online consumers to design key elements of the shoes they purchase. The
program represents the first time a company has offered mass customization of footwear. Nikes
future plans include opening an online shop for the Japanese market next year followed by global
rollout. By being the first to market, Nike enables itself to become established while competitors
rush to join us.
Advertising and Promotion Strength.
Nikes brand images, including the Nike name and the trademark Swoosh, are considered to
represent one of the most recognizable brands in the world. This brand power translates into
bottom-line revenues. The Nike name and associated trademarks have appeared everywhere from
players' shirts, pants, and hats to stadium banners and walls. Aggressive advertising campaigns,
celebrity endorsements, and quality products enhance the brand. Nike demonstrated an example
of Nikes brand presence at the 1999 NCAA Basketball tournament when 42 of the 64 teams
participating wore shoes provided. Nike's most recent brand-building endeavors are focused on
strengthening our association with women?s sports. Some examples are our sponsorship of the
1999 Women's World Cup Soccer Tournament and our sponsorship of the U.S. Speedskating
team
in
the
upcoming
2002
Winter
Olympics.
Products - Strength
Though Nike leads the apparel division among industry competitors, Nike has not claimed to be
leading the race among the apparel industry as a whole. Due to increased emphasis by consumers
on fashion in relation to sportswear, we have had to make strides to appeal to a fashion savvy
market. Our apparel line is not only being challenged by our typical industry competitors such as
Adidas and Reebok, but also by clothing and accessories retailers such as Old Navy and
Abercrombie & Fitch. Continuous marketing research could prove to be key in assessing the
market. Nike is planning on initiating five structures within the apparel division to focus on the
following areas:
o Women
o Men
o Kids
o sports graphics and caps
o strategic response independently
We are also spending more time on continuing to support and develop programs to gain a better
understanding what our customers would like to see in the market.
Products - Weakness
Nike has had much success as a result of collaborating with other companies within the sports
and fitness industry. However, at times we expanded into markets for which we were not
strategically suited. An example is the decrease in brands made available due to declining sales
of in-line skating and roller hockey products at Bauer Nike Hockey. As a result, we have had to
exit two manufacturing operations at our Bauer Nike subsidiary. We had to terminate 51
employees. Had we anticipated the decline sooner, perhaps gradual changes could have been
made so that the end result may not have been as finite in nature. The desire to prevent situations
such as these from continuing to occur, we have initiated a more aggressive program to review
product collaborations that are outside of our core basis of products.

Pricing - Weakness
In general, Nikes products are considered to be of higher quality and as a result have higher
prices relative to our competitors. While the prices are realistic given the nature of the products
we offer to our consumers, at times our consumers may not agree. This presents a weakness. To
mitigate any future problems in our high quality/high price lines, we are placing a renewed
emphasis on emerging technology and innovation towards the development of new products,
specifically the Nike Alpha Project, a revolutionary new line of athletic shoes. Despite the fact
that in the past we may have overlooked the mid- to lower-price-point products, presenting
another weakness with room for improvement, we are dedicating our time and money to better
develop our competitive position at all price points to build strengths at each of these levels. We
see much potential in the lower price points and plan to meet the needs of those markets.
Marketing Research - Strength
Nike primarily conducts marketing research on a continual basis to assist in maintaining our
companys position as the leader in the athletic footwear and apparel industry. Because of such
research, we have decided to revamp our apparel division, an area in which we can still greatly
improve. Nike will be organizing the internal business by gender as opposed to sport category
and conducting increasing amounts of research addressing the buying habits of men, who tend to
be item-driven, and women, who tend to be collection-driven, with specifically targeted product
lines.
2. Describe the companys global soccer marketing mix?
Ans.:
Nike implemented a number of marketing strategies to sell its products. One of the most
important consideration is its marketing mix, better known as the 4Ps.
Nike is a global sports shoe giant company. It is the largest seller of athletic footwear in the
world, holding the lion share of 33% of the global market. The company has production facilities
in Asia, sales facilities in almost 200 countries, and customer service and other operational units
worldwide.
The marketing mix or the 4 Ps of Marketing are Product, Price, Place (distribution) and
Promotion. Nike's 4Ps are the following:
1. Product
Nike offers a wide range of shoe, apparel and equipment products, all of which are currently its
top-selling product categories. Nike started selling sports apparel, athletic bags and accessory
items in 1979. Their brand Cole Haan carries a line of dress and casual footwear and accessories
for men, women and children.
They also market head gear under the brand name Sports Specialties, through Nike Team Sports,
Inc. They sell small amounts of plastic products to other manufacturers through Nike IHM, Inc.
Bauer Nike Hockey Inc. manufactures and distributes ice skates, skate blades, in-roller skates,
protective gear, hockey sticks and hockey jerseys and accessories.
2. Price

