Promotions are an important tool to attract customers and increase sales. Realizing this, retailers spend a lot of time and money on organizing and conducting them. But, unfortunately, according to Symphony RetailAI, up to 40% of promotional events do not pay off. Why is this happening? And how does promo forecasting help to deal with this problem? We are talking with Anton Tsemerov, forecasting specialist and senior ERP consultant at Consulting for Retail, Atriny Group.
What affects the effectiveness of promotion
There are a number of factors that limit the effectiveness of a promotion. Among them:
- making decisions about conducting new activities based on intuitive guesses and assumptions;
- influence of suppliers on solutions;
- spontaneity of carrying out (irregularity of promotional activities);
- supply chain disruptions;
- limited offers (promotional activities are not available for all «customer needs»);
- Margin shrinkage caused by lack of activity support from suppliers;
- lack of control over losses caused by excessive purchase of goods for promotion;
- large volumes of data that need to be processed and analyzed;
- retailers and suppliers lack a coherent system that links together all the links of one chain: from data and forecasting to reporting and analytics.
All these circumstances lead to the fact that promotions do not bring the expected results to the retailer. What should be paid attention to in order for the action to be successful? Read more.
Where to begin?
Forecasting is very important in promo optimization.
However, before proceeding directly to forecasting, some “preparatory steps” should be taken that affect the effectiveness of the entire promo process.
First, you need to create a promo calendar that takes into account all stages of the promotion. The presence of such a calendar helps to avoid intersections of promos in one category of different products. It can be generated in any format convenient for the company, be it Excel, Outlook, or using a specialized solution.
Secondly, you should pay attention to the synchronization of the promo process.
So, in addition to internal preparation for promotions (creating classic mailing lists, leaflets, advertising in the media, and other events), it is necessary to prepare suppliers, and personnel for the promotion and coordinate all processes and departments that will be involved in it. Ideally, in order to synchronize the participation of representatives of all involved departments in the event, meetings of the promotional committee (promotion committee) should be organized on a regular basis. Despite the fact that this is a rather laborious process, it is necessary to strive for such activities.
Promotion stages
The promo management process can be divided into 4 key and interrelated stages:
- Analysis
- Planning and forecasting
- Carrying out(holding)
- Exit
Consider them and pay attention to some important factors on which the success of the promotion depends.
1. Analysis and evaluation of the effectiveness of previous promotions
Before the start of any promotion, it is necessary to analyze the promotions that were previously carried out in this category, their results, and assess whether they have reached their targets.
Having this data available in the form of a set of reports displayed in Excel or a BI system, you can identify products that have had a positive effect in terms of promotion, as well as products with negative indicators, in order to analyze and avoid mistakes in the future.
2. Forecasting a new promotion: experience, intuition or science
Based on the data of previous promotional campaigns, you can start planning and forecasting subsequent promotional events.
Today, many retailers choose a product for promotion based on previous sales experience, expert decision of managers and suggestions from the supplier. However, consumer preferences are subject to change. Especially now, when the choice of the client is influenced by numerous social, economic and political factors. Therefore, in the current conditions, making decisions based only on past experience and intuition is not always effective.
The human mind may well analyze and weigh several promotion scenarios. What if there are more than a dozen? Will a manager, guided only by his inner instinct and previous experience, be able to accurately assess the effectiveness of historical promos, determine the best product for corporatization, the best period for its sale, the promo mechanics and its impact on the buyer? Unlikely.
The human mind may well analyze and weigh several promotion scenarios. What if there are more than a dozen? Will a manager, guided only by his inner instinct and previous experience, be able to accurately assess the effectiveness of historical promos, determine the best product for corporatization, the best period for its sale, the promo mechanics and its impact on the buyer? Unlikely.
Demand forecasting for both regular and promotional products using modern solutions with built-in artificial intelligence (Artificial Intelligence — AI) can reduce inventory by 35% and 45% wastage.
The promo is an integral part of the overall forecasting, along with other factors that affect the forecast, such as seasonality, special weeks, etc.
At the same time, promotion is also the most significant factor of influence, since 10–15% of goods from the entire assortment can participate in the promotion at the same time. At the same time, in each category where the promotion is carried out, there may be different goals, which leads to a different impact on the overall forecasting.
When forecasting, it is important to take into account not only the direct impact of the promotion on regular sales (historical sales data), but also the indirect impact, in particular, demand switching and cannibalization, i.e. how did the promotion affect the sales of nearby goods
For example, with a regular forecasting, a retail outlet sells 100,000 bottles of mineral water 0.5 Brand 1 at a price of UAH 12 per bottle. We decided to hold a promo and expect that sales will amount to 150,000 bottles at a price of 9.90 UAH. At the same time, it should be taken into account that sales of mineral water 0.5 of Brands 2 and 3 may fall due to sales of Brand 1.
