It should come as no surprise to even the most casual observer of retail trends that promotional activity has increased substantially over the past few years. What may not be as apparent is that the increase in promotional activity has not had the desired results. The frenzy of promotions may, in fact, be driving retailers into a downward spiral, a vortex of increasing promotions and decreasing sales and margins.
The Christmas season of 2013 is a case in point. Retailers took the traditional Black Friday sales events and moved them up in some cases right into Thanksgiving Day. Rather than increasing sales, it simply moved the transactions to an earlier time. Not only did the promotional activity not produce additional sales, it may have reduced overall sales dollars by over-promoting. The shoppers was definitely the winner in this scenario, the retailer was the loser.
The current promotional frenzy has trained shoppers to retailers’ detriment. Shoppers now wait for multiple and deeper discounts driving own profits and margins for everyone. In short, this focus on sales and revenues while disregarding profit and margin leads to a downward spiral of increasing price competition, which further reduces margins. This is the dangerous vortex in which retailers now find themselves.
If you can answer one basic question, what is the company’s value proposition, then you are well on your way to creating smarter, more effective promotions. With a focus on the value proposition for the market and factoring in the service component, a retailer can move away from competing on price. With the brand image factored in to your planning, your promotional strategy and tactics should perform better.
Basic Steps for Promotion Optimization
While it will provide strategic guidance and a tactical discipline, determining a value proposition and adhering to a consistent brand image will not, alone, make for better promotions. So what to do? Start with some basic steps:
- Define your goals
- Plan your promotions
- Execute precisely
- Measure the results and adjust going forward
Next, take advantage of tools available that enable retailers to plan, optimize, measure and analyze promotions in a virtuous loop. Revionics Promotion Optimization is one such tool. The SaaS solution enables retailers to plan and execute optimized promotions with science-based analytics. Effective promotions require effective planning through science and analytics. By using the tools available, planning, optimizing and measuring your promotions, you will be able to escape a downward spiral and move toward a more profitable future.