Shopability

ShopAbility discuss how to determine what you want your promotions to achieve and how to design a promotion that meets the goal.

For Retail Pharmacy Magazine

In discussing price in last month’s issue we touched on price promotions and some considerations when pulling promotions together. That was the tip of the iceberg.

Here we’re going to examine promotion objectives, mechanics and probable shopper reactions in a bit more detail to help you put together promotions that work, because you’ll have figured out what it is you want them to achieve at the outset.

Begin with the end in mind – Promotional Objective setting

‘I want to increase my store’s traffic, average sale value and steal some share from competitors’ – if you’re a retailer.

‘I want to increase sales and improve my brand’s awareness and share’ – if you’re a manufacturer.

Well, duh.

But how? And how do you know which things work and which things don’t, viz the famed historic advertising guru David Ogilvy’s quip about ‘We know that half of all advertising works, we just don’t know which half’? And how do you measure it?

Be specific about you want to achieve upfront, as this impacts the promotion mechanics to be used, the level of support you should give it, how it should be executed instore and the likely shopper impact.

There are a number of types of objectives that all relate to promotions:
* Retail objectives (5 way multiple): traffic – more shoppers, average weight of purchase, item spend, basket spend, basket incidence and penetration, frequency of visit (same shopper more often)
* Shopper/category objectives: department growth, category growth, category segment growth, shopper satisfaction with category/department/store, shopper dwell time, past 4 week purchase; category/product sales velocity (units per store per week); household penetration
* Brand and Marketing objectives: brand share of category or category segment, past 4 week product/brand consumption, awareness levels of brand pre/post, trial or sampling penetration, brand perceptions/attitudes, brand/product ranging and distribution, brand preference
* Strategic objectives: eg perception of retailer’s brand or store (value, service, range propositions)
* Financial objectives: during promotional period the forecast total and incremental sales revenue and gross profit, minimum margin, floor price to achieve margins and GP
* Operational objectives: eg old stock clearance, product deletion clearance.

You don’t have to construct objectives for every type, just select one or two.  You can use SMART (Specific, Measurable, Actionable, Relevant, Time Bound) to flesh them out.

For example, you might want to ‘Improve the awareness of our cosmetics offer by increasing sales of lipsticks by 20% over April and May’.

Be aware that some objectives may conflict with each other and by increasing one element you may decrease another. This is demonstrated in Figure 1 below.

FRAME OBJECTIVES WITHIN A SCOPE

How ‘big’ is the promotion – on how many products is it going to run? Will it be run store wide, ie across every product in the store or at least a number of products?  (The current – and somewhat controversial – Woolworths ‘Same Prices as a Year Ago promotion is an example of this).

Will it run on in a specific category, brand, single product only? (How does this fit with your catalogue strategy, which may be category led or more likely specific single items from selected categories?)

When will it run and for how long? Are there any seasonal impacts to consider? Do you need to ‘discount turkeys at Christmas’ (eg, cut price on Claratyne and Telfast during hayfever season to drive traffic) or are you better off focusing on your range (as opposed to price) or companion selling of these during season since the traffic is there anyway, or on increasing out-of-season product sales?

SET GOALS YOU KNOW YOU CAN MEASURE

What do you already know about the category, brand or product sales? How have past promotions performed? (Be careful here, past promotions may have performed poorly due to anything from wrong mechanic to poor execution). What does your POS system tell you about average product sales levels and purchase frequencies? What have you observed anecdotally, eg on average how many items do shoppers walk out of your store with? What reports are available to you that might help with category or industry averages?

OUTPUTS AS WELL AS OUTCOMES

A promotion is only ever going to be as good as its execution.

Most of the objectives we listed above would be measured as outcomes (ie results). In order to measure a promotion’s effectiveness you also need to review the outputs (ie, what was achieved). This may include things like what support it received (see below, eg how many ads ran, was it in catalogue), how many stores did the promotion run in, how many stores ranged the products on promotion, how many stores ran the point of sale materials (and which ones), how many people were sampled etc.

Mechanics – Make the Punishment Fit the Crime

Promotions generally fall under two headings, Retail Promotions and Consumer Promotions. See Figure 2 below for some examples of these.

The key here is to match the mechanic to the objective. Make the punishment fit the crime.

For example, multibuys like 2fors may drive average weight of purchase (AWOP) and increase your average spend, but depending on the category you may simply be pulling sales forward (pantry stocking – see below) because you decrease frequency. But if it’s a category with expandable consumption (if you promote, they buy more and consume more – snack foods, confectionery and shampoo come to mind) you’re likely to get an incremental sale.

‘Win’ mechanics may drive basket incidence, or potentially category purchase frequency by shoppers loyal to that brand or product, and may increase that brand’s awareness temporarily, but may not do anything for traffic. Which is OK, if your goal is to drive basket incidence.

IMPACTS ON SHOPPER BEHAVIOURS

Based on objectives, and if you execute with mechanics and support per your objectives, a number of different things might happen as a result of a promotion.
Dynamics to look for and  understand include:

• Trade up (which you want)
• Trade down (which you don’t want … shopper planned the purchase and now they don’t need to spend as much, pulling your transaction value down rather than increasing it)
• Pull sales forward or pantry stock: you decrease purchase frequency and increase the time between purchases (interpurchase interval … IPI)
• Decrease transaction value/basket spend: this can occur if your promotion is based around frequency (like those Buy 9 get 1 free coffee cards) which means they come back more frequently but buy less per trip (but overall this should add up to more sales, IF you’re not trading them down whilst they’re there)
• Switch products/cannibalise existing products: sales may increase of the promoted item but decrease of a similar item, so you need to consider the overall category sales not just the promoted item’s sales
• Abandon the sale (shop elsewhere): this happens if you go out of stock on the promoted item or they can’t find it in the store
• Buy in addition/incrementally to the planned item: yes, you want this. Traffic driving promotions hopefully result in impulse purchases during the shopping trip, if you’ve executed your impulse categories and lines right.

So that’s a start on things to think about when designing a promotion or reviewing a promotion pitched to you by a supplier or manufacturer.

Next time we’ll look at what support, advertising & promotion and execution a promotion should get based on its scope and objectives.

Till then!

We welcome feedback on these articles – what you agree with, what you don’t – and what you’d like to hear about. Email us with feedback on enquiries@shop-ability.com