While promotions have long been a central part of marketing strategy, the increasing availability of customer data and the proliferation of digital-enabled contact channels are revolutionising marketers’ ability to efficiently send personalised offers and deliver them in innovative ways. As marketers leverage new technologies to deliver an increasing number of offers, it’s more crucial than ever to get promotions right – or risk destroying value.
While most retailers already analyse promotions, the truth is that these analyses often falsely deem promotional strategies successful. When evaluating promotions, retailers commonly fall prey to two mistakes: measuring success based on redemption rates or item sales rather than the actual incremental financial impact, and failing to examine offers through an omnichannel lens. To truly measure the incremental impact across channels, retailers must embrace rapid and statistically robust experimentation.
A growing number of retailers are adopting new technologies, including beacons (in-store devices that transmit messages directly to mobile device), mobile apps, and POP digital signage. Urban Outfitters has invested in beacons to ping customers with offers at the store entrance, fitting room, and checkout line. Apparel retailer Ted Baker installed beacon technology in its mannequins that will send information about the displayed product to mobile devices. GameStop’s new program will send messages to their ‘PowerUp’ loyalty members when they are in the vicinity of a store and enable them to use their mobile app to interact with “hot spots” and digital signage while in the store. These technological advancements enable easier and cheaper customisation of offers in an environment where customers are increasingly looking for personalisation. Similarly, digital initiatives provide the opportunity for retailers to deliver higher volumes of personalised offers and messaging (with less upfront cost than through traditional direct mail and printed coupons), and communicate directly with the consumer as they shop. However, more customer interactions don’t necessarily mean more profits.
As retailers deploy an increasing amount of offers, evaluating which ones actually generate incremental profits and which don’t is paramount. Often, retailers make the mistake of emphasising redemption rate as their primary success metric, but this focus is misleading. In fact, as redemptions of a particular offer rise, a retailer risks giving away more money since they may be subsidising existing customer behavior (i.e., giving away money to customers who would have paid full price anyway). We call this the promotional cone of uncertainty (see below).
It is simply impossible to determine what would happen had they not sent the offer. How many of the customers would have redeemed the promotion anyway and how many are truly incremental? For instance, an online BOGO promotion may have a very high redemption rate and appear to increase online sales, but the majority of the redemptions may actually be from customers who would have purchased the two items anyway. Thus, the promotion would simply subsidise their purchase (or shift purchase channels) without actually resulting in any incremental profits.
To measure the incremental profits generated by a promotion, retailers need to understand how customers would have behaved had they not been exposed to the offer. By comparing stores or customers that receive an offer to a well-matched, representative group of control stores or customers, organisations can isolate the financial impact of every promotion. Consider a scenario where an apparel retailer tests a beacon-triggered push notification among a subset of its loyalty customers, offering $10 off a particular item when they walk by its display. Test results could reveal that, despite high redemption of the promotion it only generates incremental sales for certain types of customers: those who usually purchase discounted items and younger customers. However, for other customers it simply erodes margin as they were going to purchase the dress anyway. By only measuring redemption rate, the retailer would have considered this promotion successful and lost significant profit by rolling it out more broadly.
Recently there’s been a big push for retailers to develop their omnichannel capabilities, but less of an emphasis on the importance of conducting omnichannel analysis. As online and mobile become a more significant portion of sales, retailers need to be cognisant of how their interactions in one channel affect customer behaviour across channels. For example, while an online offer may generate an increase in online sales, it could simply shift purchases from brick-and-mortar locations.
Insights generated from testing enable retailers to optimise the distribution and effectiveness of their offers across channels. And while many retailers understand the importance of testing, fewer have the ability to generate maximum insights from each individual initiative. By employing a rigorous Test & Learn process that is integrated into the evaluation of each promotion, retailers can continuously refine their strategies and deliver personalised offers that will not only resonate with customers, but lead them to spend more than they otherwise would.
By Jonathan Marek, Senior Vice President at Applied Predictive Technologies (APT).
GDPR Summit Series is a global series of GDPR events which will help marketers to prepare to meet the requirements of the GDPR ahead of May 2018 and beyond. Further information and conference details are available at http://www.gdprsummit.london/
comments powered by Disqus