CEO Diaries : Retail Promotions - Revenue vs Margins.

The School holiday season has already started in  Asia and as a retailer you've got your eyes on the money, before the monsoon slump.

But how do you entice people to buy more from your store? What do you do when you want customers to make purchases more frequently, or in greater volume, or if you're looking to boost business during slow hours and more.

Whatever your goal may be, by creating a time-sensitive sales promotion and having a good grasp on your target customer demographic, you'll be able to incentivize the right actions, get them to respond, and grow your business in the process. 

In this segment of the CEO DIARIES lets try and explore a few  retail sales promotion techniques that are worth their weight in gold when implemented effectively. They are:

• Promotional pricing
• Point-of-purchase displays
• Loyalty programs

 

The Power of Promotional Pricing

All retailers have tried and tested the power of discounting products to increase demand.

But which products do you give a discount on? And by how much? Or for how long? These are all questions that come to mind when considering the option of reducing prices. They're also important questions due to the nature of how pricing affects consumer psychology. 

For example,the RULE OF 9 - where all the product prices end with 9. Researchers have discovered that items priced at AED39 sell more than the cheaper price point of AED 34 basis the theory of "Proximity".

Or the overbearing power of the word "free," is known to motivate us even when the perceived value and price of two options remain the same.

Let's evaluate some popular promotional pricing options that you can deploy in your own store:

• Markdowns: This is when you reduce prices on a wide range of products in your store for all customers. This is especially effective when backed by a wider advertising campaign, be it through paid or unpaid channels. 
• Loss Leaders: When you know that certain products are in demand, regardless of whether it's a luxury item like an iPad or everyday need like under garments, you can provide certain products at a steep discount to draw new customers to your store. Known as loss leaders, these products are great for selling overstocked items, increasing traffic to your store, and generating brand awareness. 
• Bundle Pricing: Bundling products is a great way to generate a higher perceived value for a lower cost that customers have a hard time staying away from. Whether it's a "buy one, get one free" deal or a "3 for the price of 1" special, this tactic is great for making customers feel that they're getting more for what they're paying. As a bonus, this is a huge draw to then entice those customers to buy higher priced items once they're in your store as well as increasing the volume throughput.

 

Leveraging Point-of-Purchase (POP) Displays 

We all are familiar with the  POP displays @ the grocery store, where you just couldn't help but notice all those glossy magazines filled with celebrity gossip or numerous boxes of candies & confectionery placed near the till you'll be pleased to know that they're one of the most effective ways for retailers to encourage impulse buying. 

As you get closer to the till / que in a fashion store  you might have noticed that the last time you went shopping for clothes, there was a never-ending array of bins and displays filled with items that could be seen as "add-ons" or "up sells" as you make your way closer to the checkout - wtih a huge price bargain - prominently displayed.

The reason why these POP displays and the impulse purchases they generate are so effective is that according to research, almost 66% of all decisions to buy something are made while people are in the store shopping. And guess what? Almost 53% of those decisions are classified as impulse buying. 

Bix box retailers have mastered the art of managing the merchandise around around the checkout area to get consumers to buy more.

Here are a few examples of different types of POP displays:

• Speed Bumps: As prospective customers get closer to the end of their purchasing journey at your store, you can intentionally draw their attention to products that they may have missed by strategically placing them along the path to checkout or even as they wander the store. IKEA does this very effectively.
• Dump Bins: These are bins full of products once again strategically placed to elicit curiosity in consumers and get them to "dig in" and find an item that they'll add to their shopping cart as they stand in line to pay for what they came to buy. ( Big Bazaar / Carrefour)
• Free Samples: This is a surefire way to build demand for any new products that you may have recently added to your store. Giving away free samplers of certain products invites customers to use them at no cost and though they may not reach for the full-price version right away, you can be sure they'll think about it the next time they visit your store.

 

Getting the Most Out of Loyalty Programs

Let's face it, getting new customers costs a lot of time, money, and effort. Providing great service and creating customer loyalty programs that get customers to come back, time and time again, is far more profitable and efficient as a retailer. 

Though you may not have the big-box retailer budget to launch a full-out customer loyalty program, rest assured, there are some great alternatives that also happen to be very cost effective as well. 

The most beneficial of those alternatives would have to be email marketing. It's an effective way to drive customer retention and loyalty and starts as quickly as when you collect customer's email as they checkout, and then email them about exclusive sales, discounts, coupons, and other promotional offerings for a limited time period. Not only will this incentivize them to visit your store again, but it will also increase the perceived value they have of being on your email list. 