Nikes pricing is designed to be competitive to the other fashion shoe retailers. The pricing is
based on the basis of premium segment as target customers. Nike as a brand commands high
premiums. Nike?s pricing strategy makes use of vertical integration in pricing wherein they own
participants at differing channel levels or take part in more than one channel level operations.
This can control costs and influence product pricing.
3. Place
Nike shoes are carried by multi-brand stores and the exclusive Nike stores across the globe. Nike
sells its product to about 20,000 retail accounts in the U.S. and in almost 200 countries around
the world. In the international markets, Nike sells its products through independent distributors,
licensees and subsidiaries. Independent distributors need not adapt to local pressures because the
4Ps of marketing are managed by distributors.
4. Promotion
Promotion is largely dependent on finding accessible store locations. It also avails of targeted
advertising in the newspaper and creating strategic alliances. Nike has a number of famous
athletes that serve as brand ambassadors such as the Brazilian Soccer Team (especially
Ronaldino, Renaldo, and Roberto Carlos), Lebron James and Jermane O Neal for basketball,
Lance Armstrong for cycling, and Tiger Woods for Golf.
Nike also sponsors events such as Hoop It Up and The Golden West Invitational. Nikes brand
images, the Nike name and the trademark swoosh, make it one of the most recognizable brands
in the world. Nikes brand power is one reason for its high revenues. Nikes quality products,
loyal customer base and its great marketing techniques all contribute to make the shoe empire a
huge success.
Q-3:- . What marketing recommendations would you make to help Nike achieve its quest
for global soccer dominance? How serious is the threat of a firm like Vans? Is Nike likely to
be successful in global soccer?
Ans.:
1. Hire independent industrial engineers and analysts to work with manufacturing facilities in
order to maximize efficiency of operations: shop layout, processes, etc.
2. Reduce inventory at all levels of production: raw materials, work-in-process, and finished
goods.
3. Work with 3rd party shipping agents to manage the flow of orders from factories to
distribution centers.
4. Work with suppliers to implement the next generation of electronic data interchange (EDI)
technology in an attempt to achieve just-in-time inventory.

SPONSORSHIP AND THE MARKETING MIX

Introduction

Ford is a global firm that makes cars and commercial vehicles. It has been the leading car seller in UK for
twenty-eight years. It is based in the US but operates all over the world. In Europe, it has thirty-five sites
in nine countries. Its famous brands include Ka, Focus, Land Rover and Volvo.

Sponsorship
A strategy is a set of plans designed to help a business reach its aims. Part of Fords strategy is to use
sponsorship. It is an official sponsor of the UEFA Champions League. This helps it reach out to target
customers all over Europe. It helps Ford to compete. It also helps it to develop a strong brand image and
improve its brand value. Marketing aims can be reached by effectively using parts of the marketing mix.
These are often listed as product, price, promotion and place.

Product
Fords products are cars and commercial vehicles. Each different vehicle is targeted at a certain part of the
market. Each will appeal to a certain market segment. Ford knows, through its market research, that many
of its target customers are also interested in football. It can therefore target the groups accurately. The
UEFA sponsorship lets Ford use many communication channels to reach these groups.

Price
Ford has three aims while pricing its products:
To cover costs
To make a profit
To compete with other firms
UEFA sponsorship also allows it to compete without using price. This is called non-price competition. For
instance, Ford produces a range of Champions League special edition cars. These are more attractive to its
target buyers and can have special features.

Place
This refers to where the cars are sold. The football sponsorship allows Ford to spread the brand message
across the globe. The Ford dealership network is the largest in Europe. Dealerships are planned so that
everyone has one within reach.

