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romotion Profitability for a Retailer

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P R O M O TI

O N

促销

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ContentsMarketing Modeling I

Promotion Profitability for a Retailer

DataMethodologyCorrelatesKey findings

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DATA >>



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DATA

• Weekly point-of-purchase scanner data for 2003

• CVS ExtraCare Loyalty program, 2 years panel data• Internal company records, et.

CVS

HOW CAN WE

EVALUATETHE EFFECTS OF

PROMOTION

Δ SALESΔ SALES = Promotion Sales – Baseline Sales

Gross Lift

Manufacturer V.S. Retailer

Switching

StockpilingStore net unit impact = Incremental Lift + Halo

= Gross lift – Switching – Stockpiling + Halo

Gross Lift = Unit sales of a item – baseline

• The number of weeks varies with the turnover• Seasonality of the item

Gross Lift

Consider two extreme situations

• Accounting for the gross lift from all promoted items

• Season• Store• Frist difference

Switching

Loyalty program

panel data

Estimate the stockpiling percentage for a category across stores

Stockpiling

Compare promotional buyers with nonpromotional buyers

1

2

Halo

• d goes from 1 to 4 for the health, beauty, edible products and general merchandise departments

• Separate halo effect for each department

• Deseasonalize and first difference

Store net unit impact = Gross lift – Switching – Stockpiling + Halo

Finally, net unit impact and net profit impact can be calculated:

= Gross lift (1– %Switching – %Stockpiling + %Halo)

Store net profit impact = Promotion sales – Base sales – Switching loss– Stockpiling loss+ Halo gain

Promotion Sales

Base Sales

Switching loss

Stockpiling loss

Halo gain

–

–

–

+

+

CORRELATES >>



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“We are not aware of any research that quantifies the net unit and net profit impact of promotion fora retailer and studies the correlates of that net impact.

--by the author

ConceptualFramework

Store net unit impact = Incremental Lift + Halo

= Gross lift – Switching – Stockpiling + Halo

Store net unit impact: incremental lift

Store net profit impact: the retailer’s promotion V.S. regular margin

KEY FINDINGS >>



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Key findings1

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There is a positive halo effect of promotion; for every unit of gross lift, .16 unit of some other product is purchased elsewhere in the store.

3

Despite the substantial net unit impact, more than half of CVS promotions are not profitable, because promotional margin is often significantly less than regular margin.

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5

Cross-store variation is a small component of total variation in net impact. Cross-category and cross-brand components are both significant, and the latter is particularly substantial in net profit impact.

Many promotion and brand correlates that are positively associated with net unit impact have a negative association with net profitimpact, revealing a difficult challenge for retailers.

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