Retail Promotion Management

A Specialty US Retailer Leverages Intelligent Promo Strategy to Strengthen its Fiscal Health

Adds $4.5 million to EBITDA Through Promo Optimization

Big Picture

Traditionally, marketing for brick-and-mortar retailers has been product-centric: advocating product benefits and driving footfall through promotions. However, the retail landscape has transformed significantly with physical stores paving way for complex, digital retailers, offering agile product and delivery solutions. Added to this changing paradigm is the entry and dramatic rise of Amazon, which has meant the following, for retailers:

  1. Having a deeper understanding of customer preferences, journey, and touchpoints
  2. Understanding different customer segments and devising corresponding marketing strategies
  3. Applying the most effective pricing strategies for driving deeper market penetration and maintaining customer loyalties
  4. Deploying multiple promotional tactics through the right channels and on the right platforms and
  5. Delivering overperformance in sales and ROI.

While identifying, creating and implementing promotion tactics, there are some considerations to achieving the best possible outcomes in ROAS (Return On Ad Spend), retaining a competitive edge, and ensuring a healthy long-term fiscal health. These key considerations for retailers are customer acquisition, retention and satisfaction.

With over 30% of retail promotions being ineffective, investing in promotions without a sound data- and analytics-driven decision can prove to be toxic to most retailers’ financial position.

Challenge

Product Affinity

The client is a billion-dollar specialty retailer based in the US. The client ran promotions to the tune of 650K per month across its 3500 SKUs up until June 2018. The challenge for the client was identifying impactful and revenue generating promotion opportunities, significantly boosting responsiveness to customer preferences for appropriate promotion campaigns, and eliminating ineffective and toxic promotions – all while retaining a significant competitive edge.

The client also wanted to optimize promotions and establish an effective promotion management system to stay relevant, efficient, and drive greater value through their offerings.Of the several promotions the client ran, a high number were margin negative. Also, the client’s category management team leveraged minimal data analysis in their decision-making process for framing promotions. The client was seeking a comprehensive solution to address its challenges in promotion management and improve its flagging financial health.

Solution

It was important to employ a data-analysis and decision-support platform that could provide decision makers with deeper insights into existing challenges, and enable them to deploy long-term, effective promotion strategies that serve as a cornerstone of targeted revenue generation goals. Impact Analytics’s PromoSmart application – an intelligent promo strategy was the perfect solution for addressing the client’s challenges. The application supported category managers with the right digital and data capabilities to deliver corresponding promotions. The application’s data-analysis capability, backed by advanced AI algorithms and statistical models enabled category managers to:
  • Understand the impact of past promotions – What worked and what did not
  • Understand the peripheral impact of past promotions – Other products and sales numbers that were affected (cannibalization and halo effect) while promos for one product were being run,
  • Simulate future promotions using advanced data models and
  • Evolve a structure for framing promotions – Making governance, design and execution easy and seamless.

Insights

Impact Analytic’s PromoSmart application enabled the client to glean the following business-critical and value-generating insights:

Insider Insight
Clear Promotion Objective Define clear objectives of the promotions that were being run including but not limited to customer acquisition, customer retention and increasing off–season sales.
Product Selection Identify products that needed to be promoted and best-selling products that do not require promotional efforts.
Timing Schedule promotions for various product categories at the most relevant time and within an appropriate timeframe.
Target Audience Identify the right segments of customers for the right promotions to drive increased ROAS.
Communication Channel Identify the most effective channel of communication to deliver segmented and targeted promotions to reach the intended audience at optimum cost.

Outcome

The outcomes of PromoSmart application deployment can be delineated as follows:
  • Identification and elimination of toxic promos – $2 million were saved by mitigating negative margin promos.
  • Increase of margins from improved promo design – $2 million were added to revenue.
  • Savings on marketing cost – $0.5 million.
  • Net Savings – $4.5 million were added to EBITDA.

Conclusion

PromoSmart, the comprehensive, data-backed and analytics-led powerhouse from Impact Analytics helped the client garner a higher ROI from all the promotional campaigns leading to an addition of $4.5 million to their bottom line.