Promotions are a popular technique for brands and retailers to motivate customers and drive sales. You’ll see promotions in all shapes and sizes, from buy one get one free to a percent off to free shipping.
The challenge is not just how you can create effective sales promotions, but how to measure them as well. Here’s what you need to know to get started.
1. Track Competitor Behavior
The first step toward a high-quality promotional strategy is to track competitor behavior. This is a critical part of the process for one national retailer, which told Wiser that its pricing team uses historical syndicated data to forecast competitors’ promotional schedules.
Why do this? Tracking and predicting competitor behavior will help you plan your promotions—you’ll know whether the competitor will eat into your sales or if you can run a counter promotion to offset potential losses. Plus, you’ll be able to use historical data to determine which units to keep in stock ahead of any promotions based on past consumer demand.
“We have to understand not only what we are doing but what our competition is doing,” the national retailer explained to Wiser. “Our best guess is that this week last year our competitor did this, so typically we would expect that they would do something similar this year. Assuming they do that, we expect we will get a certain percent of the market share and based on that we should promote it at this level.”
Overall, use historical competitor data to forecast promotions and determine an effective promotional cadence. For many brands and retailers, promotion and markdown calendars are created six-plus months in advance based on this type of data.
“If all I did was shift a purchase from one item to another item and it didn’t drive any additional sales for the retailer, then I might think it’s good—but the retailer may not think it’s good.”
2. Test and Measure Promotional Campaigns
Once it’s time to implement a promotion, you’ll need to properly test and measure the sales lift to ensure it has performed well.
This is done with two key metrics, according to the brands and retailers Wiser spoke to:
- Incremental sales lift vs. revenue cannibalization: Would your shoppers have bought your discounted products without the promotion? If so, this is revenue cannibalization, where the incremental sales lift created by the promotion is actually at the expense of existing revenue. That’s not a recipe for effective promotions.
- Volume shifting: Did your shoppers make additional purchases because of your promotion or did they simply buy the one discounted item instead of another? Make sure your promotions increase the number of units sold and not just shift sales from a full-priced unit to a marked-down one.
“If all I did was shift a purchase from one item to another item and it didn’t drive any additional sales for the retailer, then I might think it’s good—but the retailer may not think it’s good,” a packaged food brand emphasized. “You’ve got to create a win-win scenario to continue getting features and being able to do promotions.”
There are a few basic formulas that you can use to measure the effectiveness of promotions. The first is calculating sales lift, which is:
Actual Sales – Baseline Sales = Sales Lift.
This calculation focuses on the monetary value of your campaigns, to quickly see whether the efforts made your business any money. In addition, you can also look at the volume of units sold:
Total Volume – Base Volume = Incremental Volume.
This other formula considers historical sales volume (base volume) compared to the actual volume during the promotional period. This helps determine whether the sales and marketing efforts led to an uptick in units sold.
3. Monitor Promotional Compliance in Stores
Finally, you must track in-store promotional compliance. Naturally, the effectiveness of a promotion depends on whether a brick-and-mortar promotion was executed properly.
You want to track on-shelf availability, store associate knowledge and recommendations, whether any displays are broken, and, of course, if the promotional displays were set up properly. Any hiccup here could harm sales and skew the perceived quality of an in-store promotion.
“We were looking at the effectiveness of our promotions on the shelf at retail,” added a toy manufacturer. “If it was something that was very critical, like understanding our competitors’ pricing and promotion strategies, we would place a higher priority on gathering data to help us understand that. We needed to make sure our own pricing and promotions were competitive in the marketplace.”
Furthermore, according to the packaged food brand, promotional activity is something that is highly questioned within the supplier community. This places an even greater emphasis on in-store promotional execution to build quality working relationships with all partners.
What are your strategies to create effective promotions? If you’re like these brands and retailers, you’re tracking your competitors, testing your promotions, and monitoring promotional compliance.
Editor’s Note: This post was originally published in July 2019 and has since been updated and refreshed for readability and accuracy.