 

 

Listed below are a few examples of Successful retail promotions, that have had tremendous success.

Win a Shopping Spree

Filling out a ballot for a chance to win a shopping spree is a no-brainer for most consumers, especially at a time when shopping lists are long and pricey. This small investment for retailers can yield a big return on sales; when customers come into the store to fill in and drop off their ballot, there’s a good chance they’ll buy something.

 

Shop for 2000 and get voucher worth 500 back.

Spend money, get money? Now that’s a good deal! This type of promotion is a sure-fire way to win customer loyalty. Offering money back, whether in the form of a gift card or points toward a discount on your next purchase encourages customers to come back and spend more in your store.

 Reliance Trends regularly offers a INR 500 Gift Card on a purchase of INR 1000  , redeemable on a further purchase of INR 1000 on the next visit - making it a sure shot double visit promotion.

Get Your Card Stamped, Get Rewards / Passport to good life.

Let’s face it, having a goal to reach is motivating. Giving customers a card that gets stamped with each purchase is an easy way to keep them coming back, just as long as it’s an attainable goal; a card that needs to be stamped 20 times before seeing a reward is likely to get lost or forgotten long before then, unless it’s a coffee card. Keep your limit low—between 5 and 10—to make the goal attainable.

 Food chains like Broccoli / Cafe Nero/ Gumpers etc run a "stamp" program where every purchase is stamped - and a shopper gets a free drink on reaching milestones.

 

Get a Time-limited Coupon, Save Big

It’s a simple formula: offer website visitors a time-limited coupon and watch them flock to your store! It worked for Groupon, right? Well sure, but how do you stand out among the competition? Offer big savings with a sense of urgency!

 This is exactly what craft store Michaels does by offering coupons customers can print out from their website with incredible savings, such as 50% off any one regularly priced item. The catch is that it’s time-limited, sometimes even within specific hours.

Sign up for the Newsletter, Be Entered to Win!

Keep your customers informed! A newsletter is not only a great way to grow your database, but also a good way to regularly alert your target market to your promotions. But most people don’t want any more emails in their inbox, so how do you get customers to sign up for the newsletter in the first place? Simple—entice them with a prize!

 When a middle east fashion retailers shoppers sign up for its newsletter, they are automatically entered into a AED 1000  monthly draw. As further incentive, those customers are also privy to “secret deals,” both in-store and online, available to newsletter subscribers only.

While seasonal consumer behaviour can be predicted up to a point, fluctuations such as weather and national events can quickly foil a brands carefully planned marketing campaign. Managing seasonal sales and promotions forms an integral part of every retailer’s arsenal – when done successfully, it can drive sales consistently throughout the year while providing customers with a convenient and relevant service that delivers what they need, when they need it.The key to a strong seasonal promotion rests on a variety of factors but can be boiled down to the following: understanding the customer’s motivations and behaviours, and merchandising products accordingly.

Although this sounds simple enough, it is still possible for retailers to fall into the trap of relying on accepted wisdom and conventional ideas about how and why people buy things at different times of year – sometimes ignoring evidence that might contradict these industry protocols, or losing sight of new opportunities for promotions.

However, if retailers are willing to break with tradition and strive to discover what their customers really want over the course of the year, surprising insights may be gained – and steps can be taken to prepare for seasonal promotions that really work.

1. Be sensitive to factors that can change customer behaviours

Although shopping patterns are predictable up to a point, there are circumstances that can skew expected trends in new directions, such as unseasonal weather conditions. During the cold winters 0r Ending monsoons, we saw significant shifts in the types of products that were being bought across, where barbecues, hiking equipment and outdoor furniture had done well in the past, people were instead turning to health and wellbeing products like vitamins, cold remedies and diet and nutrition aids.

The financial climate can also have consequences; budget retailers like Poundland and Primark took advantage of the economic downturn by understanding that people had started to make their shopping decisions based primarily on affordability, and tailored their message of bargain prices and on-trend fashion to their respective audiences - profits skyrocketed as a result. Other retailers developed ‘recession busting’ products and services - even upmarket brands like Waitrose brought out a cheaper ‘essential’ range in a bid to retain customers during the credit crunch.

Millions of shoppers use price comparison sites to find relevant seasonal deals, as well as the rest of the year round. By adapting a product data feed for a price comparison provider, retailers can effectively double the reach of their promotional activity, as the price comparison site will also be pushing appropriate seasonal merchandise. Using these portals can gain significant numbers of new customers for retailers, too – our research has shown that price comparison sites are often a vital ‘trigger’ in directing a customer towards making a purchase, with a high proportion of these being first-time sales.

