Case: analyzing the impact from supermarket promotions at Tesco - using loyalty card data from 1,4 million customers

This week we will highlight an study of UK grocery retailer Tesco’s promotions – and how they impact sales across categories, brands and customer segments

The use of price promotions has increased significantly over the last decade, particularly in grocery retailing where competition between retailers has intensified. Currently around 30 percent of all grocery sales in the UK are made up of products on promotion. In the US the figure was even higher, with over 40 percent of grocery sales made on promotion.

Yet all too often promotions are run without the necessary understanding of how they impact the sales and bottom line. One the one hand, promotions can stimulate customers to try new products and boost purchase frequency. But if used indiscriminately, they can also damage category growth and inadvertently change the profile of consumers with serious implications for the retailer’s long-term competitiveness.

With this said, which dimensions are most important to understand if you want to improve your promotion effectiveness?

  • Product: first of its critical to promote the right product, since not all products and brands respond well to promotions.
  • Tactic: we also have to identify the right tactic. This includes an optimal discount depth and the right tactic formula – such as multi-buy, percentage discount – and related conditions – such as minimum quantity, minimum amount. Keep in mind that the effectiveness of the same tactic will vary across categories.
  • Display: displaying the product at the right place whether it’s on landing page of your website or in the right shelf in your stores will have a huge impact on the promotion effectiveness.
  • Feature: also, to maximize the impact different types of features we have to decide on the right promotion feature such as SMS, paid advertising, emails to make customers aware of the promotion.
  • Customer: last but not least, promotions must be targeted at the right customers at the right point in time. Here it is also important to remember that the promotion effectiveness depends on the customer’s purchase history. For example, customers tend to be less price sensitive for recently purchased brands.

Sounds difficult? The good news is that is possible to keep track of all these dimensions by analysing your standard transaction and loyalty card data. Retailers that does this and incorporate the insights in their campaign planning will be able to persistently grow the gross profit margin with 1-3%.

Study of the week: the impact of Tesco’s promotions

This week we chose to highlight an interesting study (Felgate et al. 2015) of the impact from Tesco’s promotions. The researchers have zoomed in on fresh beef being a key destination category for most supermarket chains. However, the methodology and insights can be applied to any product category in order to improve promotion effectiveness.

Data from 1,4 million loyalty card customers in 2000 stores

For this study weekly supermarket purchase data was used from all Tesco stores across the UK, collected via the Clubcard loyalty scheme comprising weekly purchases of over 100 fresh beef products from in excess of 2000 stores, segmented by shopper life-stage (young adults, young families, older families, older adults, pensioners) across the UK over a period May 2006 to January 2008.

How does Tesco’s promotions impact category sales?

Promotions account for about 14% of the sales in the fresh beef category. The remaining 86% are explained by factors such as store location, marketing, branding. Within the fresh beef category promotions have the biggest influence on the Fry/Grilling beef subcategory explaining 38% the sales.


Which promotion tactic works best?

Multi-buy tactics add value to the fresh beef category while medium price cuts (15-30%) hurt the total sales in the fresh beef category. Small price cuts (<15%) does not impact the sales in any of the fresh beef subcategories. This is important since it shows that not all promotions add value to a category and this is something that must be accounted for when deciding on promotional plans. However, this result does not necessarily mean multi-buys are the best promotion to use for all fresh beef products!


How does different promotions impact sales across brands?

If we zoom in further on the ground beef category we discover that there are four distinct product groups that are essentially separate brands: Standard, Premium, Organic and Healthy. Tesco's promotions have the biggest impact on the Healthy “brand”, where promotions account for 54 percent of the variance in sales.

An interesting finding is that there are switching effects between brands in the ground beef category.  For example, multi-buy offers have a large positive impact on sales, but consumers will switch from Standard to Premium when Premium ground beef is on promotion. Also, when Healthy and Standard beef are promoted customers buy more of the Premium ground beef. A possible explanation is that consumers, who only want one unit of the product, switch to premium because they do not want to take part of the multi- buy promotion on healthy or standard ground beef that they otherwise would buy. This would therefore suggest that multi- buy offers have a negative impact on some shoppers, who will actively switch to a substitute product as a result.

How does different promotions impact sales across customer segments?

In this analysis the incremental sales lift from promotions has been evaluated across five customer segments: Older Adults, Young Adults, Older Families, Young Families, Pensioners.

Standard multi-buy promotions have a large positive impact on sales of Standard ground beef within all the segments except, Pensioners. The segment for which sales lifted the most from this promotion was Young Families. The Young Families is also the segment which reported the largest drop in sales of Standard ground beef in response to price promotions on Premium ground beef.

Interestingly, the sales of standard ground beef to Older Adults and Pensioners increased in response to multi-buy promotions on Healthy ground beef. Seemingly shoppers within these segments are put off by multi-buy promotions on Healthy ground beef, and instead switch to buying Standard ground beef. A possible explanation is that older adults and pensioners perhaps do not want to purchase multiple packs of ground beef since they do not have families to feed.


To summarize, this week’s study demonstrates the heterogeneity of promotional impact across products, brands, tactics and customer segment, and highlights the need to carefully evaluate the promotional impact. It indicates that it is highly beneficial for retailers to make informed decisions when deciding on promotional plans.

Please feel free to contact us if you have any questions.

the Formulat team


Arvid Stenback Lund