RETAIL PROMOTION 5MUST HAVES TO DRIVE PROFITABLE PROMOTIONS

Transcription

1 RETAIL PROMOTION 5MUST HAVES TO DRIVE PROFITABLE PROMOTIONS

2 Increasing levels of data streaming into the enterprise from multiple shopper touchpoints has led to a better understanding of the relationship between customers and brands, resulting in increased individualized and personalized engagement. The old ways of retailing have opened up to an inclusive and symbiotic relationship with benefits for the customer, the retailer and the vendor. Today s consumers are savvier than ever. The dawning of social media and mobile insights has led to advanced analytics that harness the conversations and even the footsteps of customers on their path to purchase. To avoid costly profit-eroding discounting practices, retailers have to take a different approach to pricing and promotions that place the customers at the center. Retailers can break through the promotions insanity by turning consumer and competitive data into actionable insights that drive profitable promotions that align to consumers wants and demands. Finally, retailers can break through the traditional lines of supposition and build their business around immediate and ongoing innovations that, at one time, took months to achieve. HOW CAN RETAILERS REACH THIS RETAILING NIRVANA? THE FOLLOWING FIVE STEPS HELP CHART THE COURSE TO PROMOTIONAL SUCCESS. 2

3 1 RETAIL PROMOTIONS SET GOALS ALIGNING METRICS AND FINANCIAL INCENTIVES TO PROMOTIONAL ACTION. Plan with the end goal in mind. Key goal-setting questions should be: Where are we today? How do we move away from ineffective promotions to protect our margins? Retailers that produce the best results are willing to address four key points: There is a problem 1 they want to change and teams are committed to 2 Leadership continuous improvement entire organization embraces and supports 3 The the implementation of new solutions silos must be knocked down 4 Organizational 3

4 Even with the best of intentions, data shows retailers get promotions wrong more times than right. A 2015 study by the Nielsen Company indicates 59% of all global promotions don t break even. U.S. retailers are among the worst performers with 71% of promotions failing to break even. The goal-setting common denominator among retail winners is the ability to commit to a strategy of which pricing is only one element. Once goals are set, the most successful retailers activate continuous promotions strategy evaluations to remain agile and adaptive to changing circumstances. Goal setting is only effective if the goals are based on the current reality. Retailers who want to improve promotions must be honest of their current capabilities, processes, incentives, and cultural capacity for change. While retailers need to have their stated goals out there, intermediary goals and milestones should define the journey for the retailer. For example, how do you gain immediate value? What should be done in 3 months, 6 months, or a year? How can the organization adapt and evolve while still learning, improving, and adapting? Despite all the best intentions, a change too dramatic, without bringing people and the organization along can have serious consequences. 71 % Promotions by U.S. retailers that fail to break even. SOURCE: NIELSEN COMPANY 4

5 2PLAN WITH THE OBJECTIVE TO UNDERSTAND THE VALUE DRIVERS AND WHAT TRIGGERS CUSTOMER RESPONSE. Forty-nine percent of retailers rank maximizing gross margin as their top price strategy objective, according to the RSR Research report, Learning to Live in a Dynamic Promotional World, followed by driving demand at 39%, and creating brand recognition at 28%. Sixty-four percent of retailers named getting in-store and online pricing right the first time as their top pricing priority, followed by in-store price matching capabilities (51.6%), and arming retail associates with real-time competitive price intelligence (22%), according to RIS News, Pricing Intelligence Goes to War report. The problem retailers have, says Brian Kilcourse, Managing Partner for RSR Research, is that they don t know what they don t know. In the new world, non-transactional signals are an indica- 5