Flexibility around these factors and reacting quickly and sensitively to new circumstances can improve customer loyalty as well as boosting sales.

2. Remember that seasonality is no longer restricted to Diwali / Ramadaan/ Christmas and Easter - its practically round the year.

Although Christmas is still the most profitable shopping period of the year, there is now an almost endless array of exciting events, holidays and occasions to build original and compelling promotions around. With a little creative thinking, there is potential for boosted sales throughout the retail calendar.

3. Consider charitable promotions to give customers the ‘feelgood factor’

It is worth remembering that while promotions are mainly designed to increase sales, they can also be used to ‘give something back’ – a charity promotion is a good way of achieving this. Many retailers get on board with events likeDiabetes / Cancer Awareness Month,  align their brand with a good cause, which can contribute to a more positive brand identity and a more loyal customer base as a result.

Margin Erosion

Most retailers readily admit that the chronic use of excessive and often unplanned promotions can have serious consequences in terms of margin erosion and erratic sales. Still, most willingly suffer those consequences in exchange for the short-term benefits of hitting top-line sales goals and stealing share from competitors. But what many retailers fail to realize is that this continual reliance on reactive promotions comes at an even steeper long-term cost. It often means foregoing a disciplined execution of a pricing strategy that would both enable precision and optimization and also build customer loyalty by instilling confidence in a consistent price-value proposition.

There is nothing wrong with price-driven promotions in and of themselves. They’ve been around for a long time and can be an extremely effective way to achieve business goals such as attracting new customers and driving incremental traffic. There is also something inherently exciting about a price promotion, the sense that as a customer you’re “seizing an opportunity” or “getting away with something.” Promotions condition the customer to expect the unexpected, create a sense of urgency, and can quickly deliver an increased conversion rate or larger basket size.

However, recent promotional excesses may have had an adverse impact on customer behavior. Over the past few years in particular, retailers’ frenzied price changes have conditioned customers to think that the ticket price is not real, and cynical customers have become numbed to typical discounts, requiring ever deeper price cuts to stimulate an increase in demand.

Even worse, the demands of maintaining a highly promotional stance force retailers into suboptimal business practices.

• Multiple offers overlapping across channels and media result in indecipherable promotional noise, making it difficult to isolate the costs and benefits of each.
• The broad-brush messaging often required for promotional offers—think 50% off everything in the entire store—destroys a retailer’s ability to target price changes by color, style, size and location.
• What’s more, executing massive price changes creates significant demands on store labor, not to mention the costs of ad and sign production.

Of course, there is a lot of momentum behind the hyper-promotional trend: The competitive environment compels many retailers to pile on the promotions to stay in the game. Consumers have more access to information and products than ever before, and as a result, they’re much less likely to pay full price for anything.

At the same time, retailers are stuck in a kind of prisoner’s dilemma. Even though most express a common desire to cut back on promotions, any one retailer who makes the first move leaves a big opening for competitors to exploit, at least in the short term.

The key is making sure a retailer is totally in control of its pricing and promotions. It’s fine to rely on frequent promotions, as long as those promotions have been carefully planned and are focused on achieving specific results—i.e., increasing customer loyalty, driving sustained increases in traffic, etc. The alternative—layering promotions on top of promotions to combat the effects of a sour economy, increased competition or poor sales—sacrifices profitability without necessarily encouraging the desired long-term customer behavior.

So how can retailers strike the right promotional balance? A sound pricing strategy is grounded in a well-defined business strategy that is aligned with the right set of performance objectives; a deep understanding of what motivates the retailer’s target customer; and clarity on pricing objectives in the context of larger merchandising, planning and strategic goals.

Resolve contradictory performance objectives

Many retailers don’t realize it, but the very metrics commonly used to measure and manage overall performance can encourage harmful promotional excesses. Most companies, especially publicly traded companies, are understandably focused on short-term sales and margin targets to bolster the quarterly same-store sales growth and revenue they report to their shareholders. However, this emphasis on short-term top-line growth often drives behaviors that put the retailer at a disadvantage in the long term.

Understanding how target customers shop

There is also something inherently contradictory about the way retailers talk about—and talk to—their customers. Depending on which retail pricing tactics a retailer observes, one might assume there are two types of customers at opposite ends of a spectrum. At one end is the savvy customer who researches merchandise online before visiting a store, and once in the store, prowls the aisles, smartphone in hand, scanning bar codes and comparison shopping against retailers online. At the other end of the spectrum is the traditional customer, who faithfully scans weekly flyer inserts, clips coupons, and goes to the store to take advantage of a one-day or one-weekend sale.

