Promotions – Evaluating & implementing them

The last few weeks, consumers have been switching to less expensive brands and those that they perceive as better value. This includes consumers switching to low priced brands and products on promotions.

During times like these, i.e economic recession combined with decreasing disposable income, companies often turn to promotions as a means of increasing revenue. However, as more companies turn to promotions and the number of promotions in stores increase, consumers begin to factor in these lower prices.

They get so used to it that they become reluctant to purchase products at the regular shelf price. This also results in margin dilution. However, promotions can also attract new customers, boost sales volumes and generate awareness, if planned and executed effectively.

‘If planned and executed properly’ is key, as according to a paper by promotion optimisation institute, 72% of promotions do not break even. Not only do 72% of promotions not break even, but 22% of them also perform worse than if no promotion had been implemented at all.

Lets look at why

Most promotions run year after year, with only slight changes, if any, to the promotional mechanics. Given the fast changing times we live in, it can be dangerous to assume that the same promotion will be effective year after year in the same store.

This assumes that socio economic factors and the demographics around these stores do not change and competitors will react the same way as they did previously. And we all know that this is rarely the case. We have all changed jobs, houses, where we live, the restaurants we frequent, the brands we buy, when and where we shop and in general, our life routine.

So why do we assume everyone else remains the same when we analyse promotions for effectiveness? I have been a victim of this thinking as a commercial finance person, early in my career, too. We assume the same conditions and uplifts as the year before when assessing promotional effectiveness for future periods. Also, we assume that all consumers react the same way regardless of the neighbourhood and their socio-economic make up. Again, this is rarely the case.

Example, a 50% off promotion for a consumer staple generates a lower sales uplift when implemented in an affluent neighbourhood than in others. This is either because consumers would have bought the product without the promotion anyway or because a lower price is unlikely to motivate them to switch from competition. So it is key to understand the demographic and socioeconomic make up of shoppers at each store or each cluster of stores (stores can be categorised for socio economic make up) when promotions are evaluated. As this changes over time, it is important to re-visit the calculations and assumptions each time a promotion is considered.

Store level data needs to be considered

Companies should review store level data to understand the best promotions to implement. 

Other factors such as store level weather forecasts, social media sentiment/mentions, traffic data and so on, influence the effectiveness of these promotions. So take these factors into account too, to evaluate promotional effectiveness. For example, the overall revenue uplift from implementing a promotion for a beer brand when it’s raining will be far lower than when implemented when its warm, sunny and dry. Weather conditions around each store may vary and so need to be evaluated individually or in clusters. In fact, in this case, consumers are far more likely to stock up for a warm sunny day anyway, which means you lose a full price sale in the future.

The promotional uplift often results in fewer sales in the days that follow. Finance and sales teams at companies often consider cannibalisation of other SKUs that the company sells, during these promotional periods. But they rarely consider how the promotion impacts full price sales of the same product in the future.

Timing of promotions is another important variable to consider. Most companies know they should run promotions for special occasions like Black Friday or Back to School month. But in some countries, pay week is a very important time. If your target consumers are cash-constrained, then receiving a pay check means it is “shopping week”. That’s when promotions make a big impact. 

Evaluate promotions over a longer period than just the promotional period

When looking at promotional uplifts and incremental value generated, look at both the specific promotional period and the impact across the next 6 months. Also, the incremental volume from these promotions should ideally come from competition or through increasing the category volumes. 

If the aim is to reduce stock levels or deplete stocks that are close to expiry, you may not need to look at this. However, it is still important to know the impact of the promotion implemented to understand what you can expect in the next few weeks and months. 

In the next few months, an increasing number of brands and supermarkets will be rolling out promotions on their SKUs to meet customer expectations of value. When evaluating promotions, check to see which quadrant they fall into.

Stay away from the red quadrant! If you are seeking to drive volumes to get rid of excess stock or stock close to expiry, the orange quadrant is the place to be as promotional initiatives in this space drive volumes at the expense of profitability. However, if you are looking to increase value for the business, the right hand side is the place to be (the two green quadrants for those who are right/left hand side challenged, like I am!).

It goes without saying that the top right hand corner is the place to be and is home to the winning promotional mechanic(s).

If you have any questions or comments on how promotional initiatives should be evaluated or would like to learn how store level evaluations can be done at scale, email me on veena@salesbeat.co.

Promotions and retail sales

This is probably the most complex of the 4 (or 6) Ps.

Promotion includes all those activities that involve communicating the benefits and features of your brand/product.

