Measuring the Effectiveness of Promotions
By Dan Pahomi and Peter Leith, [email protected]
Promotions are a key element in any retailer’s arsenal of tools to help drive customer traffic. They are especially important during the holiday season. And, in an economy still fraught with uncertainty, some customers are hardwired only to purchase products on sale. Promotions are crucial for retailers to communicate when new products are available and when they are offering discounts for the items their shoppers want to buy.
With the 2011 holiday season around the corner, most retailers have already locked in their merchandise and assortment plans. They are now concentrating on how to tackle their promotional plans to capture market share and increase profitability during the most important selling season of the year. Their goal is not only to drive up traffic to their brick-and-mortar and online stores, but also to grow their customers’ average basket size for each transaction.
However, two major shifts in the retail landscape are changing the way companies think about the way they plan promotions. Consumers are no longer relying on print ads, circulars, coupons and flyers and are tapping into new avenues to find deals on products they want. Social media sites – like Facebook, Dealfind, Groupon and LivingSocial – are gaining attention for their ability to help businesses accurately target the right audiences with their promotions. Over-reliance on traditional forms of advertising may hinder a retailer’s ability to reach new and existing customers.
Secondly, the onslaught of data that retailers now have access to via loyalty cards and online sales has led to the realization that promotions should not simply be an arbitrary effort to increase traffic and reduce stock levels. Rather, promotions should be an integral part of their overall planning process.
Reevaluating the way promotions are measured
Before promotions can be wrapped into a retailer’s overarching plan, the company must first establish a baseline for how its promotions have performed in the past. Most retailers leverage sales history from the previous year to create their holiday promotions. The problem with doing it this way is that it’s not based on current data or trends. Even if they begin analyzing the effectiveness of their promotions at the start of the season, without advanced technology most retailers won’t have an accurate understanding of how well their promotions performed until a month or two after the season is over. This delayed view into the effectiveness of their promotions impedes their ability to adjust campaigns midstream to increase sales or positively impact in-store and online traffic.
What can retailers do now to make the most of their holiday season promotions? JustEnough Software, a provider of demand management solution for retailers, distributors and brand owners, offers the following strategies to help companies get on the right track to better promotional planning:
1. Start with the data. First and foremost, retailers must have accurate, complete data in order to analyze the effectiveness of their promotions. Many retailers flounder on this first step because they don’t have a complete view into data generated from past promotional efforts. They should know if a product was promoted online, in print or if it was part of an email campaign. From there, they should know details at a more granular level – for example, what was the click-through rate for a product promoted via an email campaign to customers? If it was advertised via a social media or online, how many customers came through that channel and bought the product? Or, if it was promoted in a newspaper or circular, what was the ad size and what page was it printed on? Where exactly was it distributed geographically?
Advanced technology makes it simple for retailers to gather this type of information and then analyze it for future promotions.
2. Seek out new channels. While more traditional methods of promoting products – such as TV and print advertisements, direct mail or catalogs – may still be effective, retailers need to explore other ways of reaching their target audiences. Email campaigns are even beginning to sound antiquated as more and more people rely on alternative channels for communication and information.
Many retailers have already embraced social media and are creating multi-channel merchandise and assortment plans. They should also consider how new channels like Facebook and m-commerce can impact the effectiveness of their campaigns and grow their customer base. Unlike print or TV advertising, promoting products through social media and online channels takes a lot less time to plan and execute. And, adjustments to such promotions can be made almost instantaneously.
3. Make it part of the process. Retailers should make analyzing the effectiveness of their promotions part of the overall planning process. All too often, this important step is simply an afterthought. Merchandisers should be trained to leverage new solutions designed to help analyze the effectiveness of their promotions – and then use that data when they plan future campaigns. This change in routine could be met with some resistance, especially for companies that have relied on their planners’ promotional insight (albeit anecdotal) for many years.
Retailers may consider giving their planning teams incentive to leverage new technology to help them better analyze the effectiveness of their past promotions. One way is to make their year-end bonuses heavily reliant on meeting goals set for product categories. Doing so can help a retailer increase sales and profitability during the upcoming and future holiday seasons.
