How to Break the Retail Promotions Spiral
The complexities of promotions have exploded – and retailers are stuck in the endless “death by discount” cycle that is destroying their margins. To help retailers turn underperforming promotions into profit generating promotions strategy, we recently teamed up with Susan Nichols, Publisher for Apparel Magazine, Brian Kilcourse, Managing Partner for RSR Research, and Mark Schwans, Senior Director of Solutions for Revionics, for an insightful webinar. In case you missed it, you can view it here on-demand: Retail Pricing in a Dynamic Promotional World.
Following the webinar, I had a chance to speak with Brian and he was kind enough to contribute additional thoughts on this very topic.
Contributed Blog by Brian Kilcourse, Managing Partner, RSR Research
Retailers are caught in a promotions spiral. Two recent trends triggered that spiral; the lingering effects of the Great Recession have caused consumers to put more weight on “low price” as a key component of “value” than ever, and the mass adoption of “smart” mobile technologies by consumers since 2009-10 has made it possible for them to find the best solutions to their lifestyle needs anytime and anywhere, from anybody.
Retailers (particularly big general merchandise and apparel – “GMA” – retailers) have responded by paying for consumer loyalty with aggressive promotions. Even while RSR’s research shows that the top objective of retailers’ pricing strategies is to improve margins, we see that those same retailers are accelerating price updates to keep consumers’ attention. The result is predictable: most are dissatisfied with their efforts to improve margin.
The good news for seasonal and fashion/short lifecycle retailers is that generally they are outperforming basic/replenishment, perishable, and hard goods retailers in driving bottom line results. But here’s the conundrum – they are achieving that objective more with the experience and intuition of their seasoned merchants than with the aid of modern optimization technology – particularly when it comes to promotions. While those retailers might think that’s great, it begs the question, “how much money are you leaving on the table?”
“Optimization” technologies in retail aren’t new, and they have proven to help retailers establish everyday “regular” prices as well as the best markdown strategies. So why not promotions? Particularly when it comes to fashion retailers, the Cult of the Merchant Prince remains strong. After all, building the Brand with great collections promoted brilliantly is a big part of the artistry of retail. The “science” of optimization technologies isn’t intended to replace that artistry – but it can make it more effective.
Here are some questions that seasonal and fashion/short lifecycle retailers should ask themselves:
- What if we could improve promotion effectiveness by eliminating wasted promotional spend on the wrong targets? By reducing money left on table with the wrong offers?
- What if we could reduce our risk by developing alternative what-if plans?
- Could we generate better results through the application of more localized pricing/promotions rules?
- What if we could improve compliance through more consistent application of pricing rules?
- Would it help to have better, more granular data available for the next planning cycle?
If the answer is “yes” to any of these questions, then it may be time for retailers to see what “optimization” technology can do to break the promotions spiral, and help the enterprise get the full value of it’s brand building, profit generating promotional strategies.