Through it, you let potential customers and consumers know what you are selling. In order to convince them to buy your brand, you need to explain how it solves their problem/what it is, how to use it, and why they should buy your brand.

An effective promotional effort contains a clear message that is targeted to a certain audience and is done through appropriate channels.

The audience of your promotional activities include, but are not restricted to:

  • Consumers
  • Customers where consumers can buy your brand
  • Influencers
  • Collaborators

The key objectives of promotional activities are:

  • Building awareness
  • Creating interest
  • Providing information
  • Stimulating demand
  • Differentiating the brand/product
  • Reinforcing your brand

You may choose multiple channels to reach your target audience and achieve these objectives. There are 5 elements to the promotional mix and are as below:

Advertising

This mode of promotion is usually paid, with little or no personal message. Mass media such as television, radio or newspapers and magazines is most often the carrier of these messages. Apart from these, billboards, posters, web pages, brochures and direct mail also fall in the same category. While this method has traditionally been one sided, advertising on new channels such as the internet may allow for quick feedback from your target audience.

In order to pick the optimal advertising channel:

  1. Define objectives – What are you seeking to achieve and your end goals of the campaign?
  2. Decide on the budget – How much are you willing to spend on the campaign?
  3. Adoption of the message – What message are you trying to convey?
  4. Review past campaigns for effectiveness – If your company has done other campaigns in the past, go through post campaign evaluation notes for how effective they were.

PR and Sponsorship

Public relations (PR) is usually focused on building a favourable image of your business. PR or publicity tries to increase positive mention of the product or brand in influential media outlets.

You can do this by doing something good for the neighborhood and the community like holding an open house or being involved in community activities.You can engage the local media and hold press conferences as part of your promotional strategy.

Through these press conferences, you can engage with newspapers, magazines, talk shows and new media such as social networks and blogs. This could also mean allowing super users, or influencers to test the product and speak positively about it to their peers.

This may or may not be paid. For example, sponsoring a major event and increasing brand visibility is a paid action. Sending free samples to a blogger then depends on their discretion and opinion and is not usually swayed by payment.

Previously this has been the least used channel by brands, especially the large ones; but is becoming increasingly important in the current world we live in.

Events & Experiences

Through events, you can make your product known to both your customer and your consumer. These include industry events targeting trade (supermarkets, wholesalers, distributors, restaurants etc) or consumer facing ones. This even includes tasting experiences you may decide to hold and is commonly seen in the beer, wine and spirits industry.

Personal selling

Direct selling connects company representatives with the consumer. These interactions can be in person, over the phone and over email or chat. This personal contact aims to create a personal relationship between the client and the brand or product. Some personal sales strategies are incentive programs, sales representations, samples, sales meetings, and trade shows.

These days this is common in sales of high value consumer goods like consumer electronics (think Apple store), art galleries, high end wines and whisky etc.

Direct marketing

Direct marketing allows you to promote the product or service to an individual consumer.

This strategy allows greater adaptability of the product and the messaging to the needs or interests of the consumer.

The main direct marketing channels are:

  • e-mail
  • internet
  • telemarketing
  • mail
  • e-commerce

Sales promotions

These are usually short term strategic activities which aim to encourage a surge in sales. These could be ‘buy one get one free’ options, seasonal discounts, contests, free samples or even special coupons with expiration dates.

Promotions can vary by target demographic and need to be carefully evaluated for each store, consumers in the location and time of the year.

Key considerations when designing the promotional mix for your brand

Whenever a brand/company sets out to design its promotional mix, the brand team needs to consider the following points:

  1. Stage in the brand/product Lifecycle – Eg. At the launch stage there may be a need for more aggressive and informational advertising.
  2. Nature of the brand/product – If a brand/product is not new in its usage or function, there may be less need for information and more focus on brand equity creation.
  3. Budget – This is fairly self explanatory. For those with large marketing budgets, TV ads and large billboard campaigns may form part of the mix and those on a shoestring budget may rely on other elements of the mix to create awareness.
  4. Cultural Sensitivity – If a product is to be launched in a new international market or even a new region in a country, it is critical to take into consideration local sensitivities. These include both cultural and religious considerations.
  5. Target Market Composition – The people who make up the target market need to be considered before committing to a promotional mix. What media do they consume the most? How and where do they shop?
  6. Competitor Actions – The methods your closest competitor uses influences your mix as well.

If you’d like to learn more about how to derive the right mix for your brand, the different channels for promotion or how markets or regions can influence mix, email me on veena@salesbeat.co