Retailers that decide to install best-in-class technology, seek new channels to promote their products and make measuring the effectiveness of their promotions part of their overall planning process before the holiday season will benefit tremendously. With better insight into what the market will bear for a particular product, their merchandisers will be able to plan effective promotions to drive up online and in-store traffic and increase sales. As a result, retailers will avoid making unnecessary inventory investments, leading to lower product obsolescence and higher profit margins at the end of the holiday season.
Dan Pahomi brings 16 years experience in the advertising and promotion technology marketplace, with expertise in retail software as it relates to the planning, management and execution of promotions. Peter Leith is director of product strategy for JustEnough (justenough.com), where has supported a number of successful implementations at leading retailers. He can be reached at [email protected].
99 Cents Only has big store plans, 2Q comps up 6.7%
CITY OF COMMERCE, Calif. — A strong earnings and sales performance during its fiscal second quarter gave 99 Cents Only Stores the confidence to raise its full year guidance and become more aggressive with store growth. The company reported that total retail sales increased 9%to $352.2 million and same-store sales increased 6.7% for the second quarter.Consolidated net income increased by $2.2 million to $15.1 million or 21 cents per diluted share, versus $12.9 million in the prior year, or 18 cents per diluted share
Eric Schiffer, CEO of 99 Cents Only Stores, stated, "We are pleased with our financial results for the second quarter of fiscal 2012. Our long-term operational improvement initiatives have continued to meet our expectations, resulting in earnings per share of 21 cents for the second quarter of fiscal 2012."
For fiscal 2012, as previously announced, the company has raised its same-store-sales percentage increase expectations for the full year to mid-single digits and plans to open 12 stores in the second half of the year. Of these 12 new stores, the company said it has already opened one store in the third quarter and plans to open two more stores in the third quarter and approximately nine stores in the fourth quarter of fiscal 2012. The majority of these new store openings in fiscal 2012 will be in California. The company said it plans to accelerate its store growth rate to approximately 10% in fiscal 2013, with the majority of new stores expected to be in California.
BDO survey: U.S. retailers forecast 2.9% increase in total holiday sales
Chicago — Results of a survey released Wednesday by BDO USA found that chief marketing officers at leading U.S. retailers expect a modest 2.9% increase in total holiday sales this year.
This is a less optimistic point of view compared to the projected 3.5% increase in 2010 (and the actual 5.2% increase reported by the National Retail Federation). Overall, 41% of CMOs expect an increase, down from 2010 (52%) and 2009 (47%). However, CMOs at the top 100 largest retailers included in the sample are more optimistic, with 67% expecting an increase in overall holiday sales.
Survey findings showed that retailers also fear another year of excessive discounting and markdowns to clear inventory. While 23% say they have increased inventory purchases for the holidays, the vast majority (65%) say their inventory purchases have stayed about the same compared to 2010. Overall, CMOs expect inventory levels to be up by less than 1% (0.7%) – a far cry from the 2.8% increase projected in 2010. Most CMOs (52%) also say they’re making no change in SKUs. Overall CMOs project SKUs to be down slightly (-0.2%), meaning less variety for consumers.
“With a weak jobs outlook and the economy still in flux, most retailers are not expecting big sales increases this holiday season,” said Doug Hart, partner in the Retail and Consumer Product Practice at BDO USA. “However, larger retailers appear to be more confident that their greater purchasing power and resources will allow them to be more competitive in this environment. Across the board retailers are dialing back the recent trend of expanding merchandise offerings, and are instead looking for a signal of recovering consumer spending before making big inventory investments.”
Some of the major findings of the BDO Retail Compass Survey of CMOs include: holiday same-store sales are projected to increase 2%. More than half (54%) of retail CMOs project flat same-store sales, and just 37% expect an increase.
The majority – 58% — of CMS say that consumer electronics will be the strongest performing category this holiday season, followed by toys (16%), apparel (11%), home goods (10%) and lifestyle goods (5%).
Of retailers who sell gift cards, 57% expect an increase in gift card sales this holiday season, a notable jump from 2010 (47%) and 2009 (32%).