For organisations looking to shift inventory and entice customers away from competitors, snap sales and price drops are often a default solution. Yet, as most retailers and manufacturers are fully aware, this can have a significant impact on profit margins.
So how can organisations compete in markets where continuous sales and price drops all fight for customers' attention - without taking an inevitable hit on their bottom line?
A proven alternative is redemption-based risk-managed sales promotions which are an increasingly popular and effective way for manufacturers and retailers to get their voice heard above the noise.
Rather than continually defaulting to price drops, these risk-free deals are ideally-suited to underpin attention-grabbing creative campaigns because they offer built-in protection against the risk of over-redemption. This helps to guarantee shoppers a great deal and gives brands a profitable outcome based on pre-determined fixed costs.
Why risk-managed promotions are more profitable than price drops
Like any successful sales promotion, risk-managed deals are all about successfully triggering an impulse purchase or incentivising a shopper to buy now, rather than wait until later or look elsewhere.
Built around a brand or retailer's commercial priorities, they recognise that the major factor influencing whether a customer buys will be the deal that is available on the day. If a store or a manufacturer has a significant cashback or trade-in offer to put under the nose of shoppers browsing or comparing similar products, it will help to tip the balance in their favour and secure the sale.
Unlike a price drop, where the discount is automatically applied at the point of sale and the retailer gets no commitment from the shopper, a risk-managed sales promotion requires the consumer to engage further and take some sort of action. This might include, for example, trading in an old product for a discount, or applying for cashback on a product they have already purchased.
There is still room for creativity by, for example, linking the level of cashback the customer gets to the performance of the buyer's chosen sports team - especially when it is linked to a big event like a World Cup. The outcome of the offer can be expertly calculated, based on historical data about consumer behaviour, team performance and the experience of how similar promotions work in the market.
Vitally, this means the return they see will always be more profitable and predictable than a price drop and introduces fun and a sense of reward into the purchase process.
Guaranteed risk-free results, customer satisfaction and long-term brand awareness
No brand can afford to underestimate what it costs a business if a sales promotion is over-subscribed or to fails to meet customer expectations.
That is why risk-managed sales promotions are underpinned by the clinically effective combination of predictive analytics and specialist underwriting. This powerful duo will not only predict the success of the campaign against the business objectives but also guarantee that, because the promotion is underwritten, it won't backfire or - worse still - leave the business out of pocket.
Good customer service is also essential so that shoppers' expectations are fully met. From a fulfilment perspective, this means investing time and money in high-quality systems and robust security processes, or using a promoter with the relevant experience, investment and certification.
By ensuring everything runs smoothly, a good and memorable risk-managed sales promotion will guarantee the impact is commercially preferable every time, ensuring consumers have sufficient confidence and trust to come back and buy from the brand again in future.
By Andrew Marwick, managing director at Opia.
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