False Friends in Promotions

Why some of your promotions are much worse than you think

This post is based on a case, the overall context is detailed below:

  • Swedish grocery retailer

  • Gross profit lift is compared to net sales lift (profit after effects such as cannibalization, stockpiling and halo)

  • For some categories the promotions that first seem profitable are actually unprofitable when we account for consumer behaviours such as cannibalization

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  • When you analyse your promotion profitability the campaigns that appear to be working well are not always the same ones that drive your profit, because of complex consumer behaviours that do not show up in your regular promotion profitability analysis

  • To find the truly profitable campaigns it is important that we go beyond the
    gross profit lift and and look the the net profit lift

  • Net profit lift shows you the real profit lift that your promotions generate, and accounts for complex consumer purchase patterns such as cannibalization (that products steal sales from each other), stockpiling (that consumers buy more when prices are low and less when they are high) and halo effects (that promoted products can increase sales on complementary goods)