Retail Promotions

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Retailing MKTG 6211
Retail Promotions
Professor Edward Fox Cox School of Business/SMU
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Communications and Promotion
Source Levy/Weitz
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Communications and Promotion RETAILER vs VENDOR

• Vendor
• Long-Term Objectives
• Product-Focused
• National
• Specific product

• Retailer
• Short-term Objectives
• Category/Store-Focused
• Local
• Assortment of merchandise

Adapted from Levy/Weitz
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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
  stores volume

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Retailer Promotions

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

Retailer-Promotion Tools
Retailer-Promotion Objectives
Feature Advertising
Generate Store Traffic
Improve the Retailers Price Image
Price-Cuts
Generate Profits from Consumers and Manufacturers
Displays
Reinforce the Stores Positioning and Image
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Retailer PromotionsOBJECTIVES

• Promotions are used to
• Generate demand
• Draw traffic into the store
• Improve the price image of the retailer
• Profitability
• Sell incremental units of the promoted product,
  while reducing the cost of goods
• Strategy
• Reinforce the retailers positioning in the
  market (e.g., price leader, variety leader)

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

• Relative importance of promotional objectives

Source Center for Retail Management,
Northwestern University
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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 cant

Source Center for Retail Management,
Northwestern University
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Retailer Promotion ObjectivesSTORE TRAFFIC

• Promotions affect store traffic by
• Generating more shopping trips
• Causing consumers to switch stores
• Affecting 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 promotion
• Promotions become unprofitable
• Total category profitability declines

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Retailer Promotion ToolsPRICE DISCOUNTS

• N-for and buy one, get one promotions
• Cause multiple units to be purchased
• Cross bundling - with complementary items
• May reduce the items 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

Source Center for Retail Management,
Northwestern University
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Retailer Promotion ToolsFEATURE ADS

• Ad Sizes

AA
A
B
C
Ads on the front and back pages of the retailers
flyers, or Free Standing Inserts (FSIs), are
especially likely to be noticed
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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 profitability
• These three objectives should be balanced in any
  given ad
• B ads and C ads (liners) should be used to
  improve category profits

Ad Size Continuum
Improve Category Profits
Generate Traffic
Large
Small
Source Center for Retail Management,
Northwestern University
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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 A-size ads
Source Center for Retail Management,
Northwestern University
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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
shoppers to the product, and increasing the
probability of consideration
Adapted from Center for Retail Management,
Northwestern University
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Retailer Promotion ToolsMERCHANDISING DISPLAYS

• Displays can also be used to sell related, or
  complementary items
• Wings
• Adjacent 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,
should be a key element in the design of displays
Adapted from Center for Retail Management,
Northwestern University
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Retailer Promotion ToolsMERCHANDISING DISPLAYS

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

Adapted from Center for Retail Management,
Northwestern University
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Retailer Promotion Tools COUPONS

• Entitle the Holder to a Reduced Price or
  Percentage Off
• Manufacturer- or Retailer-Sponsored
• Objectives
• Induce customer to try products for first time
• Convert first time buyers to regular users
• Encourage large purchases
• Increase usage
• Protect market share
• But
• Since coupons encourage larger purchases, may be
  stealing sales from future
• Coupons may annoy, alienate, and confuse customers

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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 margin
• generally preserves the price impression of the
  deeply discounted price
• Coupons may also be used to limit the purchase
  quantity of consumers at the deeply discounted
  price

Adapted from Center for Retail Management,
Northwestern University
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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 cards
• Membership cards
• Store credit cards

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Retailer Promotion ToolsSHOPPER CARDS

• Shopper cards are used to
• Reward customers based on purchase amount
• Confer special privileges and special treatment
  to the best customers
• Involve customers
• Personalize/customize transactions

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Retailer Promotion ToolsSHOPPER CARDS

• Shopper cards are predicated on the value of
  knowing customer purchase histories
• To create incentives for shoppers to give
  retailers their purchase histories and related
  information, retailers may offer
• low everyday prices (e.g., Sams Club, Costco)
• special discounts (e.g., Kroger, JCPenney,
  Nordstrom)
• special incentives for purchase volume over time
  (e.g., Neiman Marcus, American Airlines, Java
  City)

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How Retailer Promotions Affect Category Purchase
Behavior

• Expand category volume
• Cause brand switching
• Cannibalization
• Change purchase timing
• Cause stockpiling

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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)