The Power of Private Promotions in Fashion

This article was a collaboration between @MarkAbraham, @RobFagnani, @ChristianSelchauHansen and @Sarahwillersdorf. 

As many countries and some US regions begin to reopen their economies and stores, mounting excess inventory is a challenge shared by just about every fashion brand and retailer. With economists predicting a sharp downturn in consumer spending, and department stores already cutting back on future orders for the summer and autumn, the overstock problem is only going to get worse. And inventory management will be one of the key liquidity levers during the recovery phase.

A practical and often underutilized solution for this common problem is private, one-to-one promotions.

BCG research already shows a growing expectation by consumers for more promotions across all countries. This will put even more pressure on fashion brands.

Brands need a thoughtful approach to drive demand without diluting their equity. 

We know from retailers outside of the fashion industry that moving from public to private promotions can balance the need to liquidate stock while maintaining brand equity, particularly compared with the “race to the bottom” that comes from mass promotions and markdowns. Companies have been doing this with some sophistication for years:

• Starbucks has employed individualized offers in their loyalty program since 2016, leveraging millions of individual offer variations across their loyalty member base. The results have enabled an expansion of spend for their loyalty customers (with double digit growth since roll-out) while at the same time delivering record customer and brand satisfaction scores. Moreover, these personalized offers outperform standard segmented offers by 3x in terms of incremental revenue per redeemer.
• A leading airline also enabled personalized, gamified offers to members of its loyalty program. These offers encourage customers to deepen their relationship through trying new things (e.g. new products, new locations) that are in line with their current engagement patterns, with personalized steps and rewards. These offers regularly outperform other offers and enable the airline’s strategic operating plan. The format has been particularly engaging with Millennials and younger generations. Additionally, these offers were launched as a mobile-first initiative, which have increased the level of digital adoption and engagement with the airline’s mobile app.

Early evidence suggests this approach also yields significant positive results in a COVID world.

In Fashion, we were starting to see some sophisticated promotion experimentation pre-COVID. Several US fashion retailers began testing private promos via digital channels, with encouraging results. These offers drove 10-15% incremental sales while also realizing gross margin improvements through a more efficient allocation of discount dollars.

During lockdown in March, a large US retailer that maintained brick & mortar operations scaled up personalized, vendor-funded digital coupons focused on non-essential categories like beauty, while cutting back or eliminating the printed circular that had only mass offers. The approach delivered close to $20 million in net incremental revenue in that month alone and strengthened relationships with suppliers.

As we start to emerge from COVID (and acknowledging that many economists and medical professionals suggest that we will not be “in the clear” until a vaccination or feasible cure has been found), fashion brands should start employing private promos and evolve their promotional strategy sooner rather than later. Here are five steps to get started:

1. Reassess your overall promotional calendar. Incorporate private promotions as a lever to drive significant customer engagement and incremental revenue.
2. Create 2-3 private promotion types (e.g. purchases in new categories, trying new products or brands, price realization of excess inventory) to deploy across critical channels (e.g., email, web, mobile app).
3. Leverage your customer data, particularly transactions by customer, to personalize promotions.
4. Deploy private promotions across channels and track performance.
5. Learn and scale. The recovery will be de-averaged by market, so you can quickly pilot in early rebound markets (with proper test and control groups) and build an optimized playbook for later markets that realized the full benefits from this approach.  

Plug-and-play software as a service solutions are now available to help brands quickly deploy this approach. Leveraging software built to enable private / personal promotions has several advantages relative to developing a home-grown technology solution, including reduced expense and faster time to market (less than 60 days is achievable), enabling far more granular promotions, and making it easier to conduct experiments and measure results.

While COVID has created significant challenges for fashion retailers and brands, those that begin to test and scale private promotions in the rebound will have a distinct advantage over brands that don’t. They will see higher customer engagement, stronger price realization, and have a greater chance of preserving their brand equity. Longer-term, fashion retailers who implement advanced analytics and AI into their demand planning will also benefit from optimized inventory, reduced waste and higher customer lifetime value.