Promotion
Promotion is often split into above-the-line and below-the-line. The first is paid for directly. The
second is publicity through, for instance, sponsorship and public relations (PR). Fords main above theline spending has been on TV. New technology and multiple channels mean that traditional ATL
communications are becoming weaker tools. The UEFA sponsorship combines both types and helps Ford
to cover all of Europe. The Ford brand is promoted before and after the game, and at half-time.
Advertisements are shown at matches. Ford uses the slot either side of TV breaks to show brand
messages. These are targeted at the football audience it knows is watching.
Questions:
1 Identify the target market of Ford. Critically evaluate the impact of the marketing mix
elements on the target market.
2. Highlight the advantages and disadvantages of sponsoring a cricket match, in the Indian
context
Ans.1: Ford is a global firm that makes cars and commercial vehicles. It has been the leading car seller in
UK for twenty-eight years. Ford knows, through its market research, that many of its target customers are

also interested in football. The Ford brand is promoted before and after the game, and at half-time.
Advertisements are shown at matches. Ford uses the slot either side of TV breaks to show brand
messages. These are targeted at the football audience it knows is watching. The marketing mix is defined
as the 4 P's of marketing. These are product, price, place and promotion. The organization's strategy helps
these decisions to get implemented in the industry. For instance if the company's strategy is to be the
market leader through effective advertising, then the product specification will come first, its price will
come second, distribution network comes third and effective promotion and advertising comes in the end.
All the factors of marketing mix help to accomplish the overall strategy.
These are impact of the marketing mix elements on the target market:1. Product
Ford`s car mainly targeted football interested customers. Its made both type of products cars and
commercial vehicles. Each product has a target market.
2. Price
Price is second component of marketing mix, it means how much customers want to pay for the product?
Price should be reasonable to cover costs of the product, make profit for survive in market and to compete
with other firms.
3. Place
This refers to how an organisation will distribute the product or service they are offering to the end user.
The organisation must distribute the product to the user at the right place at the right time. Efficient and
effective distribution is important if the organisation is to meet its overall marketing objectives. If an
organisation underestimated demand and customers cannot purchase products because of it, profitability
will be affected. This refers to where the cars are sold. The football sponsorship allows Ford to spread the
brand message across the globe.
4. Promotion
How are the chosen target groups informed or educated about the organization or the product? This
include all the weapons of the marketing like- advertising, selling, sales promotion, public relation etc.
While the other 3 P`s lost much their meaning in todays market, promotion has become the most
important P`s to focus on. Ford`s main promotion tool is sponsoring the football match. Advertisement is
shown at matches.
The marketing mix framework was particularly useful in the early days of the marketing concept when
physical products represented a larger portion of the economy. Today, with marketing more integrated into
organization and with a wider variety of products and markets. Today, however the marketing mix most
commonly remains based on 4 P`s. Despite its limitations and perhaps because of its simplicity, the use of
this frame work remains strong.

Ans.2: These are the advantages of Sponsoring a Cricket Match: It helps to reach out targeted customers all over the world.
It helps to develop a strong brand image and improve its brand value.
Ford produces a range of Champions so its good to promote the ford through sponging a cricket
match.
In India Most people like to watch cricket specially youth of India so, its easy to reach them by
sponsoring cricket match.
Its a sport car, people who love crickets match can easily targeted through sponsoring match.
These are the disadvantages of Sponsoring a Cricket Match: Its only reaches to those people who love cricket match.
Its an expensive method of promoting product.