6 tion of demand. Product web lookups and the correlations between activity in the digital space and the store are some of the signals. Today, transaction data combined with customer attribute data from social media and search metrics can be blended with syndicated and competitive data for a 360-degree view of all contributing factors of promotion effectiveness. Price is the most visible attribute to customers and the greatest driver of profit. In terms of priorities, however, customers often cite brand loyalty as their number one reason for where they shop. Lowprice, high-fashion merchandise is well received at retailers such as Forever 21 or H&M, but at other retailers, it could be perceived as low quality. If lowest price is always going to win, all other retailers except Walmart would be out of business, says Mark Schwans, senior director of solutions, Revionics. Since customer expectations vary by where they shop, retailers must be clear about how they listen, sense and shape demand, and respond to shopper demands.retailers must decide whether they want to be known for discount pricing, everyday low prices, ongoing promotions, or for consistently providing 49 % Retailers rank maximizing gross margin as their top price strategy objective. SOURCE: RSR RESEARCH, LEARNING TO LIVE IN A DYNAMIC PROMOTIONAL WORLD 6

7 premium quality selections with high customer service levels. Yet even consumers who shop at retail stores known for customer service, they are still looking for deals and incentives that drive them into the store, to the website, or share on social media. Retailers need to understand what those are and what influences their customers propensity to buy. Gone are the days of consumers making all their purchasing decisions inside the store using an envelope of coupons and the weekly circular guiding their selections. Today, retailers are armed with more data and insights than ever before - what they like, what they purchased, how they purchased and which vehicle did they use to make that purchase. With vast amounts of retailers vying for the shopper s attention and loyalty, retailers are challenged to identify which promotional vehicles can and will have the greatest influence on the consumer. The opportunity is tapping into the insights to drive effective promotions that matter to that customer without getting into a discounting race with their competitors. ALMOST 1/3 Retailers believe consumers perceive them as not price competitive enough. SOURCE: RSR RESEARCH S LEARNING TO LIVE IN A DYNAMIC PROMOTIONAL WORLD 7

8 3SIMULATE BY TESTING AND COMPARING SCENARIOS BEFORE EXECUTING IN MARKET. Retailers need to get comfortable with the idea that predictive models are as good, if not better, than historical data. After all, predictive technologies use historical data, albeit in supercharged form. APT (applied predictive technologies) requires retailers to adopt a test-and-learn discipline and devote time and energy to trust the system and allow it to learn regional demand, competitive influence and customer behavior patterns ultimately aligning this intelligence with financial goals and objectives. Testing the benefits of various promotion strategies might involve rolling out a pilot program based on selecting a group of stores and a few categories. This allows for implementation of what if scenario builders. This causal, predictive way of looking at pricing, sales, margins, profit and category percentage 8

9 lift allows retailers to see the impact on these KPIs. Over time, retailers can simulate different options and compare them in a predictive test environment, and roll out the most profitable promotions strategy to the market. Thus they can capture the full benefits of their promotions instead of letting the opportunity pass them by. Operating in a realm of uncertainty is a given for retailers and, when asked to go even deeper to discover new rewards, many retailers are reluctant. Simulations and tests may seem risky when weighing the perceived odds, yet sophisticated retailers, know that self-learning engines eventually improve their understanding. If lowest price is always going to win, all other retailers except Walmart would be out of business. Mark Schwans, senior director of solutions, Revionics 9

10 4 RETAIL PROMOTIONS FORECAST USING MODELS TO UNDERSTAND DEMAND SIGNALS, LIMIT CANNIBALIZATIONS, INCREASE AFFINITIES, AND ALIGN FINANCIAL EXPECTATION. Retailers planning their promotions and forecasting results have to evaluate the pros and cons of rebates, BOGOs or percentage discounts and weigh it all against vendor funding. They also face the threat of cannibalization versus ineffective lift results when considering whether to apply promotions to category leaders or to the number two or three brand in the category. Without frequency drivers, they stay awake thinking how to most profitably entice shoppers to enter their store and increase their basket size. Revionics Chief Science Officer Jeff Moore has witnessed retailers experiencing an Aha! moment. He says it comes when retailers are willing to give up control and let the system do 10

