The vast majority of promotions are driven by supplier considerations — the supplier wants to move inventory or support the launch of a new product and offers promotional incentives to the retailers. In the eyes of the consumer, however, promotions are an important part of a retailer’s value perception and, as we discussed in our blog How to Keep Margins Healthy in Heavily Promoted Categories, promotions should be only one part of a retailer’s pricing strategy. We have put together the following checklist to help retailers ensure that their promotions are part of a winning merchandising strategy:
- Focus promotions on consumer demand: Today more than ever market trends are transparent to the watchful and observant retailer. Social media networks, consumer forums, and marketplace bestseller lists all provide clear signals of trending consumer demand. Retailers should always focus promotions strategically on the products most likely to attract consumer attention and, hopefully, consumer action.
- Build relationship with key product category vendors: Although some consumer product vendors have their own sales channels, most vendors are dependent on retailers to bring their products to market. Smart vendors are keen to build strong relationships with their retail partners. These relationships can help retailers anticipate consumer demand. For example, a preferred retailer can be the first to know about a planned product launch – and get the edge on competitors in promotional activity.
- Use promotions to recognize and reward current and in-process customers: Wherever possible, leverage promotions to reward a retailer’s most valuable asset – the loyal customer. So rather than broadcasting promotional offers indiscriminately to thegeneral public, target those who have actually made purchases – or those who have begun to engage but who haven’t yet taken the plunge. The chances are that there will even be enough information to personalize the offers.
- Rather than cash discounts, consider “value-added” promotions: Offering a gift with purchase or bundling products, for example, rather than offering a straight price discount can be just as effective promotionally — without undermining the retailer’s desired price perception.
- Tie in promotions with seasonal fluctuations: There are certain times of year when consumer activity is accelerated: late-summer back-to-school purchases, home renovations and upgrades in the spring, end-of-year holiday gifts, etc. Understand the annual purchasing demand rhythms for all relevant product category(ies) and be ready with enticing promotions to attract consumers into the store (whether brick-and-mortar and/or online).
- Identify and promote KVIs: Identify those Key Value Items in the product assortment that most support the desired value perception, and promote them to draw in customers. KVIs, for example, are good candidates for “loss leader” promotional tactics.
- Identify and promote KCIs: Similar to KVIs, but more outward-looking, Key Competitive Items (see our blog KVIs vs KCIs: What’s The Difference and Why You Should Care) are products with high competitive elasticity, i.e., their sales volumes will respond well to competitive pricing tactics.
- Learn from competitors: Retailers must identify their real competitors and monitor their promotion activities – frequently and with high granularity. The insights gained will be invaluable when implementing a winning promotions strategy.
Winning retailers know that promotion planning has to be part of a unified and centralized pricing strategy and implementation. They will systematically apply the considerations described above in order to ensure that their promotions increase their sales and expand their customer base, without detracting from their desired price perception and their bottom lines.