Consumers in today's dynamic economy have high expectations, and theirbehavior is unpredictable. It is critical to understand what promotional offersare presently having the highest impact. Promotional analysis is a technique ofevaluating success or failure of a promotion using past time series data. Itcan be understood as discovering a correlation between sales patterns andmarketing efforts which includes promotions offered and advertising. Theobjective of promotional analysis is to help a retailer understand the impactof past promotions and hence formulate future strategies which could be appliedand adapted to produce profitable results.


Types ofPromotions


"Promotions" in any industry is a vital ingredient ofmarketing plan to retain best customers and to attract new ones. The retailmarket faces increasingly stiff competition, and is flooded with variouspromotional offers to drive-in traffic. Hence, the consumer today is left witha large range of promotions to choose from in almost all the productcategories. To list a few:


1.Quantity/Product concession


1)    Buy one get one free

2)    Innovative cross-selland up-sell strategies

3)    Free samples to testnew product

4)    Offering promotions onparticular day of a week to drive sales

5)    Pseudo personalizedpromotions targeting particular customer segment (students/promotions linked toage, height, gender, profession)


2. Pricediscount


1)    Some per cent off peritem

2)    Fixed amount off peritem

3)    Discount vouchers


3. Ads


1)    On-line/e-mail coupon

2)    Mobile coupon


4. Shippingpromotions


1)    Free delivery ofproduct

2)    Money off on deliveryitem by means of a selected ship mode


These are some of the promotions that may lure customers to purchase aproduct. In spite of such attractive offers, there is a high probability that acustomer may not avail or take advantage of every offer that comes their way.


What retailersshould know before launching a promotion?


Mere sales are not enough; the effectiveness of a promotion offeredshould be measured in order to draw more profit out of the offer given tocustomers. In order to do so, customer behavior should be analyzed. Retailersoften fail to realize that a consumer can have their own parameters like age,gender, requirement, income and preference to evaluate a promotion.

 

Understanding the kind of promotions to be launched plays a key role to category growth. Referring to the past promotions, retailers should bear few points in mind before launching any promotion:


1. How frequently should a promotion be launched?
2. Which categories respond the most to which promotions?
3. What product combinations can be promoted together?
4. To promote the entire category or to concentrate on only key products?
5. What sales rise can be estimated at each concession level?
6. How does a retail price change in product affect traffic and overall revenue?
7. What promotional plan to be designed to meet definite sales and volume targets?
8. Do price increase/decrease on some items negatively impact sales of other items?
9. How to drive new traffic to stores?
10. Based on demographics, how to vary promotional strategies across various stores?
11. What are the most effective promotions to reach target customers?


Once a retailer understands the direct-indirect impact of promotions, they can:


1.      Increase profit by optimizing coupon usage, offer personalized packs to targeted customers, decide on concession prices, buy-one-get-one schemes, displays, ads etc

2.      Add to revenue by avoiding unnecessary price reductions and discounts
Tailored promotions: Designing sets of offers that are collectively more effective than individual offer depending on segmentation, analysis of shopping behavior, demographic information


The idea is to provide the right customer with the right promotions.


Effectiveness of a promotion


Promotion tactics aim to stimulate customer interest in a product. It was a common notion at some point in history that the nature and degree of promotional activity is driven by market knowledge with a blend of experience and gut feeling. This was also true. However, since the competition in market has become increasingly stiff, the promotions launched by a retailer needs to be unique, innovative and designed to bear fruitful results. Retailers are being confronted with painful realities regarding the effectiveness of current promotions, as the type of promotions that have done well for them in past may no longer be as effective. Almost all retailers use offers that they are unsure will result in a positive ROI (Return On Investment). This has resulted in degradation of customer confidence.


Promotions are expensive as there are certain hidden costs such as advertising cost and loss of revenue when discount is offered to customers. Hence, it becomes mandatory to evaluate promotional performance and execute it well. Moreover, consumer expectation has increased from day-to-day stuff to lifestyle goods with subject to some promotional offer at some point of time. Thereby it is very important for a retailer to stand up to customer expectations and offer them with innovative promotions as purchasing decisions depend on this factor. It thus becomes essential to use historic information in order to study customer behavior, sales pattern during past promotion and product performance.


How to do promotional analysis?


Econometric techniques such as forecasting, time series analysis, intervention analysis, predictive analysis, what if scenarios, marketing mix model and other techniques are used to analyze data to produce powerful insights and decide on promotion and pricing strategy.


1.   Retailers capture detailed data customer-wise which helps in giving insight not only about a product and their brands purchased but also the socio-demographic nature and buying pattern of a customer. Various parameters can be judged using such approach.


1)     Whether the promotion targets new customers

2)     Repurchase history

3)     Cannibalization

4)     Shift from competitor brand/product

5)     A loyal customer who would have purchased the product even without the promotion.


In this case the retailer tends to lose margin. Such loyal customers should not be considered in analysis.


This above information can be clubbed and hence can be compared with sales lift data to track performance of promotion.


2.      Intervention analysis can be another way to analyze historic sales data with respect to promotions and thus help in framing future promotions. Intervention analysis technique rests upon historical data and judgment of a practitioner. The end result using intervention analysis is that practitioners have better understanding of their past promotions and hence can design near accurate attractive future promotions.


Thus, promotional analysis means not just offering any promotion. For e.g.: shampoo cannot be promoted with biscuits. Customers who tend to buy biscuits lean to buy other snacks like cake, cookies etc. To promote slow moving shampoos, a best promotion plan would be to offer them with conditioner or body wash. In this manner we need to analyze customer behaviour, product performance and product combination. Based on the promotional analysis, retailers can optimize the performance of future promotions, restore normalcy in sale, clear stocks, promote items as per the season and festival, drive profits through improved sales, increase brand awareness as well as continue to have strong relationship with loyal customers.


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