The Next Frontier in Retail: Demand-Driven Promotions Management
By Peter Leith, [email protected]
Promotions are top of mind for retail executives who are vying for greater market share and profits while trying to keep pace in an ever-changing retail landscape. In fact, RSR Research reported that retailers are more promotionally driven than they have ever been before1. The omni-channel imperative is one reason. But the need to respond to perceived consumer price sensitivity may be the true motive behind this shift in retail, according to the study.
Retailers aren’t wrong to think this way. A Gartner report indicated that channel-independent pricing and promotions offer retailers a significant competitive weapon, but one that requires an understanding of consumer expectations, clearly stated intentions and proper supply chain coordination2.
Although promotional activity is picking up, many retailers struggle with organizing effective events and campaigns that drive in-store and online traffic, attract new customers, help reduce excess inventory and keep shoppers coming back for more. RSR points out that companies often take a “spray and pray” approach to promotions in which they increase advertising or price change activity but fail to incorporate customer insights or demand forecasting data. While some events may turn out to be successful, others may be less-than-fruitful or completely flop – and retailers are prone to making the same mistakes again and again.
Technology lags behind; channels crop up
Although there is heavy emphasis on promotions in retail today, technology has lagged behind in this area. Until recently, most retailers were focused on bringing systems on board that could help them with more critical aspects of planning – such as merchandising and inventory management. Spreadsheets still serve as the tool of choice to help retailers create and execute promotional events and campaigns. Planning promotions in this manner has always been complex and an inexact science, but adding new online and social selling channels – such as Facebook, Twitter, Groupon, Dealfind and many more – to the mix of more traditional methods like television and email has made this approach nearly impossible.
The key: Integrating promotions into the overall planning process
What can retailers do to improve the outcome of their promotions? Not unlike other aspects of retail planning, promotions should be demand-driven and an important part of a retailer’s go-to-market strategy. Now that advanced planning solutions for areas of the business like inventory and assortment planning are more commonplace, the opportunity to make promotions an integral part of the end-to-end retail planning process can’t be overlooked.
Next-generation promotional planning allows retailers to:
Analyze how promotions have performed in the past. To recap points made in our Measuring the Effectiveness of Promotions article, retailers need to establish a baseline for how successful their promotional efforts have been in the past. This means collecting the basic information – i.e., whether a product was promoted online or in print or was part of an email campaign – and then filling in detail at a more granular level. For example, retailers should know what the click-through rate was for a product promoted via email or how many customers bought an item that was promoted online or via a social media channel like Twitter.
Take the financial plan into account. Getting a grip on past promotional data enables retailers to accurately forecast demand for future promotions and then tie that into their financials. As a result, they’ll gain a solid understanding of how much they’ll earn in promotional sales over the course of the planning period.
Integrate promotional data into product assortments. Knowing how promotions have performed in the past will help retailers build more accurate and successful assortments to carry across channels. Assortments are crucial because they drive the business for months or even full seasons at a time. Retailers that incorporate promotional data into their cross-channel assortment plans will consider not just the products they plan to promote, but also the items that will sell since they are complementary – i.e., tennis shoes and socks.
Make better pricing decisions. Pricing should never be determined in a vacuum, but that’s often what it amounts to when retailers arbitrarily promote products to increase traffic or offload unwanted inventory. Instead, price changes for products on promotion should be well thought out across all selling channels and integrated with the financial plan so that retailers can attract customers while avoiding unnecessary margin degradation.
Save on costs by cutting better deals with vendors. Retailers that integrate their promotions with their end-to-end planning process can create a bidding situation between their vendors in which they compete for promotional space – whether it’s online or on TV or in print. This enables retailers to reduce or even potentially pass the entire cost of the promotion on to their vendors, inevitably improving the return they realize from the event or campaign.
Improve allocation/replenishment execution. Promotions can greatly impact a retailer’s supply chain. Not having the item on promotion in stock and in the right channel at the right time can be detrimental not only to a retailer’s profits but also to its brand. This comes down to integrating promotional forecasts into a demand-driven allocation/replenishment plan. Retailers that do so will make better supply chain decisions and improve product availability across relevant selling channels when it comes to promotions.
Advanced planning solutions can help
Retailers that incorporate promotions into their demand-driven retail planning process – from setting financial targets and creating assortments to allocating products to the right channels – will significantly reduce costs, increase operational efficiencies, drive up sales, improve margins and enhance the multichannel shopping experience. Managing the vast amount of data needed to optimize promotions cannot be done with spreadsheets or outdated solutions. Retailers need to invest in advanced planning technology that will help them successfully tie promotional events and campaigns into their overarching plan, as well as navigate in an increasingly complex promotional environment.
1. RSR Research, “Retail Pricing in a Post-Channel World,” April 2012
2. Gartner, “The Case for Flexible Multi-Channel Retail Pricing,” January 2012
Peter Leith is the director of product strategy at JustEnough Software (justenough.com.), which helps create retailers create accurate promotional forecasts and integrate them into their financial, assortment, pricing and allocation and replenishment plans. He is responsible for leading the development and direction of the company’s retail planning solutions. He can be reached at [email protected].