Four Steps to Creating Profitable Retail Promotions

Discounts and promotions have become more important than ever for retailers trying to bounce back after a year of trials and uncertainty. Our research shows that most retailers depend on promotions to generate a significant percentage of their sales. Although promotions are a powerful method for increasing sales and margin, they are difficult to use effectively.

One reason for this is a lack of clear insight into which promotions are working—and why. Research indicates that 20-50% of promotions generate no noticeable lift in sales—or, worse, have a negative impact.

Another 20-30% percent dilute margins as they don’t generate an increase in sales enough to offset promotion costs.

This four-part plan will help you create a roadmap for successful promotions using data analytics and a proven process for improved ROI.

Step 1: Develop a Promotional Strategy

That’s why a roadmap is so important. The first step in crafting more profitable promotions requires developing a promotional strategy that guides product category decisions. Focus on establishing a promotions strategy that aims for a specific objective. This can be driving store traffic, increasing basket size, increasing check size, or raising profits. While driving an increase in sales is the most common objective, it shouldn’t be your company’s only strategy.

Once management is aligned on the promotional goal, the next step is to decide which merchandise or product categories will play into this plan, the best way to structure the promotion (for example, percentage off or dollar amount off and any limitations that may apply), and potentially the investment required. Then, teams need to create a calendar of promotions so that everyone is aware of which promotions, if any, overlap and may influence the results of any one promotion. After the promotion is launched and data is collected, performance can be monitored, and results can be used to optimize future efforts.

Step 2: Deploy a Data Analytics Solution

Most businesses don’t know the true performance of specific promotions or the value they create. Therefore, they find it difficult to select the promotions that help achieve the company’s goals.

Much of this issue stems from data quality or lack of data. Judging a promotion only by its sales impact doesn’t tell the full story. Most retailers tend to evaluate promotional performance at a high level, without drilling down to understand the impact of individual tactics within each promotion, instead simply comparing overall promotions in aggregate without understanding how the different parts might be more or less successful.

We recommend using a solution that allows for historical tracking of the promotion, providing insight into whether the promotion resulted in increased product returns, less frequent store visits from previously loyal customers, or even if the sales the promoted products took away from sales of similar products.

By analyzing the data for the elements that affect sales and margins, a business can better determine the real performance and incremental value of a promotion. Marketing, operations, and field teams will all benefit by being armed with actionable data.

Step 3: Design a Promotional Process

When developing and rolling out a new promotion, many businesses often face conflicting interests. Should the company optimize promotions for an individual manufacturer or supplier, or focus on the ROI of the entire category?

To address internal conflicts, it’s important to have a process in place that supports all promotional efforts over time that includes:

• Setting up a cross-functional promotion team with clearly assigned responsibilities.
• Developing or Investing in the necessary tools, like data analytics, to support the promotion process.
• Creating KPIs that foster the right behavior.
• Establishing a promotion selection framework that reviews and approves new schemes based on their proposed value.
• Ensuring that a promotion can be easily monitored and quickly adjusted at the field level of your organization.
• Testing, learning, and testing again rather than guessing what is and isn’t effective based on historical data.

Step 4: Build Internal Capabilities

Once everyone understands the benefits of data-driven promotions, the organization needs to ensure the correct structure is in place to support them. The right people, processes, training and tools need to be in place for future successful promotions.

Think about who needs to “know” about a promotion and its performance. Who needs to be able to make quick decisions, especially if a promotion is “in flight”? It is important to share hard-won lessons from data analytics and promotions, so everyone is on the same page, assisting other people and departments (and the CEO) who are all on their own hero’s journey.

Once internal capabilities are established, the entire company will return to a new ordinary world that uses data insights to drive behavior and a bigger ROI.

Building Better Retail Promotions

Retailers now have the tools to rebuild their promotional calendars from the bottom up, eliminating wasted efforts, and moving from gut-instinct decision-making to effective actions tied to strategic objectives and backed by data.

This is the time for bold steps, not incremental tweaks to promotional plans. Retailers that are ready and willing to deploy promotions that are strategically designed, targeted, and timed will achieve much higher ROI from their promotions and earn more loyalty from their customers.

Learn more about how to optimize your promotional efforts and significantly boost profits in our new white paper, “Delivering a MONSTER Quarter: The Ultimate Guide to Increasing Sales through Better In-Store Promotions.”