How to Craft more Effective Promotions?
Most of the time an offer is taken as effective when sales of promoted products are increased. However this does not always reflect a widespread improvement in sales over the entire product category in which is included the promoted product.
This has to do with other similar products that make up each category. Examples of categories are candy, snacks, drinks, groceries, fruits and vegetables or beans.
For promotion you must first consider the product. Often the products are promoted only because of pressure from manufacturers for the money they bring, as they usually finance the promotions.
Promotions Funded by suppliers.
However they do it thinking about increasing sales of its products that are only part of the category for the retailer. That is why many times even having good sales for the promoted products the retailer may actually be losing money or better sales opportunities that will also be available.
The retailer may lose money due to the effect of cannibalization between products that are similar or within the same demand group.
A demand group is a set of products in a category which are highly substitutable, so the customer at the time of being in front of the shelf to make his purchase, may change the product is looking for for other with similar attributes, price or value.
Products that are in a group of demand are subject to being cannibalized between each other in the case of a promotional product against other products with regular price.
If the promotion is too aggressive you can eat the demand for other products and thereby altering a very important metric for retail: total category sales.
Realizing demand transfer between products, consumers that intended to purchase a product can change their decision to seize the product in promotion. This will result that sales of the promoted product are higher while those of other products decreased.
Retail promotional effectiveness.
The impact of this seemingly good result is less sales for the total category, as a result of the promoted product not being sold at full price, whether by means of a direct price reduction or additional product offered for free or a supplement; is earning less money, but expected to be recovered with more units sold, but there is a point where the balance is broken and it is when you start to cannibalize the sale of other products.
The best selling opportunities the retailer may be losing because the bigger manufacturers are generally the ones with the greatest promotional intensity, therefore always the same products are promoted and they leave less margin for the retailer for being leading retail brands.
Better Opportunities for promotions.
To maximize the chances of promotion is better apply it to products that are more marginal to the retailer, thus even selling the same amount of products or even at lower price has the opportunity to earn more money while strengthening the identity of the brand and its value proposition to customers.
A good candidate for this are the private label products, we can take advantage and meet two objectives at the same time, better positioning the identity and improve the perception of quality of the store, differentiating it from the competition because private label products are exclusive and at the same time you can earn more money with products that are more marginal.
In doing so we must be careful not to damage the business relationship with suppliers of leading brands, as this may be considered an unfair practice by them.
To improve the performance of promotions on private brand products and make them more attractive to consumers you can reduce the price gap with leading products to make them more appealing.
Differential will decrease if the leading brand product costs 10 dollars and private label costs 7, bringing the price of both products closer; lowering the price from 10 to 9 and increasing the other from 7 to 8 to close the gap between the two products, the perceived value of the product is better and consumers may change their purchasing decision.
Of course this strategy must be supported by a campaign to help make consumers aware of private label products and their benefits. Then you have to set additional details to support the performance for the promotion as exhibitors or on gondola header for improved visibility.
Promotional campaigns can also be segmented to appeal to different groups of customers with their own brands differentiated by target market. There may be a high-quality one, focused on premium consumers and other with very competitive pricing to make it attractive to customers watching their spending.
Finally another great way to encourage the selling of private label products while improving loyalty on other communication channels, it is with activation campaigns activation offer it exclusively and with aggressive discounts through the retailer’s app, to boost download and use of the app.
Then you have to keep that communication with customers not only with promotions, you should also include information about the quality of the products and suggested uses from other customers that previously have purchased it.
In this way you can also encourage customers to subscribe to lists of contact either by email or text message to send those offers early and simultaneously strengthen customer relationships and build healthy contact databases for the store.
To improve the performance of promotions I recommend:
1. Consider cannibalization between products within the same demand group.
2. Taking into account the whole category results, not only promoted products.
3. Using private label product promotions to generate a differentiator against the competition and at the same time earn more margin.
4. Take advantage of the price differential between leaders and private label products to increase demand.
5. Create promotional campaigns through digital channels with aggressive offers for private label products to promote user engagement.
Have you considered these elements in your promotions?
Is it a sound strategy to follow?
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