Relationship between sale promotions, duration of receiving reward and customer preference: a case study on financial products

Boonlertvanich, Karin (2010)
 Journal of Academy of Business and Economics Jan 2010, v10 i1, p53(12)

Abstract: 

Under current competitive environment in the banking industry, coupled with the fact that dissimilarity between each bank's financial products has been gradually dissolved, many banks are now competing on sales promotion differentiation for their customer acquisition. The purpose of this study is to examine the influence of sale promotion and the duration of receiving reward on customer preference, as well as the contingent effect from different types of financial products. Types of sales promotion studied are monetary and non-monetary promotions, while the duration of receiving reward is separated between instantaneous and delayed reception. There are four types of financial products in this study: fixed deposits, credit cards, mutual funds and bancassurances. Utilizing three-way ANOVA analysis, the findings revealed that sales promotions in monetary terms are more preferable than those in non-monetary terms for all products. Also, an instant-reception of a reward is preferred over a delayed-reception. The contingent effect of product types has a significant impact on the relationship between the type of promotion and customer preference. Offering a monetary promotion on a credit card product is more effective than offering a monetary promotion on other products. However, the contingent role of the product category has no impact on the relationship between reward reception duration and customer preference.
Keywords: Sales promotions, monetary promotion, delayed-reward promotion, customer preference


