How Smarter Promotions Help Retailers Achieve Competitive Advantage
Retailers are facing intense competition for a diminishing share of their customer’s wallet, and this challenge has become more pronounced in markets facing deflationary pressures.
Although promotions are an important element of increasing sales, there is an excessive reliance on deep discounts that not only harm the bottom line but can also hurt a brand name over the longer term. In order to overcome these challenges, retailers need to have a smart promotion strategy and boost customer loyalty now and into the future.
Deep Discounts Hurt Sales and Brands
For most retailers, discounts and promotions are a key strategy for driving sales. But too often retailers run too many promotions or offer excessive reductions.
Marks & Spencer, the UK retailer, has suffered from this problem for some time in its apparel and home furnishings business. In 2015, revenues in this business declined 2.9 percent and the company blamed excessive and unfocused promotional activity for the poor performance. In its 2015 financial results, Marks & Spencer said:
We will significantly reduce promotions and have fewer but better clearance sales in order to rebuild trust in our pricing stance.”
Discounts also hurt your brand’s appeal, especially if your brand has a certain reputation to uphold. That’s why retailers must walk a tight balancing act when it comes to discounting, making sure that branding, pricing and positioning all align to help your brand instead of hurt it.
Discounting the Smart Way
One of the keys to overcoming the discounting trend is leveraging technology to discount the “smart” way. So instead of placing all goods in a product category on sale, the more sophisticated retailers understand that the different products serve different roles in the store.
Some product segments are designed to drive traffic to the store, so-called loss leaders, others to fuel impulse purchases or boost occasion-driven buys or gift purchases.
The strategic objectives need to be well defined because the type of promotion used to increase basket size of infrequent customers will be quite different from the promotion aimed at loyal customers, for example.
Few retailers have traditionally been able to implement promotions with this type of granularity. But this capability is now necessary as it becomes clear that untargeted mass promotions are less and less effective.
Technology is Key to Smarter Pricing
The best promotion principles are supported by analytics of historical data.
But for this type of detailed analysis of historical data to be worthwhile, a retailer must ﬁrst ensure that all promotions are tracked systematically and that unit sales and price points can be tied back to speciﬁc promotions.
Once a systematic tracking process is in place, historical data analysis can provide insight into the right types of promotions to use.
According to RSR Research, the most valuable pricing technologies are regular price planning and management, competitive price intelligence, and promotions planning and management.
Retail Winners — those that have grown sales faster than their rivals — are now planning much more emphasis on being able to manage their regular prices better,being competitive on price with rivals and relating price to inventory levels.
But retailers that have lagged their rivals still remain fixated on promotions, according to a recent study by RSR Research.
Retail winners are starting to put in place the technologies the need to move away from unprofitable promotions and deep discounting.
They are placing less value on promotional tools than they have in the past, and more emphasis on regular price, competitive intelligence, and product movement.
Technology is the key Difference
When RSR Research looked at how successfully retailers had been in adopting key pricing technologies, the differences between winners and laggards were very great.
Some 43% of retail winners are satisfied with the technologies they have installed to plan and forecast regular prices. But only 6% of laggards were satisfied with their regular pricing capabilities.
To find out more about how technology can give retailers a competitive advantage in pricing and promotions, sign up for the Openbravo webinar Pricing Power: Optimize Retail Promotions for Competitive Advantage.
Thursday 9th of June at 17.00 CEST in Spanish