COOL HEADS

Cool-Heads was established in 1985 to manufacture, distribute and market pharmaceutical soft
drinks. It was purely an Indian company and had to face tough competition from multi-national
companies during the initial years. The company in the last decade with the help of effective
market strategies, has set up a place for itself, amongst the leading pharmaceutical companies in
the country.
In 1995, the Managing director of the company stressed the need for diversification and addition
of new products to its existing product range. He floated the idea of manufacturing and
marketing Coffee with milk, coca and sugar. His advisers suggested that such products enriched
with cocas, would be desirable, and should be a big success, specially in view of its competitors
brand. Marketing research department of the company also gave the green signal to the project
after conducting a brief survey.
The company promoted its coffee with Choco-coffee brand name. It was supplied in a 400 g.
packet at the price of Rs. 74/-. The product was heavily advertised in the newspapers, health
magazines, radio and television. The target audience was middle class, who it was believed could
afford choco-coffee. The ordinary coffee was available in the market at the rate of Rs. 30/- to
Rs. 40/- per kg. The thrust of choco coffee in the promotion campaign was that this coffee
contains cocas, milk and sugar.
The company has 50 stockists covering all of the country and has the sales force of about 150
representatives, for promoting its products, through super markets and shops. The representatives
of the company had very good rapport with super market and shops. To promote the coffee, its
representatives gave discount coupons to the stockists for passing over to their customers for
buying their coffee. The buyer was entitled to Rs. 5/- discount per packet of 400 grams. The
scheme continued for about six months.
Despite heavy advertisement and canvassing by its representatives, the product was unable to
attract customers. It was observed that launching of this product did not affect the market
position of other branded coffee at all which was being sold at Rs. 90/- for a pack of 275 grams.
Rather, it was observed that the sales of the other brands of coffee have increased marginally
consequent to the advertisement campaign by the Cool- Heads. The company could achieve only
25% of its sales target in the first year and it remained almost static for the next year.
Questions:
1. What do you think are the reasons for the failure of the company to achieve its target?
2. Suggest a sales promotion plan for increasing the sales volume of the company.
3. Can a change in the distribution channel bring improvement in the sale of the product?

Ans.1: There are number of reasons for the failure of the company to achieve sales target.
Before launching of a product which is new since till now only coffee without coco, sugar. For a

new product like that of Cool Heads the company should search for innovative machinery
channels. The advantage of an uncongenial channel is that the company will encounter.
Price was too high according to target customer.
In comparison to other similar offering their price was too low that lowered the product image.
The marketing research conducted by the marketing team too brief that they are unable to
identify the correct strategy.
Cool Heads choose the same channel that is had to promote its soft drinks but for a new
product by distinctive for samples or door to door convincing etc.
Ans.2: Sales Promotion includes incentives offering and interest creating activities which are
generally short term marketing events. The purpose of sales promotion is to estimates, motivate
and influence the purchase.
I would suggest Premium and sampling as two methods to be adopted in sales promotion.
1. Premium: A premium (gift) is reward given to the consumer for performing a particular act,
actually purchasing a product or service. Since the product is new and needs to be
introduced first time in to the market mostly customers to taste the product very enthusiastic
about trying new product rather they are vary so I suggest on path premium to promote.
2. Sampling: The main objective of sampling in its induce initial product trail and let the
customers have first hand experience of the product. When the product is new as in one case
sampling often moves a very successful strategy to include trial.
There are different methods to distribute samples could be:a.
b.
c.
d.

Door to Door
Retail shopping center
Sample pack in stores.
Trade fairs and exhibitions.

Ans.3: Yes, a change in the distribution channel can bring about investment improvement in the
rate of product. In designing marketing channel, manufacturers have to decide what is ideal what
feasible and what is available. It is not correct always to use the existing distribution channel as
cool heads did to promote to Choc coffee.
Now product require sometime using different popes of marketing channels designing a
channel system calls for analyzing customers needs, establishing channel objectives and
identifying what where, why when and how target customer buy in the first step in designing the
marketing channel, suppose a produces has identified several channel and alternatives and wants
to determine the one best suited to its needs. Each alternative needs and adaptive criteria.

FREE FLIGHTS PROMOTION ENDS IN DISASTER

The Hoover Companys attempts to sell more vacuum cleaners by offering an incentive of free flights
have become a legendary disaster in the field of sales promotions. An examination of the case is useful for
highlighting some of the problems of planning, implementing, and monitoring sales promotions.
During the early 1990s, Hoover was faced with a period of economic recession in which discretionary
expenditure on consumer durables was held back. In these conditions, most vacuum sales were
replacements for worn out machines or first-time buys for people setting up home. The challenge was to
increase the sales of machines bought to upgrade existing equipment.
The company came up with the idea of offering free airline tickets to America for anybody buying one of
its vacuum cleaners. For many people, a holiday in the USA may have been perceived as an unnecessary
and unaffordable luxury during a period of recession, but one that might be justified if it came free with
the purchase of an 'essential' vacuum cleaner.
The immediate result of the sales promotion was to boost the company's sales of vacuum cleaners to more
than double the level of the previous year. So far so good, but then serious problems set in. The first
problem occurred when Hoover could not satisfy demand for its vacuum cleaners and had to resort to
paying its staff overtime rates of pay in order to increase supply. It should be remembered that the initial
objective of the promotion was to utilize existing spare capacity rather than adding to that capacity. The
company had carried out insufficient research prior to launching its incentive. Had it done so, it may have
reached the conclusion that the incentive was too generous and likely to create more demand than the
company could cope with.
A second problem occurred during subsequent periods when sales fell to below their pre-incentive levels.
Many people had simply brought forward their purchase of a vacuum cleaner. Worse still, many people
had bought their cleaner simply to get the free tickets, which at 70 for a cleaner with a free 250 ticket
made sense. These people frequently disposed of their cleaner as they had no need for it. The classified
ads of many local newspapers contained many adverts for 'nearly new, unused' vacuum cleaners at
discounted prices and this further depressed sales of new machines once the sales promotion had come to
an end.