External:
1. INTRODUCTION
Sales promotion is one of the key marketing mix used as a tool to increase short-run sales, to attract new customers and to retain existing customers, as well as a tool to stimulate repurchasing behavior. For the industry or business that is in its mature phase of the business cycle, product or service quality can no longer be the key differentiation. As a result, greater market competition in this kind of industry usually leads to the greater role of sale promotions. The classical style of promotions such as price reduction, refunds or sweepstakes have been transformed into a more complex and diverse form, such as reward point redemption or privileged service offerings (Kotler, 2000).
The effect of monetary promotion on consumer attitudinal and behavioral responses has been intensively studied (Dobson et al, 1978, Gupta, 1988). It is of particular importance for researchers to investigate how the monetary promotion, such as coupon promotion, affects customer perceived value on products and services and how it impacts brand loyalty in the long-run (Alvarez & Casielles, 2005, Darke & Chung, 2005, Dawes, 2004, Garretson & Burton 2003, Krishna & Zhang 1999).
In contrast, the effect of non-monetary promotions on customer preference has been less investigated (Palazon-Vidal & Delgado-Ballester, 2005). Despite their lower impact on customer preference, non- monetary promotions can be considered as an alternative promotional tool especially for preserving long- term brand equity under short-term price or promotional competition.
Existing research usually focused on the effect of different types of promotions on consumer preference in the consumer goods arena (Palazon-Vidal & Delgado-Ballester, 2005, Shu-ling, 2006). Palazon-Vidal & Delgado-Ballester (2005) studied the effect from different types of promotional rewards on consumer preference for generic detergents, paper towels, chocolates and perfumes. Shu-ling (2006) also studied the effects on tissue paper, mobile phones and the CD album market. This kind of research has been absent in studies of financial products, especially the impact of different types of sale promotions on customer preference among each financial product category. Since most of the financial product offerings are now very similar to each other, as financial institutions are subjected to more intense competition, the increase in sales promotion as a tool to increase market share or capture leadership in business has become a preferred strategy among many financial institutions.
The present study proposes that the effects from the different types of sales promotions may vary among different types of financial products, which may be in line with or different from those found in consumer product studies. Credit-related products, e.g. credit cards, may intensify the preferential difference between monetary and non-monetary promotion benefits compared to investment products, including deposits, mutual funds and bancassurances. In addition, it is also hypothesized that a contingent effect from product types on the relationship between the duration of receiving a reward and consumer preference may also exist. The intangible nature of financial products may underline various reference points for assessing the perceived value obtained from an instantaneous reward compared to a delayed reception of a reward. Therefore, the purpose of this study is to focus on the effects of sales promotions and duration of reward reception on customer preferences along with the contingent role of a financial product category.
Bank executives can apply the results from this research in their promotional strategy planning such as the determination on the reward reception period and the type of sales promotion in accordance with customer preference and product types. This helps to reduce the risk and cost from an ineffective promotion campaign, while balancing the tradeoff between monetary promotion and corporate image.
2. LITERATURE REVIEW
2.1 Type of Sales Promotions
Sales promotions can be a direct incentive offers that have value or special incentives for the sales force or distributors aiming primarily on stimulating immediate sales. In this study, only consumer promotions, i.e. direct promotions to the end-consumer of financial products, will be studied. According to Chandon et al (2000), sales promotions can be categorized into two types: monetary promotions and non-monetary promotions.
Monetary promotions are a kind of promotion that enables customers to purchase goods or services at a lower price than the regular price or receive some kind of cash-equivalent gift or voucher, which can be made at the point of sale or occur later. On the other hand, non-monetary promotions usually result in customers purchasing goods or services at the regular price and then receive some kind of courtesy or privilege that cannot easily be converted into cash.
Chandon et al (2000) found that the effectness of monetary sales promotions are similar to the effectiveness of a direct price discount. For non-monetary sales promotion, Palazon-Vidal & Delgado- Ballester-Vidal et al (2005) found that if the promotional reward is the same product as the main purchasing product, customers can evaluate the value of the promotion and may react to the promotion in a similar fashion as when receiving a monetary promotion. In contrast, the effectiveness of a non- monetary promotion, that is very different from the main purchasing product, can be difficult to assess.
Therefore, both monetary and non-monetary sales promotions have their own advantages for customers, but in different aspects.
2.2 Duration of reward receiving
Shu-ling (2006) studied the effect of non-monetary promotions and classified the duration of reward reception into to two types, namely, instant reward and delayed reward reception. D'Astous (2002) studied the effect of promotional premiums and separated the premiums into direct premiums and delayed premiums. Hence, with regard to the reward reception period or time-related sales promotion, two categories of reward reception can be considered:
1. Instant reward reception which enables customers to receive rewards or promotions immediately at the point of sale when they follow the terms of the promotion.
2. Delayed reward reception where the company will send or allow the customers to come back and pick up their reward or promotions for some time period after the sale occurrence.
Typically, the longer the time one needs to wait to receive the reward the less preference the customer has for the reward. This may be due to various factors such as the weariness of waiting, the deterioration of value according to time versus the value of money concept and, the most important factor, the worry or concern over actually receiving the reward at all (Shu-ling, 2006). However, since many financial institutions are now moving toward offering delayed-reception rewards due to corporate and product concern, it is important to study the effect of the duration of reward reception on customer preference across different product types.
2.3 Contingent role of product types
Kotler (2000) classified consumer goods into four main categories, as follows:
1. Convenience goods: products that customers frequently purchase and use with small effort to buy and little comparison shopping, and are suitable for mass promotion.
2. Shopping goods: products that customers will purchase only after comparing various products and brands available. They are usually less frequently purchased products, requiring more shopping effort, and suitable for advertising through local or specialty media and personal selling.
3. Specialty goods: products that customers seek out because of their unique characteristics or brand identification. It usually requires a special effort to purchase a strong brand preference and loyalty, low price sensitivity, and suitable for carefully targeted promotions and personal selling.
4. Unsought goods: products that customers are either unaware of or have little interest in actively pursuing, so that, heavy promotions are often required to sell them successfully.
In this study, despite the fact that financial products are mostly intangible products and are quite different than consumer goods, we tried to select four kinds of financial products that can resemble the aforementioned classification of consumer products. First, fixed-deposits were chosen as a representative of convenience products since they are one of the simplest forms of financial products that all banks offer. Moreover, under the current full-blanket deposit guarantee from the government for all bank deposit accounts, all depositors need not to consider or assess the credit risk of the financial institutions with whom they are establishing a deposit account.
