There’s a lot of discussion in the retail industry about how, post-Great Recession, consumers have become absolutely hooked on promotions. It’s like the crack cocaine of our shoppers. They’ve absolutely been trained to wait for a discounted price or special offer before buying anything, and retailers have responded with proliferating offers, both for online and in-store purchases, via every imaginable vehicle: flyers, coupons, mobile, email – you get the picture.
There’s just one problem. Very few retailers have any idea of whether their promotion is effective and what the REAL business impact is. Maybe you sold more of Item X because of a given promotion, but maybe you cannibalized sales of item Y so much that you actually hurt the bottom line. Maybe you think the promotion of widgets wasn’t good for your business because you got more lift but eroded margins and profits – but you didn’t realize that their halo impact drove higher sales of squidgets, which deliver healthy margins and bumped up your bottom line.
Too many retailers never remove any established promotion for fear of losing a customer, and new promotions are continually added in response to changing market, competitive or inventory conditions. The predictable result is a bewildering landscape of promotions, and few if any have been held to meaningful business impact scrutiny.
Promotion Performance Analysis: Key to Good Governance
For healthy governance and preplanning, retail executives should absolutely demand a complete picture of the effectiveness of every promotion, including the cannibalization and halo/affinity effects I’ve mentioned, and factoring in other related costs or savings including vendor funds and market basket effects. In an increasingly competitive landscape that’s particularly brutal for retailers right now, relying on gut instinct to gauge an offer’s effectiveness, or offering a promotion “because we’ve always done it” just doesn’t cut it.
You’ve probably guessed that Revionics does Promotion Performance Analysis for retailers. It’s true – we offer it as a one-time analytic service, a subscription service for, say, quarterly analysis ongoing, or as a complement to our Promotion Optimization Suite. Based on the findings from our Promotion Performance Analysis for various retailers, I’ve become a true believer. At the end of the day, you’re tasked with operating a profitable business, but it’s not unusual for the analytics to reveal that as many of 40% of promotions are unprofitable. And of the 60% that are profitable? Your other promotions may actually be undercutting the profitability of your successful offers, making them net-neutral to your bottom line.
Stop the Margin Leakage
I scratch my head as to why any retailer would choose voluntarily to remain in the dark about a significant source of margin leakage. Promotion Performance Analysis (PPA) is a well-established service that gives you data-driven, fact-based insights that can prompt immediate action to improve your business results – and give customers the offers that they really care about, via the right vehicle, without inundating them with irrelevant or counter-productive clutter. I’m seeing a definite shift toward retailers moving from a one-time PPA engagement to subscribing to recurring cycle, typically quarterly, because the ROI is so dramatic and immediate. Our promotion optimization customers often progress to using predictive analytics so they can understand a promotion’s impact BEFORE deciding to make an offer.
We’d love to talk with you to see how you can outperform competitors, reduce resources spent on useless (or even harmful) promotions, and impact your bottom line. Contact us to start the conversation and transform your approach to promotions.