Promotions are a common marketing strategy to attract and retain customers, but how can you tell if they are actually working? How can you measure the impact of promotions on consumer behavior and preferences? In this article, you will learn some of the key concepts and methods that can help you answer these questions and optimize your promotional campaigns.
Promotions are incentives that aim to influence the purchase decisions of consumers by offering them a lower price, a higher quantity, a free gift, or some other benefit. Promotions can have different goals, such as increasing sales, market share, customer loyalty, brand awareness, or customer satisfaction. Promotions can also have different types, such as discounts, coupons, rebates, loyalty programs, samples, or contests. Depending on the goal and the type of promotion, the impact on consumer behavior can vary.
In my experience, promotions help the brands to get consumer attention, every brand has a different target audience and promotions should be planned in a way to get maximum attention from the TG. Promotions are planned to switch from the competitive brand, repeat purchase, get customer used to the brand, introduce new brand to users etc. Brands use assured rewards on each purchase, incremental rewards on repeat purchases, lucky draw etc and ensuring the rewards suits the TG.
I think that promotions can atract another sight from the costumers for a product that the company wants to improve the sales and increase the value of its portfolio. In my experience in a bank I have seen that people have been ever looking for credit products while investment products sales ware ever low. Because of this unbalance between thesse products sales, they ever do more promotions about investment products than about credit products.
Measuring the impact of promotions on consumer behavior is not a simple task. There are many factors that can affect the outcomes, such as the characteristics of the product, the market, the competition, the consumer, and the promotion itself. For example, the same promotion may have different effects on different products (e.g., perishable vs. durable), different markets (e.g., local vs. global), different competitors (e.g., price vs. quality), different consumers (e.g., loyal vs. switchers), and different promotional elements (e.g., duration vs. frequency). Moreover, there may be other external influences, such as seasonality, trends, events, or shocks, that can confound the results.
Measuring the impact of the promotions is not easy and depends on many factors. In my experience same promotion has given different results in two different markets and the few factors that affect the promotions are TG perception on the reward, promoter presence, visibility, duration, frequency, similar promotion by competition etc. The buzz that a promotion can create should be able to bring existing as well as new users to pickup the brand during and after the promotion. I have seen better results if Consumer promotions is linked with channel partner promotions during the same period.
I think the most challenging factor to be break with a promotion is the tradeoff that the costumer face to take the offer. It is very important to consider the differences between the product that will be promoted and its competitors in the market - in the promotion design people have to find ways to promote the advantages and minimize the weakness of the product compare its competitors.
To overcome the challenges of measuring the impact of promotions on consumer behavior, you need to use appropriate methods that can isolate the effects of the promotion from other factors. There are two main types of methods: experimental and observational. Experimental methods involve creating a controlled environment where you can randomly assign consumers to different groups and expose them to different promotions or no promotion at all. Then you can compare the outcomes of the groups and infer the causal effect of the promotion. Observational methods involve collecting data from the real world where consumers are exposed to different promotions or no promotion at all. Then you can use statistical techniques, such as regression analysis, to control for other factors and estimate the impact of the promotion.
It depends on how the promotion is being implemented. If it is through promo codes, then the usual randomised controlled testing approach is the most accurate. By giving only some groups of consumers the promo code and seeing whether they proceed to make the purchase, you can determine the effectiveness of this promotion. However if it is a price drop type of promotion, then there's a reputation risk at stake if people realise that they are being charged different prices. In that case, longitudinal studies (of dropping the prices on alternate days, for example) would be more suitable.
To measure the impact of promotions on consumer behavior, you need to define the metrics that reflect the outcomes that you are interested in. There are many possible metrics that can capture different aspects of consumer behavior and preferences, such as sales volume, sales revenue, profit margin, market share, customer retention, customer acquisition, customer satisfaction, brand awareness, brand loyalty, brand equity, or customer lifetime value. Depending on the goal and the type of promotion, you may choose one or more metrics that are relevant and meaningful for your analysis.
To measure the impact of promotions on consumer behavior, you need to use the tools that can help you collect, analyze, and visualize the data and the metrics. There are many tools available that can assist you with different stages of the measurement process, such as surveys, scanners, loyalty cards, web analytics, social media analytics, CRM systems, data warehouses, data mining, business intelligence, or dashboards. Depending on the method, the metric, and the data source, you may select the tools that are suitable and efficient for your measurement.
Key here is to truly understand your baseline. Every analysis has to compare against “no promotion” scenario. Then try to change only a limited number of factors when you alter the baseline, and assess how each variable contributes. Bring a brilliant data scientist to help you understand this in a more sofisticated way, and be ready to look into impact across your portfolio. We sometimes are shortsighted and underestimate the impact across the line, and through the value chain. Example on jewelry: you give a promotion on a necklace - what other product gets a boost when this happens? What other products that you normally sell get cannibalized? Also: what happens to your portfolio 1-3 months after promo is ended? Are you back to square one?
Everything starts with the objective designed for the promotion - what do the company want to achive with the promotion? With this objective in mind, they can define the right KPIs to measure the promotion return over the time and compare with the expectations planned. The measures can be build with technologies that can randle with big data management and data streaming for collect and make available large amount of data in real time along all company operation, taking all these data shapen in dashboars containing the KPIs for monitor the campain.
To measure the impact of promotions on consumer behavior effectively, you should follow some best practices that can ensure the validity, reliability, and usefulness of your measurement. Start by defining your goal and target audience before designing and implementing your promotion. Then, choose the type and elements of your promotion strategically based on your goal and target audience. Additionally, select the method, metric, and tool of your measurement appropriately and consistently based on your promotion and data. Test and refine your promotion and measurement before launching them on a large scale. Monitoring and evaluating your promotion and measurement regularly and continuously during and after the campaign is also important. Finally, learn from your promotion and measurement by identifying the strengths, weaknesses, opportunities, and threats of your campaign.
To measure promotions' impact on consumer behavior, start with a clear objective, such as assessing purchase frequency. Utilize an A/B test for causal inference, assigning one group to experience the promotion (treatment) and another not (control). Alternatively, consider using the instrumental variable approach. Collect data on purchase behaviors of both groups. Apply statistical methods like regression analysis, controlling for confounders, and explore mechanisms and heterogeneity impacts of the promotion. Finally, interpret results to gauge promotion efficacy and guide future strategies.
Measuring the impact of promotions on consumer behavior is a critical element of strategic marketing, enabling businesses to assess campaign effectiveness and enhance return on investment (ROI). Key considerations for effective measurement include establishing SMART objectives aligned with broader business goals, conducting A/B testing to compare promotional variations, employing the instrumental variable approach to address confounding factors, tracking relevant metrics like purchase frequency and conversion rates, analyzing data trends over time, utilizing multidimensional analysis to capture diverse impacts, and incorporating direct customer feedback through surveys and reviews.