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Retail Promotions Don’t Have to Fail: Changing Your Approach to Ensure Promotions Succeed

By Fabrizio Fantini • 13 Jun 2024

Promotions are a critical part of the retail strategy, yet many fail to deliver the expected results. The key to success lies not just in the execution but in a strategic approach to planning, optimizing, and learning from each promotion.

Over the last several weeks, we’ve explored discounting in a promo-saturated market, highlighted the importance of aligning pricing and discounting strategies, unraveled the complexities of markdowns versus promotions, and delved into the role of allocation and replenishment strategies in promotion success. Today, let’s consider a strategy that integrates insights from a recent Masterclass webinar on how data science is revolutionizing discounting performance to ensure your retail promotions succeed.

Understanding Market Dynamics and Promo Cadence

Understanding Market Dynamics and Promo Cadence

Understanding that the market dictates promotion cadence is crucial. In high/low market segments, regular promotions are expected by consumers. Diverging too far from your competitors in terms of promotional frequency can lead to a loss of market share. The focus should be on optimizing the promotions you have, not eliminating them.

For instance, if your competitors run promotions every month, doing so quarterly might alienate your customers. Instead, align your promo cadence with market expectations while ensuring each promotion is strategically planned and executed. This approach helps maintain your competitive edge and ensures customer expectations are met.

The Psychological Aspect of Promotions

Why-Retail _Promotions_Fail- When a Failed Promotion Is Really a Failure of Your Allocation_and_Replenishment_Strategy

Psychology plays a crucial role in the effectiveness of promotions. The perception of a discount can be as important as the discount itself. Deals, even artificial ones, reduce the pain of purchasing and can drive higher engagement and sales.

Consider a scenario where a product is always priced at $50 but is promoted as “50% off the original $100 price.” The perceived value and the psychological impact of the discount can significantly boost sales, even if the actual price hasn’t changed. Understanding and leveraging these psychological factors can make your promotions more appealing and effective.

Optimizing All Key Elements and Pricing Levers for Optimal Promotions

The Saturation Issue: Navigating Through the Noise

Ensuring the success of your promotions requires optimizing all key elements, including pricing, timing, product selection, and marketing channels. The perfect promotion involves more than just considering the percentage off; it’s about leveraging all available pricing levers and optimizing each component for a cohesive strategy. Optimization tools like Promo AI allow you to analyze and fine-tune each aspect, ensuring that all elements work together harmoniously.

The four pricing levers to ensure the right discounting strategy include:

  1. List Price: The initial price before any discounts. Setting a competitive list price is essential for attracting customers even before any promotions are applied.
  2. Product Range: The assortment of products included in the promotion. A well-chosen product range can maximize appeal and drive higher sales across different customer segments.
  3. Promo Intensity: The percentage of items offered at a discount. Managing promo intensity ensures that you offer enough discounted items to attract customers without undermining overall profitability.
  4. Promo Depth: The extent of the discount offered. Finding the right balance in promo depth is crucial to attract customers while maintaining healthy margins.

For instance, instead of offering a flat 20% discount, consider combining it with a buy-one-get-one-free (BOGO) offer or a loyalty points multiplier. This multifaceted approach ensures that all aspects of pricing strategy are utilized, leading to more effective and appealing promotions. By optimizing each element, you create a cohesive and compelling promotion that drives significant results.

The Power of AI and Machine Learning

The Power of AI and Machine Learning

Artificial intelligence (AI) and machine learning (ML) play a pivotal role in optimizing retail promotions. AI can help retailers become more responsive and precise in their promotional efforts. By integrating AI tools, retailers can automate decision-making processes, predict customer behavior, and optimize promotions in real-time. This enhances the effectiveness of promotions and saves time and resources.

Many things can be learned without repeating mistakes, making experimentation with AI exciting and safer. Prescriptive analytics allows for daily experimentation, and if AI makes a mistake, it’s part of the learning process. When AI fails, it means something new has been discovered, and the system can correct itself proactively.

For example, AI-driven tools can analyze vast amounts of data to identify which products are likely to appeal to specific customer segments. They can adjust prices dynamically based on demand and competition and predict the best times to launch promotions and the optimal discount rates to maximize sales without eroding profit margins. Leveraging these technologies allows retailers to stay ahead of the curve and create promotions that resonate more deeply with their target audiences. The good news is that working with AI makes mistakes less risky, damaging, and expensive.

Putting the Goal First: Building Back from the Desired Impact

Set the right goals

A prescriptive approach starts with a clear goal and builds the promotion strategy backward from the desired impact, as we discussed in our last blog. This method helps maintain focus on the ultimate objective, whether it’s increasing foot traffic, boosting sales of a particular product, or enhancing brand loyalty. Defining the end goal first ensures that promotions are more targeted and effective, leading to greater success.

If the goal is to increase foot traffic in physical stores, the promotion might include special in-store events, exclusive discounts, or limited-time offers that encourage customers to visit. If the aim is to boost sales of a new product, the strategy could involve targeted online ads, influencer partnerships, and product demos. Keeping the end goal in focus ensures that every aspect of the promotion aligns towards achieving that objective, making the promotion more coherent and impactful.

Retail promotions don’t have to fail. By understanding market dynamics, leveraging psychological insights, integrating AI, optimizing all key elements and pricing levers, and focusing on end goals, you can create promotions that not only meet but exceed your expectations. With these strategies, you can ensure that your retail promotions are successful, impactful, and continually improving.

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