It is also possible that a domino effect occurs when an attractive price for one (key) product stimulates the consumer to buy other (related) items, for example, beer and snacks.
The choice of promo mechanics
This is a very important step towards achieving the planned promotional goals. After all, the right mechanics allow you to increase market share, increase sales and keep it.
Mechanics can be different: discounts, 1+1=3, cross-promotion, tastings, samples and others. But all of them should be transparent and understandable.
Depending on the format of the network, the methodology for conducting promotions varies. For example, hypermarkets may use additional display areas with a larger capacity (e.g. pallet racks, additional promotional equipment), which will encourage the customer to make an unplanned purchase. Also, in hypermarkets, the duration of the promotion may be more than 2 weeks.
In supermarkets with limited space, they usually use additional, end racks, as well as the main display area. Usually, promotions in supermarkets last up to 2 weeks (except for thematic and seasonal promotions). This duration is due to the fact that after a couple of first visits, buyers no longer respond to the offer. For supermarkets, price-based promotions are more common, as well as aggressive promotions aimed at attracting new customers by providing deep discounts.
In hard discounters, price promotion is less effective. Here, it is often more appropriate to use discounts on the volume of purchases for individual groups of goods. For example, 5% discount when buying a whole package / box.
Modern software based on artificial intelligence (AI, AI) and machine learning (ML) allows you to create accurate predictions that generate millions of data models. Predictions can be created for combinations of mechanics that have never been run together before.
After completing the forecasting, you can proceed to the next step — conducting a promotion.
3. Carrying out a promotion
This is one of the most difficult stages of the whole process, as it is important not only to ensure the delivery of goods to the store, but also to monitor the status or results of the promotion on a daily basis.
As in the previous stages, the coordinated work of the departments participating in the campaign is important at this stage.
The marketing department should ensure timely advertising, which, as a rule, begins well before the start of the promotion. The purchasing department needs to quickly work with suppliers, deliver and distribute goods between stores by the start date of the promotion. And the employees of the operational department by this date should have time to put the goods in the store.
A fairly common and correct approach is to order not the entire volume of goods at once, but some part of it (for example, 30-50% depending on the category) for the first week of promo.
After analyzing sales for the first few days of the promotion, additional orders of goods are carried out. Based on this analysis, during the second order, there may be an increase or decrease in the volume of ordered products, depending on the indicators of the first week.
4. Exit the promotion
This is the final stage of the promo process, passing to which it is necessary to take into account the following features:
- the timing of the start of the exit phase is determined individually in each individual case and depends on the specifics of the product, the logistics for its redistribution and other factors. Sometimes the exit phase can start already in the midst of a promotional offer;
- tracking sales dynamics allows you to timely redistribute goods from stores where they are not in demand to points where their sales are more active.
Properly carried out optimization of the promotional process activates a 2-3x increase in the increase in the volume of promotional sales.
AI-driven prediction – an opportunity for truly competitive promotions
So, in order to successfully run a promotion, you need to take into account many factors and variables, as well as understand how each of these factors interacts with others. Which of them can work in symbiosis, and which ones can conflict with each other.
Accounting for all the nuances that arise when evaluating, planning and conducting promotions manually does not meet the requirements and technical capabilities of today. Therefore, many retailers are choosing a flexible approach to promotion that allows them to combine their experience and knowledge with the power of artificial intelligence and machine learning to improve forecasting accuracy and eliminate ineffective promotions.
The forecasting system from C4R supports the full cycle of promotional activity planning: from making strategic decisions to support and analytics during the campaign.
With the help of the forecasting system, you get the opportunity:
- Measure the effectiveness of historical promos, which allows you to determine the optimal mechanics and predict an increase in demand.
- Carry out automatic selection of goods and promotional mechanics for maximum profit.
- View the elasticity of demand in the promo depending on the mechanics, period and type of promo. Decisions about the size of the proposed discount will become more balanced.
- Track consumer reaction, which helps to have a complete understanding of the direct and indirect effects of the promo on sales.
- Have interactive reporting. Analytics and monitoring of indicators during a promotion help to adequately assess its effectiveness, and, if necessary, make prompt decisions and make adjustments. The system adapts to the current needs of the business and displays indicators that are important to you.
- Forecasting sales during the promo period with an accuracy of 60-85% depending on the quality and history of the data.