We do a lot of work helping retailers measure the real effectiveness of their promotions. I’m sure you’ve passed by storefronts and seen those 50% off sale signs proudly displayed or the famous BOGO (Buy One, Get One). And who can forget the madness that is Black Friday?
When working with clients, the first question I’ll ask is “what’s the strategy or purpose of this individual promotion?” Nine times out of ten I receive this answer: to drive revenue.
As a data scientist, that’s a frustrating answer. It’s like asking your teenage nephew “what do you want to be when you grow up?” and him insist “Successful!” But, as Yogi Berra said, “if you don’t know where you’re going, you’ll end up someplace else.”
In retail, when you promote, you must promote with purpose (and purpose cannot be ‘drive revenue’). Think of this way:
If you are a retailer, the goals of the promotion should be to bring specific traffic into the store, get them to go down a new aisle, or get them to add a new product to their basket.
If you’re a manufacturer, your goals should be to encourage trial among a specific set of customers or increase consumption.
The key for both is ‘specific customers.’
If the goal of a promotion is to drive traffic, your success metric must focus on the number of unexpected trips customers made to that location. You should understand what type of customers it brought in and what else they purchased. Target is excellent at featuring traffic drivers in their weekly ads, then putting basket builders and impulse items on their end-cap displays.
If the goal of the promotion is to get trial among a new segment of customers, success should be measured around the number of customers trying the product for the first time then following them into the future to see if they came back and made a repeat purchase. For example, I was having a conversation with West Marine and they are moving into technical apparel – they’re doing a masterful job promoting with purpose to get awareness and trial of their new product lines.
If you’re trying to increase consumption, then you must have a detailed understanding of the average purchase quantity and the repurchase frequency. The classic example is yogurt – if your target segment is buying 5 per week and you want to get them to 7, then you should design your promotion to accomplish this – and your success metrics should focus on how well you accomplished it. 4 for $4 works against you, and 20% off is just a blunt instrument.
Here’s what not to do: 20% off everything! You’ll flood your stores with cherry-pickers, and what’s worse, it trains your full-price customers to wait for promotions. I used to buy my Banana Republic jeans at full price until they trained me to wait for the promotions.
American philosopher Wayne Dyer once said, “Our intention creates our reality.” To truly understand your organization’s success, you must dig deeper and create purposeful measurements.