retail promotions retailing mktg 6211 professor edward fox cox school of business/smu

Retail PromotionsRetail Promotions

RetailingMKTG 6211

Professor Edward Fox

Cox School of Business/SMU

Communications and Promotion

Source: Levy/Weitz

Vendor

Long-Term Objectives

Product-Focused

National

Specific product

Retailer

Short-term Objectives

Category/Store-Focused

Local

Assortment of

merchandise

Communications and Promotion RETAILER vs VENDOR

Adapted from Levy/Weitz

How Important Are Promotional Sales for Retailers?

For a traditional high-low packaged goods retailer, the sales from items in the ad represent approximately 25% of weekly grocery sales

Roughly 100 items out of many thousand are therefore responsible for one-quarter of a store’s volume

Patronage Rewards

Patronage RewardsShopper

Cards

Patronage Rewards

Patronage RewardsRetailer

Coupons

Retailer Promotions

Short-Term Incentives Offered by the Retailer that Lead to Immediate Purchase

DisplaysDisplays

Price-CutsPrice-Cuts

Retailer-Promotion Objectives

Retailer-Promotion Tools

Generate Store TrafficGenerate Store Traffic

Improve the Retailer’s Price Image

Improve the Retailer’s Price Image

Generate Profits from Consumers and Manufacturers

Generate Profits from Consumers and Manufacturers

Reinforce the Store’s Positioning and Image

Reinforce the Store’s Positioning and Image

Feature Advertising

Feature Advertising

Retailer PromotionsOBJECTIVES

Promotions are used to:Generate demand

Draw traffic into the storeDraw traffic into the store Improve the price image of the retailer

ProfitabilitySell incremental units of the promoted product, while reducing

the cost of goods

StrategyReinforce the retailer’s positioning in the market (e.g., price

leader, variety leader)

Retailer promotions also generate excitement and Retailer promotions also generate excitement and provide customers with a reason to visit more often provide customers with a reason to visit more often

Retailer PromotionsOBJECTIVES

Purpose of Promotions Relative Importance

Store traffic 50%

Price image 20%

Profitability 20%

Strategy/Positioning 10%8.

Source: Center for Retail Management, Northwestern University

Relative importance of promotional objectives

Retailer Promotion ObjectivesSTORE TRAFFIC

The retailer has a better “feel” for which items and promotions might generate traffic than for the contributions of promotions to price image and store positioning

Store traffic generates immediate results for the retailer, particularly in the promoted category

However, buyers/category managers may believe that nearly all categories can generate traffic – they can’t


Retailer Promotion ObjectivesSTORE TRAFFIC

Promotions affect store traffic by:Generating more shopping tripsCausing consumers to switch storesAffecting price image

Increasing store loyalty

A caution, however... If categories are overpromoted (too often) and over

discounted (too low)

Consumers learn to buy only on promotionConsumers learn to buy only on promotion Promotions become unprofitablePromotions become unprofitable Total category profitability declinesTotal category profitability declines

Retailer Promotion ToolsPRICE DISCOUNTS

“N-for” and “buy one, get one” promotionsCause multiple units to be purchased

Cross bundling - with complementary itemsMay reduce the item’s volume, but increases total revenue and

(generally) profits

Price points (end-in-9)Avoid pricing promotions at 8s or 7s because they reduce

profits without gaining any additional sales or price impression


Retailer Promotion ToolsFEATURE ADS

Ad Sizes

AAA B C

Ads on the front and back pages of the retailers’ Ads on the front and back pages of the retailers’ flyers, or Free Standing Inserts (FSIs), are flyers, or Free Standing Inserts (FSIs), are especially likely to be noticedespecially likely to be noticed

Retailer Promotion ToolsFEATURE ADS

AA ads should be used for traffic generation and price image

A ads should be used for price image, as well as traffic generation and profitabilityThese three objectives should be balanced in any given ad

B ads and C ads (liners) should be used to improve category profits


Improve Category

Profits

Ad Size Continuum

Generate Traffic Large Small

Sales Promotion ToolsFEATURE ADS

The market share of the brand also influences the size of the ad that should be run

Larger brands are much more likely to draw traffic and make a price impression than smaller brands

In general, private label brands should be advertised less often, though…Some retailers differentiate based on private label (e.g.,

Sears)Some retailers run private label events

In general, larger brands should be used in AA- and In general, larger brands should be used in AA- and A-size adsA-size ads


Retailer Promotion ToolsMERCHANDISING DISPLAYS

Displays should be used to:

Encourage customers to choose a sale item

Generate unplanned purchases

Expose customers to sale prices

Increase profits

Increase sales and profits

Improve price image

Displays influence customer behavior by exposing Displays influence customer behavior by exposing shoppers to the product, and increasing the shoppers to the product, and increasing the probability of considerationprobability of consideration

Adapted from Center for Retail Management, Northwestern University


Displays can also be used to sell related, or complementary itemsWingsAdjacent space on the end-of-aisle, table or other fixture

This may encourage add-on sales, and so increase the profitability of a display

Wings with complementary, or related items, Wings with complementary, or related items, should be a key element in the design of displaysshould be a key element in the design of displays



• Often, however, displays are used primarily to Often, however, displays are used primarily to reduce labor requirementsreduce labor requirements and and avoid out-of-avoid out-of-stocksstocks


Retailer Promotion Tools COUPONS

Entitle the Holder to a Reduced Price or Percentage OffManufacturer- or Retailer-SponsoredObjectives

Induce customer to try products for first timeConvert first time buyers to regular usersEncourage large purchases Increase usageProtect market share

But…Since coupons encourage larger purchases, may be stealing

sales from futureCoupons may annoy, alienate, and confuse customers

Retailer Promotion ToolsCOUPONS

In-ad coupons can be used to increase profits (if suppliers pay for the coupon)

By reducing the number of consumers who get the deep discount:increases average promotional margingenerally preserves the price impression of the deeply

discounted priceCoupons may also be used to limit the purchase

quantity of consumers at the deeply discounted price


Retailer Promotion ToolsSHOPPER CARDS

Shopper cards are a Customer Relationship Management (CRM) tool designed to increase customer loyalty and gather data about customers

Retailers gather customer data from:Frequent shopper or shopper

loyalty cardsMembership cardsStore credit cards


Shopper cards are used to:Reward customers based on purchase amountConfer special privileges and special treatment to the

best customers Involve customersPersonalize/customize transactions


Shopper cards are predicated on the value of knowing value of knowing customer purchase historiescustomer purchase histories

To create incentives for shoppers to give retailers their purchase histories and related information, retailers may offer:low everyday prices (e.g., Sam’s Club, Costco)special discounts (e.g., Kroger, JCPenney,

Nordstrom)special incentives for purchase volume over time

(e.g., Neiman Marcus, American Airlines, Java City)

How Retailer Promotions Affect Category Purchase Behavior

Expand category volumeCause brand switching

CannibalizationChange purchase timingCause stockpiling

How Retailer Promotions Affect Category Purchase Behavior - Example

For beer…

Category expansion - Yes

Brand switching - Yes

Purchase acceleration - Yes, but only if the deal is very good (due to the high frequency of promotions)

Stockpiling - Yes, but again only if the deal is very good (due to the high frequency of promotions)

retail promotions retailing mktg 6211 professor edward fox cox school of business/smu

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