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End-to-End Promotions: An Essential Capability for Savvy Retailers

If you are like most retailers, your promotions simply aren’t performing like they once did. Some promotions may even generate undesirable outcomes with some your shoppers. Many retailers are challenged to even know if their promotions are effective because the systems and processes surrounding promotions are disparate or broken.

In certain segments of retail, at least 50% of promotions can be defined as ineffective, because they don’t meet the objectives of driving traffic, revenue, profit, or increased basket size. A bad promotion can cannibalize revenue, profit, and unit volume of one or more other items. Bad promotions encourage poor shopper behaviors like cherry picking, pantry loading, and offer stacking, often with your least profitable shoppers.

There are several reasons why retailers often struggle with ineffective promotions:

  1. Vendor-led Promotions: Retailers seem to be addicted to vendor trade funds (allowances, rebates, etc.), even those that sponsor ineffective promotions. It’s not uncommon for some of these trade fund allocations to be recurring and structured in ways that benefit the supplier, not the retailer. In other words, they run every year at the same time.
  2. Gut over data: Retailers continue to depend on gut instinct instead of using predictive analytics when determining what and when to promote, and at what discount.
  3. Manual approach: It’s complicated enough to anticipate the benefits or consequences of a promotion on a given sale item. But it’s nearly impossible to anticipate the cross-category and total basket effects that will occur if a given item or line is promoted, without the help of AI and autonomous technologies. Will the sale price of the item positively influence the purchase of more profitable items? Or, will it cannibalize more profitable items?
  4. Legacy systems: Systems used by most retailers to manage end-to-end promotions are often archaic, disparate, hard to use, and they fail to deliver actionable insights leading up to the promotion, post event, or both.  This leads some retailers to question the value of those systems and it becomes easier to circumvent these systems, rather than attempt to use them.
  5. Limited measurement: Post-event reviews on completed promotions are too frequently superficial, lacking details that include key retailer success metrics such as competitive promotion impacts, category and basket impacts, and other factors. For example, promotions may seem effective from a single item or category point of view, but impact at the individual shopper and total store levels can’t be determined. Identifying ineffective promotions is difficult and having an inaccurate understanding of which promotion are effective can lead to false assumptions that tend to be repeated. 

As they say, “the only constant is change.” Underpinning the aforementioned challenges are the seismic changes in consumer behavior, technology, and the market surrounding promotions, including:

  1. Traditional, print-centric ads are giving way to digital circulars. While there will always be a role for mass promotions, making shoppers aware of what is on sale this week depends on new multi-channel techniques. Today’s engagement techniques are increasingly digital with email, SMS, and social channels gaining favor.
  2. Long-term temporary price reductions (TPRs) are being digitally transformed as well. As Covid rages on, a growing base of shoppers are leveraging eCommerce and foregoing the brick-and-mortar experience.  Consequently, they may not see shelf tags or end cap displays.
  3. Shoppers increasingly expect more personalized experiences that are valuable and relevant.  Some retailers may boast thousands of concurrent promotions in any given week, but the typical shopper wants their favorite retailers to understand what they want and need. Promoting steaks to vegetarians or promoting cat food to a dog person will not win trips or preference.
  4. Although most mass promotions continue to run in weekly cycles (if not longer), today’s promotions are increasingly dynamic. The concept of promoting over shorter intervals – such as a one-day sale or even a two-hour sale on any given day – are far more common in today’s digital world and promotes a sense of urgency with the shopper.

With these trends exacerbating the challenges highlighted above, old systems, processes, and techniques, must give way to new approaches. Both suppliers and retailers alike can no longer afford to struggle with ineffective promotions that suck up valuable resources and don’t generate the expected results, only to fail. What if bad promotions could be avoided altogether? And, what if executing great promotions was less burdensome?

Top retailers are re-thinking their approach and the systems they use for promotions. The emergence of holistic, end-to-end promotion solutions, powered by artificial intelligence and unified data, have the potential to change the game.

A modern end-to-end promotion platform should include:

Powered by AI, these components deliver a full array of highly accurate diagnostic, predictive and prescriptive analytics. Armed with these fully integrated, end-to-end capabilities, retailers can expect to drive significant performance gains – up to 12% revenue increases and up to 20% margin gains on promoted items.

Supplier collaboration and supplier reconciliation are important capabilities that are addressed in a later section. Now, let’s look at the other critical capabilities and processes that need to occur between supplier collaboration and reconciliation for profitable promotions. Without a sophisticated tool, I’d argue that the manual work involved to do this today at scale is mind-boggling, if not humanly impossible.

Promotion Planning

  • Centralize the creation, amendment, and analysis of promotions and offers
  • Conduct AI-powered, “what if” scenarios to perfect the promotion planning process and ensure that promotions meet campaign and business goals
  • Define and capture vendor sponsorship (if applicable) types and details, and financial impact
  • Ability to forecast financial results for multiple promotions and categories over the promotion timeframe
  • On-demand, visual representation of promotional history for future planning

Promotion Forecasting

  • Accurate promotional forecasts including cannibalization, halo and cross-category affects 
  • Predict incremental category and item lift from the promotion
  • Understand cannibalization effects at the Brand level down to the SKU level
  • Identify cross-category affinity relationships across items
  • Model, understand and tune the promotion with a data-driven, AI powered approach
  • Automatically recognize poor performing promotions and provide immediate feedback for improvement

Promotion Recommendation

Receive prescriptive recommendations on…

  • What should you promote?
  • How should you promote?
  • When should you promote?
  • What offer or discount level will generate the most ideal shopper response?
  • Where can vendor support be leveraged and to what extent?