A third and more serious problem occurred when large numbers of buyers tried to use their free flight
vouchers. All sales promotions are based on an assumption of take-up rates, which can be as low as 5-10
per cent. Anything higher and the cost of the incentives actually given away can wipe out the benefits
arising from increased sales. In this case, Hoover had carried out insufficient pre-testing of the sales
promotion in order to assess the likely take-up rate and was surprised by the actual take-up which
subsequently occurred. In an attempt to control costs, the company became notorious for its attempts to
'suppress' take-up of free flights. Many claimants complained that telephone lines were constantly busy
and, when they did get through, they were offered the most unattractive flights possible. It was reported
that claimants from the south-east of England were only offered flights departing from Scotland and those
from Scotland only offered flights from London, done to reduce the attractiveness of the free offer. These
activities attracted high levels of coverage in the media and left a once highly respected brand as one with
a perception of mistrust. Five years after the initial dbcle, the Hoover Holiday Pressure Group
continued to be an awkward reminder for the company.
The free flights promotion eventually cost Hoover a reported 37 million in redemption charges, without
bringing about any long-term growth in sales. With appropriate pre-testing, these costs could have been
foreseen. Worse still, the company's brand image had been tarnished in a way that would take many
years-if ever-to recover from.

Case study review questions

1. What are the inherent problems for a company such as Hoover in
assessing the effectiveness of sales promotion activity?
2. Identify a programme of research that Hoover could have undertaken in
order to avoid the costly failure of its free flights promotion.
3. What alternative methods of promotion might have been more suitable to
achieve Hoover's objective of utilizing spare capacity during a period of
economic recession?
Ans.1: The inherent problems in using sales Promotion is the effectiveness of a Co. must
establishes in its:A) Establishing sales promotion objective:-

The sales promotion objective must be desired from boarder promotion objectives which
must be derived from more basic marketing objectives develop for the sales promotion very
with target market.
B) Setting the sales tools:The Promotion Planner should take into account the type of market, sales promotion
objectives, Competitor condition and each tools cost effectiveness many sales promotion
tool are available which include.
a) Consumer Promotion Tools
b) Trade Promotion Tools
c) Business and sales force Promotion Tools
C) Presenting the sales promotion program:This is very important step in the entire sales promotion program one which However
seemed to be conducted to determine if the tools are effective and appropriate.
D) Implementing and Controlling the sales promotion program:Marketing managers must manage and prepare implementation and control planes for each
individual promotion. Implementation planning must cover lead time and sell in time, lead
time is the time necessary to prepare the program prior to launching it.
E) Evaluating the sales promotion Results:Evaluation of the promotions results is crucial manufacturers can use 3 methods to
measure sales (i) sales data (ii) consumer survey (iii) experiments.
Ans.2: Effective research involves five basic steps that advertise take to collect relevant
information.
PROBLEM DEFINATION
EXPLORATORY OR INFORMAL RESEARCH
DETERMINING RESEARCH OBJECTIVES
FORMAL RESEARCH
Planning process starts with situation analysis to start with, the promotion planners must
first consider the corporate policy with regard to sales promotion. The policy may exist in written
form as may by part of the top management altitude towards sales promotion as followed over
the years. The Policy says sales promotion is an integral part of the marketing mix.
Sales promotion should be used as an offensive weapon in the brands marketing areenal,
not merely as a defensive ration when problem arises.