Second, credit cards were chosen as a representative of shopping products due to the variety of types and features currently available among different banks. Third, mutual funds were chosen as a representative of specialty products. Even though mutual fund investments may seem to be popular in most developed countries, they are relatively new to Thai investors. Customers are required to put some effort into understanding investment policy and the risk and return tradeoffs. Finally, bancassurance, particularly life insurance, was chosen as an unsought product. This final product fits reasonably well with the reviewed definition and is usually used as an example of an unsought product in most literature.
Many researches have investigated the contingent effect of product types on the effectiveness among various sales promotions. Bell et al (1999) indicated that different product types result in a different level of sales promotion recognition. For convenience goods, promotional products that use the same product as the one being purchased will provide superior results. In contrast, for shopping products, promotional products that use different products from the one being purchased will provide more effectiveness. In addition, it has been found that instant reward reception yields better results in specialty products compared to convenience products.
Tietje (2002) reported that the relationship between the type of sales promotion and the duration of reward reception will be different for different kinds of products. Therefore, in this study, we investigated the contingent effect of product types on the impact of sales promotion and the duration of reward reception on customer preferences.
[Graphic omitted]2.4 Related Research
Chandon et al (2000) studied the two kinds of customer benefits obtained from sales promotions including utilitarian benefits and hedonic benefits. Also, the research studied two types of sales promotions which are monetary and non-monetary sales promotions. The research found that monetary sales promotions will be more effective for products that provide utilitarian benefits, while non-monetary promotions will be more effective for products providing hedonic benefits especially from a brand awareness aspect.
D'Astous and Landreville (2002) conducted research to investigate customer response to different types of sales promotions for low involvement types of products. The results show that direct premium, e.g. instantaneous reward, results in a more positive preference than delayed premium.
Palazon-Vidal & Delgado-Ballester (2005) found that sales promotions can be used as a marketing tool to enhance brand recognition since it stimulates customer preferences in the product offering. Also, the research revealed that monetary sales promotions would be effective only for utilitarian-based products. On the other hand, non-monetary sales promotions are effective for both utilitarian and hedonic based products.
Shu-ling (2006) studied the impact of non-monetary sales promotions on customer preferences in three types of consumer products, namely, convenience goods, shopping goods and specialty goods. The research results indicated that customers preferred to receive promotional products similar to their purchasing product for convenience and specialty goods, while they preferred to receive promotional products different than their purchasing product for shopping goods. In addition, instantaneous reward is more preferred to delay reward reception for all types of products.
3. RESEARCH OBJECTIVES
Based on reviewed theories and literature, this study aims to integrate various associated elements of sales promotion to the financial product context. As a result the objectives of this research are as follows:.
1. To study the influence of the type of promotions, both monetary promotions and non-monetary promotions, on consumer preferences.
2. To study the influence of the duration of reward reception, both instantaneous and delayed reception, on consumer preferences.
[Graphic omitted]3. To study the contingent impact from types of financial products on the relationship between types of sales promotions, duration of reward reception and consumer preferences.
4. RESEARCH FRAMEWORK AND HYPOTHESES
Although there are a number of research studies on the effects from different types of sales promotions, most of them studied a single aspect one at a time (D. 'Astous and Landreville, 2002; Dawes, 2004; Raghubir, 2004). Studies on a multi-aspect of sales promotions, especially with the contingent role of product types, was limited (Shu-ling, 2006)
In addition, since most of the past research were often done in the context of consumer products, the obtained results may or may not be applicable to financial products, which are intangible in nature and may also contain an embedded financial risk. The research framework of this research, as shown in Figure 1, aimed to achieved the stated objectives and fill in the gaps of knowledge for financial product marketing.
[FIGURE 1 OMITTED]
From the research objectives and the research framework, three research hypotheses can be offered as follows:
H1: Different types of sales promotions, either monetary or non-monetary promotions, have a different impact on customer preferences.
H2: Different durations of reward reception, either instantaneous or delayed reception, have a different impact on customer preferences.
H3: Different types of financial products affect the relationship between types of sales promotions and durations of reward reception on customer preferences.
5. RESEARCH DESIGN AND METHOD
5.1 Sampling and Data Collection
The conducted research surveyed customers who recently purchased at least one financial product during the last three months and had an understanding of all the products. A total sample of 400 surveys was collected from a population in Bangkok. The cluster sampling method was used to first select 10 out of 18 provinces within Bangkok, then a proportionate sampling was used to determine the numbers of required sampling in each province.
[Graphic omitted]In general, the majority of the samples were (1) female (62%), (2) between 25-30 years old (41.5%), (3) completed at least a college degree (70.5%), (4) are working as professionals in private companies (81.5%), and have monthly income between 20,0001-30,000 baht (28.7%), see Appendix A for details.
5.2 Measures
The questionnaire used in this study is divided into 3 parts.
Part 1 is a set of questions for assessing the knowledge of each type of financial products to make sure that respondents have enough product understanding. There were 14 questions.
Part 2 is a set of questions about demographic characteristics of respondents including gender, age, occupation, education level, and monthly income.
[Graphic omitted]Part 3 is composed of questions on customer preferences to promotional advertising by a picture made of 16 color images, without a specific brand of the financial institution, as shown in Appendix B and C. The respondents were requested to indicate the extent to which they prefer or not prefer, based on the offering sales promotions in each financial product type. For each item, a five-point Likert scales anchored by 1 = strongly prefer and 5 = strongly not prefer with 3 = neutral (neither prefer nor not prefer) as the midpoint were utilized. For the reliability evaluation of the questionnaire, the Cronbach's Alpha on customer preferences for each product type were computed and revealed the reliability of the questions, value between 0.8233 and 0.9529.
From Table 1, there are four forms of sales promotion for each financial product, resulting in 16 different print ads questionnaire, similar to Palazon-Vidal & Delgado-Ballester, 2005; Shu-ling, 2006.
6. RESEARCH RESULTS
Table 2 shows the customer preferences on each combination of the sales promotion and duration of reward reception for each product type. In general, it can be seen that monetary sales promotion has higher preferential score than non-monetary promotion and instantaneous reward reception also has higher preferential score than delayed-reward reception. Moreover, sales promotions for credit product, i.e. credit cards, make stronger preference compared to investment products, e.g. fixed deposits, mutual funds and bancassurance.
[Graphic omitted]Results of the first hypothesis testing using a paired sample t-test showed that the test statistic is equal to 8.428 and p-value is less than the 0.05 level of significance. This confirmed that different types of sales promotions have a different impact on customer preferences and monetary sales promotions are more preferred to non-monetary promotions.

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