Your cardigans had a 15% lift in the final week of March last year, but how much of that was due to your BOGO sweater event and how much was due to an early Easter? Did your “20% off entire store” coupon in late October build incremental sales or just shift demand out of November? Does your “Friends & Family” promotion truly add sales or just erode margins? These are common unknowns that retailers face in the modern environment.
You influence when and how much consumers buy, in part, by controlling factors like pricing and promotions. External factors – holiday shifts, competitor actions, base seasonality and weather anomalies – are outside of your control, but critically important. The water gets muddied from so many variables, making it hard to quantify the impact of each on key metrics such as traffic, sales and margin. This makes merchandise planning and promotions management a bit like blindfolded archery – inaccurate and potentially dangerous. We know multiple retailers that jeopardized their quarterly financial results due to a single promotion that backfired.
The planning systems that your Planners and Buyers use to map out their business pre-season are good enablers to compute and display KPIs. However, they don’t help determine the root causes of historical performance or help predict what might happen in the future. Analysis is manual and only as good as your team’s capabilities. Scarcity of important data is another limiting factor. The dates of your 30% off lamps promotion from 2015 might live in an Excel file in Marketing. Competitive events are often not tracked at all. Store Operations may track daily average temperatures for the US, but you need corresponding zip-code level data to match your company’s exact store locations.
Your nature as a retailer is to be action-oriented, and when you are in season and business is off, you are likely to layer on promotions (events, coupons and product discounts) to “juice” sales and address inventory liabilities. However, without a clear understanding of what will drive desired results, you might pull the wrong lever. It’s not uncommon for retailers to implement a promotion that mistakenly drives very negative outcomes, including margin dollar erosion. And there are no universal actions, as a promotion may be effective for one product category, channel, or segment of customers, but not for others.
It’s understandable why you might repeat promotions over seasons or years. You don’t truly know which are effective because it’s hard to fit the puzzle together. And that leads to missed sales and margin opportunities.
But what if you could truly isolate the impact of your promotions? What if you could accurately predict the impact of future offers and reshuffle your promotion spend to maximize results without the fear of unknown outcomes? With the right predictive and prescriptive analytics you can. Applying the right science to your business and data, you can explicitly measure the impact of your promotions and determine which types work and which don’t. Armed with that information, you can craft more effective ones in the future and better forecast performance. With the right insights and analytics capabilities, you can increase your promotional effectiveness without increasing risk.