Consumers in today's dynamic economy have high expectations, and their behavior is unpredictable. It is critical to understand what promotional offers are presently having the highest impact. Promotional analysis is a technique of evaluating success or failure of a promotion using past time series data. It can be understood as discovering a correlation between sales patterns and marketing efforts which includes promotions offered and advertising. The objective of promotional analysis is to help a retailer understand the impact of past promotions and hence formulate future strategies which could be applied and adapted to produce profitable results.
Types of Promotions
"Promotions" in any industry is a vital ingredient of marketing plan to retain best customers and to attract new ones. The retail market faces increasingly stiff competition, and is flooded with various promotional offers to drive-in traffic. Hence, the consumer today is left with a large range of promotions to choose from in almost all the product categories. To list a few:
1. Quantity/Product concession
1) Buy one get one free
2) Innovative cross-sell and up-sell strategies
3) Free samples to test new product
4) Offering promotions on particular day of a week to drive sales
5) Pseudo personalized promotions targeting particular customer segment (students/promotions linked to age, height, gender, profession)
2. Price discount
1) Some per cent off per item
2) Fixed amount off per item
3) Discount vouchers
1) On-line/e-mail coupon
2) Mobile coupon
4. Shipping promotions
1) Free delivery of product
2) Money off on delivery item by means of a selected ship mode
These are some of the promotions that may lure customers to purchase a product. In spite of such attractive offers, there is a high probability that a customer may not avail or take advantage of every offer that comes their way.
What retailers should know before launching a promotion?
Mere sales are not enough; the effectiveness of a promotion offered should be measured in order to draw more profit out of the offer given to customers. In order to do so, customer behavior should be analyzed. Retailers often fail to realize that a consumer can have their own parameters like age, gender, requirement, income and preference to evaluate a promotion.
Understanding the kind of promotions to be launched plays a key role to category growth. Referring to the past promotions, retailers should bear few points in mind before launching any promotion:
1. How frequently
should a promotion be launched?
2. Which categories respond the most to which promotions?
3. What product combinations can be promoted together?
4. To promote the entire category or to concentrate on only key products?
5. What sales rise can be estimated at each concession level?
6. How does a retail price change in product affect traffic and overall revenue?
7. What promotional plan to be designed to meet definite sales and volume targets?
8. Do price increase/decrease on some items negatively impact sales of other items?
9. How to drive new traffic to stores?
10. Based on demographics, how to vary promotional strategies across various stores?
11. What are the most effective promotions to reach target customers?
Once a retailer understands the direct-indirect impact of promotions, they can:
1. Increase profit by optimizing coupon usage, offer personalized packs to targeted customers, decide on concession prices, buy-one-get-one schemes, displays, ads etc
Add to revenue by
avoiding unnecessary price reductions and discounts
Tailored promotions: Designing sets of offers that are collectively more effective than individual offer depending on segmentation, analysis of shopping behavior, demographic information
The idea is to provide the right customer with the right promotions.
Effectiveness of a promotion
Promotion tactics aim to stimulate customer interest in a product. It was a common notion at some point in history that the nature and degree of promotional activity is driven by market knowledge with a blend of experience and gut feeling. This was also true. However, since the competition in market has become increasingly stiff, the promotions launched by a retailer needs to be unique, innovative and designed to bear fruitful results. Retailers are being confronted with painful realities regarding the effectiveness of current promotions, as the type of promotions that have done well for them in past may no longer be as effective. Almost all retailers use offers that they are unsure will result in a positive ROI (Return On Investment). This has resulted in degradation of customer confidence.
Promotions are expensive as there are certain hidden costs such as advertising cost and loss of revenue when discount is offered to customers. Hence, it becomes mandatory to evaluate promotional performance and execute it well. Moreover, consumer expectation has increased from day-to-day stuff to lifestyle goods with subject to some promotional offer at some point of time. Thereby it is very important for a retailer to stand up to customer expectations and offer them with innovative promotions as purchasing decisions depend on this factor. It thus becomes essential to use historic information in order to study customer behavior, sales pattern during past promotion and product performance.
How to do promotional analysis?
Econometric techniques such as forecasting, time series analysis, intervention analysis, predictive analysis, what if scenarios, marketing mix model and other techniques are used to analyze data to produce powerful insights and decide on promotion and pricing strategy.
1. Retailers capture detailed data customer-wise which helps in giving insight not only about a product and their brands purchased but also the socio-demographic nature and buying pattern of a customer. Various parameters can be judged using such approach.
1) Whether the promotion targets new customers
2) Repurchase history
4) Shift from competitor brand/product
5) A loyal customer who would have purchased the product even without the promotion.
In this case the retailer tends to lose margin. Such loyal customers should not be considered in analysis.
This above information can be clubbed and hence can be compared with sales lift data to track performance of promotion.
2. Intervention analysis can be another way to analyze historic sales data with respect to promotions and thus help in framing future promotions. Intervention analysis technique rests upon historical data and judgment of a practitioner. The end result using intervention analysis is that practitioners have better understanding of their past promotions and hence can design near accurate attractive future promotions.
Thus, promotional analysis means not just offering any promotion. For e.g.: shampoo cannot be promoted with biscuits. Customers who tend to buy biscuits lean to buy other snacks like cake, cookies etc. To promote slow moving shampoos, a best promotion plan would be to offer them with conditioner or body wash. In this manner we need to analyze customer behaviour, product performance and product combination. Based on the promotional analysis, retailers can optimize the performance of future promotions, restore normalcy in sale, clear stocks, promote items as per the season and festival, drive profits through improved sales, increase brand awareness as well as continue to have strong relationship with loyal customers.