For most retail companies, promotions account for approximately 10 to 45% of the total revenue. Promotion marketing not only encourages sales of a particular product but it also simultaneously increases the likelihood of customers remembering specific details about the company. This creates a long-lasting impression on their minds in the long-run. Although promotion marketing is a powerful instrument for increasing sales and margin, they are also challenging to use effectively. One of the main reasons for this is the lack of a clear insight into which promotions are working—and why. Having little understanding of actual performance, lacking lean and fact-based processes, and having insufficient organizational capabilities are some of the key reasons leading to unsuccessful promotion marketing. Retail companies must see that even if the number of promotions they run is low, they should yield sufficient ROI.
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Here are three ways in which retail companies can step up their game and increase the margin on promotion marketing and position themselves to win in an increasingly challenging retail environment:
Craft a Promotion Strategy to Guide Category-level Decisions
The promotion marketing of several retail companies is heavily focused on implementation rather than strategy. Promotion plans are often based on what was done the previous year rather than on a systematic analysis of historical performance to determine if specific promotions are meeting the company’s strategic objectives.Though repeat promotions is an easy and safe approach to planning, it limits the ability for retail companies to evolve promotions and improve their performance over time. Retailers must focus on establishing a promotion strategy that aims to achieve a specific objective, such as spurring traffic, increasing basket size, improving price perception among customers, raising profits, boosting customer loyalty, or enhancing brand awareness. Retailer companies can determine how to best allocate their investment in a particular product category by using three primary parameters, which include the impact on sales, the effect on margins, and the impact on consumers.
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Deploy Big Data Analytics
Most retailers remain unaware of the actual performance of specific promotions—or the value they create—and thus struggle while selecting the apt promotion marketing that will achieve the company’s objectives. Poor data quality that results from incomplete, inaccurate, and flawed sales data makes it difficult to analyze. Even if retail companies have a comprehensive and accessible data, most analytic tools show only historical performance; they don’t recommend changes or provide the information that management needs to improve a promotion marketing’s outcome. Companies need to deploy big-data capabilities that enable them to gather comprehensive information about promotions. Retailers also need to embrace big-data analytics as it sifts through information and provides useful insights.
Promotion Process that Promotes Organizational Discipline
When developing and rolling out promotions, retailers often face conflicting perspectives and interests. To address such conflicts, retailers need to establish a process that supports their promotional efforts over time. A good promotion process ensures that the strategic choices made about category roles are communicated during promotion selection, clarifying how the retailer should allocate promotional investment across categories throughout the year. The process should also help the retail companies plan promotions by coordinating with suppliers to secure funding and receive suggestions.