Promotion Optimization

  • Automated recommendations across the promotion plan, executed with data-driven insights from shopper demand signals to optimize promotions across an entire event or campaign
  • Leverage predictive analytics that forecast how shoppers will respond to optimized promotions
  • Generate complex offers, like “Buy One, Get One” or multiples like “3 for $5”

Promotion Execution

  • Design and execute a channel-specific strategy based on promotional insights, recommendations, and plans
  • Create and design physical, digital and virtual promotions events and pages, with version management
  • Integrate with publishing solutions like Adobe InDesign for seamless visual design capabilities
  • Digital proofing to collaborate quickly across a dispersed team environment
  • Leverage event-driven promotions to communicate shopper-centric and personalized offers

Promotion Evaluation

  • “In-flight” and post-promotion evaluation of results: Did we achieve our objectives?  Did we drive… Traffic? Revenue? Margin? Basket increases? Evaluation of the promoted item and other items influenced by promoted item, such as affinity effects and cannibalization effects
  • Which shoppers took advantage of the promotions?
  • Did the promotion generate bad behaviors such as cherry-picking? Offer stacking? Pantry loading?
  • Did specific event-related areas perform (i.e., Front page, wrap, digital offer, etc.)? 

While these capabilities have been reflected as discrete functional areas, they should be viewed as continuous, unified capabilities that are stitched together. They should be configurable to map to your internal data systems, processes, and workflows. All these promotional capabilities should be unified with regular and markdown pricing, and assortment planning, to ensure achievement of your business objectives and avoid internal pricing conflicts. 

In addition, your end-to-end promotion solution should also be integrated and synchronized with enterprise planning, merchandising, and master data platforms. Insights from promotional planning should be exposed to inventory, replenishment, and supply chain platforms to avoid out-of-stock merchandise on promoted items and/or provide supply chain recommendations, where inventory may be lacking or a location is over-supplied.

Trade Collaboration is Part of End-to-End Promotions Too!

A critical component that leading retailers will depend upon to maximize the return on investment associated with promotions is to connect promotional capabilities to a robust, unified Supplier Collaboration Environment.

Armed with a Unified Supplier Collaboration Environment, retailers can drive a 10-20% increase in vendor-sponsored deals, eliminate up to 75% of third-party audit fees associated with supplier sponsorship funds, and reduce deal-handling fees by 85%. 

This is what to look for in a unified supplier collaboration environment:

Item Synchronization

  • Efficiently capture new item introductions, cost changes, pack size changes and supplier-driven intention to “end of life” a particular item or set of items
  • Item synchronization to ensure master data, and particularly, item-level data is maintained accurately within retailer software platforms
  • Item synchronization should support GS1, GDSN, EDI, and other data-enrichment sources

Promotions, Deals and Pricing

  • Provide a unified platform for suppliers to propose deals and promotions to the retailer, including short-term TPRs as well as support for longer-term everyday pricing (EDLP)
  • Provide visibility to the retailer promotion calendar
  • Help suppliers to forecast and optimize recommendations to the retailer
  • Support the electronic negotiation between the supplier and the retailer
  • Provide offer reconciliation capabilities between retailer and supplier

Value-added Planning

  • Conduct annual, data-driven Joint Business Planning (JBP) between the supplier and retailer
  • Publish scorecards and category performance reviews between supplier and retailer
  • Facilitate support for monetization of retailer data

Combining a Unified Supplier Collaboration Environment with an End-to-End Promotions Platform, powered by AI and autonomous technologies, can change the game for savvy retailers. This approach encourages and supports suppliers to offer better promotions that are more valuable for the shopper, the retailer, and the supplier. Win, win, win.

Conclusion

Retailers both large and small have always been “data rich,” but often “insights poor” when it comes to executing promotions. Time-starved promotion planners had to traverse complex, fragmented systems, and deal with data and team siloes.

Advances in AI-powered End-to-End Promotions supported by Supplier Collaboration capabilities have the potential to sustainably boost retail business success. Retailers can expect revenue gains up to 12% and margin increases up to 20% on promoted items. This provides opportunities to intelligently identify and communicate shopper-centric and personalized offers to leapfrog their competition. Retailers can now enjoy significant productivity improvements and augment their internal “human intelligence” with diagnostic, predictive, and prescriptive insights now available through the power of “artificial intelligence.”

Although I’m a short drive from Silicon Valley, there are precious few innovative technologies today capable of delivering as meaningful a business impact.


About DemandTec:

A pioneering leader in retail pricing, promotion, and markdown technology for decades, DemandTec is ushering in the new era of unified autonomous merchandising. With Unify by DemandTec — the industry’s first — retailers can unite their data, systems, internal teams, and collaborate with suppliers to generate profitable revenue growth with the power of AI.

From food to fashion, DemandTec partners with more than 700 customers around the globe. To learn more, please visit us at www.demandtec.com.