Promotion and Offer Effectiveness

Predicting the customer response from promotions and advertising continues to be a major headache for most retailers, making promotions much less effective than they should be. The increasing diversity of promotions be they BOGO's, price discounts, coupons, meal deals, loyalty points, staggered or tiered discounts, blind offers etc., makes the task of the Category/ Manager/ Buyer in predicting sales/profits much more difficult. Add to that the growing use of targeted offers through email, loyalty schemes, kiosks and even social networking and you have a further gap in the ability of any retailer to predict specific sales uplifts and the negative effects on other products that will have been cannibalized, whilst recognizing the traffic building benefits of advertised promotions.

Promotion Effectiveness - What's the business requirement?
The overriding business requirement is to consistently gain profitable sales whilst achieving budgets, satisfying customers and maintaining or increasing market share. In today's fast moving competitive markets retailers need to strategically position themselves on price and assortment to create a "go to market offer" that supports their business goals. Every day low price and Hi Lo are typical examples of such strategies, although many retailers now even blend those very distinct marketing concepts.

It is important for the retailer to maintain the current customers' interest and continually meet or exceed their expectations on price and assortment, no easy feat in today's marketplace. In addition retailers need to attract new customers as well as those customers that regularly shop around. So it is important to set background prices at appropriate and viable levels to support the marketing strategy and then to supplement demand from offers and promotional activities to achieve sales targets, provide excitement and gain additional footfall from the items on offer in the store/channel with supporting promotional activities like newspaper, radio, TV advertising, posters, flyers, in-store promotional space etc.,

Offers may vary from straight item discounts, to coupons, loyalty points, BOGO's to complex multi item offers that can cover one or more visits to the store and involve single or multiple items or departments across the store, with varying qualifying and reward criteria or targeted offers to specific customers or customer segments through mailers, loyalty cards, kiosks etc., The multitude and complexity of offers types and supporting promotional activity makes it impossible for a category manager, merchandiser or marketing executive to accurately estimate the sales uplift or cannibalization of related product sales, let alone the overall profit impacts without substantial help and support.

Understanding the problem:
The maturity of retailing in most developed markets has brought with it a plethora of promotional tools to encourage the customer to change buying behavior and shop at this store rather than that store or more commonly buy this item this week in greater quantity or switch to this item being persuaded by a price cut through a straight discount, coupon, loyalty points or other promotional mechanism. If we are to understand the dynamics that are going to occur as the customer is confronted with these decisions we need to see the whole picture, so we need to look at all the customer touch points in order to understand fully the dynamic of what is likely to happen.

It isn't good enough to understand what happened after the event. We need to be able to predict what is going to happen with this or that offer in conjunction with this or that promotional support or the decision making will continue to be in the dark. What retailers need is a mechanism that can predict the customer response at the individual promotional offer level but also at the macro level, the whole "go to market offer", combining the sale of regular price items, offer prices items and all promotional activities in each market. Only then can we balance and refine the whole "go to market offer" to ensure it achieves all the goals we require.

Click here to read the complete white paper on Promotion and Offer Effectiveness and find out how Retail Express has found the solution.