How to optimise your promotions to maximise performanceBY Australian Retailers Association
The way promotions are planned and undertaken is evolving. It has previously been commonplace to return to what has been done before and simply replicate it. But now retailers are stopping and thinking about whether they should run the promotion in the first place. And if they choose to run it, they make sure they have a granular understanding of how effective that promotion will be. Armed with more data and insights, retailers now have the opportunity to optimise their promotions to achieve the best possible performance. Here are the drivers which can take your promotions from good to great.
Retailers need full visibility of all drivers that will contribute to effective promotions planning such as understanding which products are selling well, which promotions have previously been effective and why, whether there is enough stock to supply the promotion or whether the supply chain is capable of executing the promotion.
Improved visibility of data enables retailers to make informed decisions about how to run promotions. For example, where you place products in a catalogue will impact the sales uplift expectation. Using technology, such as JDA Software’s promotions optimisation tools, allows retailers to forecast promotions so they know the quantity of product to be purchased which then drives ordering. This leads to a more synchronised and seamless planning and execution process overall.
Open lines of communication
Sound communication between sales, merchandising, marketing, vendors, supply chain and store operations is critical. This is the only way to ensure a seamless process from marketing to in-store execution. Gathering the right information and ensuring it is made available to everyone is critical.
With access to the right customer insights and preferences, retailers can tailor assortments accordingly, across both bricks-and-mortar and digital channels. This also allows for localised promotions which are more targeted and therefore generally more effective.
Set the right price
How can retailers determine the right price which will offer value to the retailer and the customer? And how will discounting impact overall performance? By leveraging data and new artificial intelligence (AI) and machine learning capabilities, retailers can improve their visibility of how special events and promotions may impact profitability - helping them set the right price from the outset.
Factor in the halo and cannibalisation effects
Understanding how the promotion of one product an effect on a second product or category may have is a crucial challenge for retailers. For example, when there’s a promotion on soft drink, you’re likely to see a positive impact on the sale of chips or other party products. When there’s a promotion in coffee, you’ll often see an upside for sugar. This is known as the halo effect. On the other hand, when promoting a particular chips brand, it could draw attention and sales away from another chips brand. This is known as the cannibilisation effect. The cannibilisation effect can affect the retailer’s profit margin by reducing sales for a higher margin product and shifting it to a lower margin product. The halo effect in contrast can create welcome outcomes and should be leveraged. The key here is to understand when its likely to happen and capitalise on it.
To anticipate, plan for or forecast the halo or cannibilisation effect, retailers need to get a granular understanding of the data to feed into their assortment strategy. Many retailers will have a decent understanding of the major secondary impacts of promotions, it’s the subtler relationships between products that aren’t generally well understood.
Leveraging technology, such as JDA Software’s assortment software, can help by detecting the subtler relationships between products. This is especially useful when products across categories have a relationship, since this is when the halo or cannibalisation effect can be most commonly missed.
Machine learning and AI technologies are enabling retailers to plan, track and optimise promotions better than ever before. The result is better promotions which resonate with the customer and perform better for retailers.
About JDA Software, Inc.
Patrick Viney is Vice President of Retail Industry Strategy in Australia and APAC for JDA Software Inc. JDA Software is the leading supply chain software provider powering today’s digital transformations. JDA helps companies optimise delivery to customers by enabling them to predict and shape demand, fulfil faster and more intelligently, and improve customer experiences and loyalty. Learn more at jda.com
ABOUT THE AUTHOR
Australian Retailers Association
Founded in 1903, the Australian Retailers Association (ARA) is Australia’s largest retail association representing Australia’s $310 billion sector, which employs more than 1.2 million people. As the retail industry’s peak representative body, the ARA works to ensure retail success by informing, protecting, advocating, educating and saving money for its 7,500 independent and national retail members throughout Australia. For more information, visit www.retail.org.au or call 1300 368 041.