11 what it s supposed to do. Trusting the right technology becomes the turning point when a retailer realizes they can be so much more granular on competitive pricing and product mix. The trust drives greater adoption while also allowing retailers to tackle other problems. In today s retail environment where web pages compete with circulars, mobile messaging, Twitter, and other outlets, retailers need to know how each vehicle affects a promotion. Since most retailers have no historical data of social promotions at this time, it s critical to start tracking that data now. Everevolving new social platforms require dynamic and adaptable data collection models able to learn and understand customer behaviors and their affinity to buy. Online price information leading to comparison shopping is a mainstay and showrooming is the norm. Sahir Anand, VP research and principal analyst, EKN Research 11

12 5 RETAIL PROMOTIONS RESPOND QUICKLY TO CUSTOMERS, LOCAL MARKET CONDITIONS, COMPETITORS AND SELLING CONDITIONS IT S THE RETAIL IMPERATIVE. Retailers that are able to look at consumer behavior holistically (online and in stores) and gather competitive insights in real-time, pre, during, and post promotion are more likely to achieve a profitable strategy. The key to turning consumer and competitive data into actionable insights that drive effective, profitable promotions is identifying relevant shopper behavior, anomalies, and influential competitors that matter. No one owns the customer, is a common adage applied to the reality of unified retail. Customers enter a store or an e-commerce site with certain expectations relative to what is important to them. Loyalties shift based on what experience aligns most closely with customer expectations. Retailers who have lost the greatest 12

13 market share in the past year are the generalists or those retailers who don t have a unique value offering that the consumer will look for and remember. There are also those who attempt to alter their tactics without first understanding their customers. These are losing strategies. Knowing your core customer, listening, and adapting and responding to their preferences is the path to success. Despite the best attempt to build loyalty programs online, it is too tempting and convenient for consumers to research all their options. Online price information leading to comparison shopping is a mainstay and showrooming is the norm, says Sahir Anand, VP research and principal analyst, EKN Research. Now more than ever retailers have to get their prices and promotions right for the specific market and consumer. As information flows rapidly and steadily to consumers, retailers are beginning to accept the fact that one-size-fits-all promotions can t sustain their business. They recognize the need to target locales and connect with consumer clusters with tailored promotions. 13

14 CONCLUSION The proliferation of legacy systems makes promotion and price optimization ripe for retail adoption. Existing systems, primarily used by merchandising teams, lack the ability to incorporate real-time competitive, consumer and market data into the pricing and promotions decision making nor the ability to test what if scenarios before they execute. The ability to rapidly integrate systems minimizes the uncertainties of patchwork compatibilities. More storage for less bandwidth and simple feature functionality allows for social, mobile and third-party vendor integration to work together to change retail processes. It s not just about knowing the price at any given point in time, it s about harnessing that information, reacting quickly and making intelligent decisions to serve the customer, the brand and the bottom line. Digital signage, coffee and wine bars in grocery stores, sales associates armed with customer-specific insights, and highly trained personnel haven t been the norm of pre- nor post-re- 14

15 cession retail. However, things have changed and expectations have risen. Promotions need to keep pace with all the other enhancements required to stay competitive in today s marketplace and to attract and retain highly informed shoppers. How can fast-turning, broadly assorted retail chains achieve this highest caliber of retail mastery? It will take goal setting, planning, testing, forecasting and responding as well as innovation and adaptation to a changed retail environment. 15

16 ABOUT REVIONICS Revionics is a proven leader in End-to-End Merchandise Optimization solutions. Over 62,000+ retail locations around the world optimize with Revionics across 18M+ products and 2.6B+ sku/store combinations are modeled weekly. Revionics empowers retailers around the globe to profitably execute a data-driven omnichannel merchandising strategy by utilizing one of the most comprehensive set of shopper demand signals to increase financial performance and improve customer satisfaction. Revionics solutions are powered by unmatched demand-based science and advanced predictive analytics to help ensure retailers have the right product, price, promotion, placement and space allocation to drive business performance and seamless shopper experience online, in-store, social and mobile. Delivered on a scalable, SaaS-based platform, Revionics solutions offer real-time insights and dynamic decisions at speed, scale and frequency, while providing fast ROI. To learn how you can compete more profitably, please visit