Change How You Run Promotions – Start, Adjust, Stop

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Consumer insight lies at the heart of the entire retail industry, if we don’t figure out what folks want, and will want, we will not be successful. And despite this true north of our industry, we get lost. Lost in sub-optimisation between retailer and suppliers, lost in internal debates on budgets, brand market shares, or account sales. None of which are of any interest to the customer. This lack of customer focus — not technology nor Amazon – is what has brought retail companies such as JC Penny, Toys ‘R’ Us and Sears to their knees.

The Solution Is Already Here

On the flip side, it’s never been easier to give customers what they want. There are proverbial breadcrumbs, and actual cookies everywhere to follow. There is data, lots and lots of data. And all the necessary technical infrastructure, ready to use analytics solutions, and good examples to follow. Not long ago you’d hear statements like “if you don’t have data, you’re just person with opinions”, well today we’ve arrived at “if you don’t have an opinion, you’re just a person with a lot of data”. Data is everywhere but the winners are those who structure this data, squeeze all the juice out of it, and then take action. Winners will have opinions and will do something differently tomorrow, compared to yesterday, aligned with those opinions.

A Simple Place to Begin

Formulate operates in the promotion space of retail, analysing vast amounts of data, basing our algorithms on years of research, and applying state of the art machine learning to arrive at our opinions. Having a holistic view of promotions gives you an understanding of what customers value, and what they don’t, what actually changed and added to their shopping and what didn’t.
Promotions often make up 20-30% of a retailer’s turn over, add to that the fact that over 40% of all retail promotions are unprofitable, and it’s easy to see why promotions are a great place to start.

The first step is of course to get a solid understanding of how your promotions are performing, read more about how you do that here. Next; you need to take action based on your insights of your promotion performance and figure out what to start, what to adjust and what to stop doing.

 

Start: doing something you’ve always wanted to try, but haven’t had the analytic support to game out. One of the biggest challenges in most retail organisations is the fear of trying new initiatives. With the right analytics at hand you can size the impact and easier get a sign off for an initiative which is worth trying.

Adjust: what’s already working well to work even better, there are always some improvements on timing, tactic, offer or media support that can give your good initiative a boost towards greatness. You promotion analytics tools should support you in identifying such improvements.

Stop: doing the worst ones might be the most important action. In most businesses a few, well-intended but costly initiatives are the worst culprits of draining profit without adding to customers experience. These promotions don’t really serve your business since calculations show that customers would have bought the items anyway or they would have bought a different item. If your promotions don’t lead to the customers spending more in your store, you didn’t get their vote. Stop doing the worst promotions can save retailers a lot of money. American retailer CVS cut out their worst profit drainers, willing to sacrifice $7.8M in sales for an estimated $52M in profit improvements. That’s in year when their net result was -$25M. Some of these changes will probably hurt, these promotions are usually very high in value sold on promotion, problem is most of that value is switching, stockpiling and unnecessarily discounted baseline sales.

Align Behind Your Customers

Suppliers might very well have a different view than retailers on the need for starting, adjusting and stopping initiatives. This leads us back to the importance of a holistic view of promotions, and keeping ones eye on the true north of retail; customer insight. When the analysis is rigged towards the true effectiveness of promotions, everyone — internally and externally — should work together to serve in the interest of the customer experience.

Arvid Stenback Lund