In reality, most customers are a bit of both. Retailers revisiting their pricing strategy should understand the range of sophistication among their target customers and whether they demand clear, low prices or whether they are excited by the uncertainty and thrill associated with big promotional events.

For example, consider JC Penney’s dramatic attempts to reposition its pricing stance. To the outside observer, it would seem that JC Penney has identified its customers as more like the savvy, no-nonsense shopper. There certainly are advantages to the strategy of ultra-clarity. For one thing, it allows JC Penney to take advantage of price and markdown optimization science to drive margins with pricing precision no longer constrained by the requirement to convey the high/low savings messages on a single sign. It also improves the customer experience with a cleaner merchandise presentation and clarity of offer, and it saves a boatload of money by eliminating hours of store labor and many pages of circulars.

But at the same time, the long-term success or failure of JC Penney and other retailers attempting to reform their pricing strategies ultimately depends on what really motivates their individual customers to browse and buy—whether or not their target customers will be happy giving up on the “treasure hunt” mentality when it comes to bargain hunting and how compelling they find the retailer’s more transparent value proposition.

Increasingly, omnichannel retailing provides further opportunities to adapt offers to the varying preference of individual customers. For example, the online and mobile channels make it possible to customize promotional offers down to each individual consumer. We may still be a few years away from individualized pricing becoming a widespread reality, but retailers are already using customer data in powerful ways to localize and personalize many aspects of retail merchandising, and several are moving aggressively to shift customers’ attention from “the” price to “my” price.

Get specific: Set clear objectives for pricing actions

One of the biggest mistakes retailers make is using price as a blunt instrument to “drive the business” without fully articulating a business strategy that drives pricing decisions. Leading retailers start from explicitly defined business and merchandise strategies, which may vary by categories of business and segments of customers. These strategies answer the fundamental question of how the retailer intends to compete and win, and they get translated into specific tactics that guide the assortments offered, the inventory invested, how the merchandise is placed and marketed, and, of course, how it is priced and promoted.

Again, a thorough understanding of the customer is an essential prerequisite to a sound pricing strategy. How the customer shops a given category of merchandise and how retail competitors figure into the customer’s decision process help determine the pricing approach.

Consider three key questions:

• What causes a customer to browse and buy from a particular retailer rather than a direct or indirect competitor?
• For which products does the retailer compete on price and for which does it compete on other differentiated factors?
• Which merchandise is more sensitive to price and which is less?

No pricing approach or price optimization program, no matter how sophisticated the underlying technology, can succeed without being tied to a clearly articulated and well-defined strategy.

In the case of promotions, a similar lack of clear purpose marks the promotional practices of lagging retailers. Many retailers admit to a kind of trial-and-error approach—throwing out multiple offers and hoping one of them sticks. The successful promotional retailer starts from strategy and has a clear understanding of the behaviors it wants to influence with each promotion and the specific measurable results it hopes to achieve. These goals are typically much more specific than “comp sales.” They are focused on targeted customer behaviors:

• Drive profitable sales of a promoted item or promote a loss leader to build profitable baskets
• Attract incremental traffic to the store or grow the baskets of customers already in the store
• Get additional visits from existing customers or attract new customers
• Add customers to a loyalty program or harvest more profit from existing loyalty members

Similarly, clearance pricing or markdown optimization works only when the parameters are perfectly aligned with goals defined by the merchandise strategy—precise exit dates and targets for liquidation and inventory productivity.

 

Ultimately, price has incredible power to shape customer demand. But in addition to understanding what motivates customer behavior, it’s imperative to know the objective of any pricing action and how it fits into a retailer’s larger strategic goals.

The first step in solving a problem is admitting that one exists. Once retailers realize the devastating impact unplanned promotions and reactive price changes can have on their long-term profitability and price perception, they can begin putting the solutions into place to pursue more disciplined pricing and promotions. Supported by a sound understanding of their customers, a clearer sense of strategic objectives and the right internal incentives, retailers can walk away from reckless promotions and toward a more sustainable financial future.

Lastly, Don't Forget To Track Your Efforts

In order for you to get the most benefit from running a sales promotion campaign, you must track the percentage of sales resulting from the promotional campaign. Ideally, you should be able to assign tracking codes or discounts to certain products within your POS system and generate a report to see how well you've done since first launching the campaign.