Retail Promotions

1. Retailing MKTG 3346 Retail Promotions Professor Edward Fox Cox School of Business/SMU

2. Communications and Promotion Source: Levy/Weitz

3. Communications and Promotion RETAILER vs VENDOR • Vendor • Long-Term Objectives • Product-Focused • National • Specific product • Retailer • Short-term Objectives • Category/Store-Focused • Local • Assortment of merchandise Adapted from Levy/Weitz

4. How Important Are Promotional Sales for Retailers? • For a traditional high-low packaged goods retailer, the sales from items in the ad represent approximately 25% of weekly grocery sales • Roughly 100 items out of many thousand are therefore responsible for one-quarter of a store’s volume

5. Retailer Promotions Shopper Cards Retailer Coupons Patronage Rewards Patronage Rewards • Short-Term Incentives Offered by the Retailer that Lead to Immediate Purchase Retailer-Promotion Tools Retailer-Promotion Objectives Feature Advertising Generate Store Traffic Improve the Retailer’s Price Image Price-Cuts Generate Profits from Consumers and Manufacturers Displays Reinforce the Store’s Positioning and Image

6. Retailer PromotionsOBJECTIVES Promotions are used to: • Generate demand • Draw traffic into the store • Improve the price image of the retailer • Profitability • Sell incremental units of the promoted product, while reducing the cost of goods • Strategy • Reinforce the retailer’s positioning in the market (e.g., price leader, variety leader) Retailer promotions also generate excitement and provide customers with a reason to visit more often

7. Retailer PromotionsOBJECTIVES • Relative importance of promotional objectives Source: Center for Retail Management, Northwestern University

8. Retailer Promotion ObjectivesSTORE TRAFFIC • The retailer has a better “feel” for which items and promotions might generate traffic than for the contributions of promotions to price image and store positioning • Store traffic generates immediate results for the retailer, particularly in the promoted category • However, buyers/category managers may believe that nearly all categories can generate traffic – they can’t Source: Center for Retail Management, Northwestern University

9. Retailer Promotion ObjectivesSTORE TRAFFIC Promotions affect store traffic by: • Generating more shopping trips • Causing consumers to switch stores • Affecting price image • Increasing store loyalty A caution, however... • If categories are overpromoted (too often) and over discounted (too low) • Consumers learn to buy only on promotion • Promotions become unprofitable • Total category profitability declines

10. Retailer Promotion ToolsPRICE DISCOUNTS • “N-for” and “buy one, get one” promotions • Cause multiple units to be purchased • Cross bundling - with complementary items • May reduce the item’s volume, but increases total revenue and (generally) profits • Price points (end-in-9) • Avoid pricing promotions at 8s or 7s because they reduce profits without gaining any additional sales or price impression Source: Center for Retail Management, Northwestern University

11. Retailer Promotion ToolsFEATURE ADS Ad Sizes AA A B C Ads on the front and back pages of the retailers’ flyers, or Free Standing Inserts (FSIs), are especially likely to be noticed

12. Retailer Promotion ToolsFEATURE ADS • AA ads should be used for traffic generation and price image • A ads should be used for price image, as well as traffic generation and profitability • These three objectives should be balanced in any given ad • B ads and C ads (liners) should be used to improve category profits Ad Size Continuum Improve Category Profits Generate Traffic Large Small Source: Center for Retail Management, Northwestern University

13. Sales Promotion ToolsFEATURE ADS • The market share of the brand also influences the size of the ad that should be run • Larger brands are much more likely to draw traffic and make a price impression than smaller brands • In general, private label brands should be advertised less often, though… • Some retailers differentiate based on private label (e.g., Sears) • Some retailers run private label events In general, larger brands should be used in AA- and A-size ads Source: Center for Retail Management, Northwestern University

14. Retailer Promotion ToolsMERCHANDISING DISPLAYS Displays should be used to: • Encourage customers to choose a sale item • Generate unplanned purchases • Expose customers to sale prices Increase profits Increase sales and profits Improve price image Displays influence customer behavior by exposing shoppers to the product, and increasing the probability of consideration Adapted from Center for Retail Management, Northwestern University

15. Retailer Promotion ToolsMERCHANDISING DISPLAYS • Displays can also be used to sell related, or complementary items • Wings • Adjacent space on the end-of-aisle, table or other fixture • This may encourage add-on sales, and so increase the profitability of a display Wings with complementary, or related items, should be a key element in the design of displays Adapted from Center for Retail Management, Northwestern University

16. Retailer Promotion ToolsMERCHANDISING DISPLAYS • Often, however, displays are used primarily to reduce labor requirements and avoid out-of-stocks Adapted from Center for Retail Management, Northwestern University

17. Retailer Promotion Tools COUPONS • Entitle the Holder to a Reduced Price or Percentage Off • Manufacturer- or Retailer-Sponsored • Objectives • Induce customer to try products for first time • Convert first time buyers to regular users • Encourage large purchases • Increase usage • Protect market share But… • Since coupons encourage larger purchases, may be stealing sales from future • Coupons may annoy, alienate, and confuse customers

18. Retailer Promotion ToolsCOUPONS • In-ad coupons can be used to increase profits (if suppliers pay for the coupon) • By reducing the number of consumers who get the deep discount: • increases average promotional margin • generally preserves the price impression of the deeply discounted price • Coupons may also be used to limit the purchase quantity of consumers at the deeply discounted price Adapted from Center for Retail Management, Northwestern University

19. Retailer Promotion ToolsSHOPPER CARDS • Shopper cards are a Customer Relationship Management (CRM) tool that is designed to increase customer loyalty and gather data about customers • Retailers gather customer data from: • Frequent shopper or shopper loyalty cards • Membership cards • Store credit cards • Identifiable tender

20. Retailer Promotion ToolsSHOPPER CARDS Shopper cards are used to: Reward customers based on purchase amount Confer special privileges and special treatment to the best customers Involve customers Personalize/customize transactions

21. Retailer Promotion ToolsSHOPPER CARDS • Shopper cards are predicated on the value of knowing customer purchase histories • To create incentives for shoppers to give retailers their purchase histories and related information, retailers may offer: • low everyday prices (e.g., Sam’s Club, Costco) • special discounts (e.g., Kroger, JCPenney, Foleys) • special incentives for purchase volume over time (e.g., Neiman Marcus, American Airlines, Java City)

22. How Retailer Promotions Affect Category Purchase Behavior • Expand category volume • Cause brand switching • Cannibalization • Change purchase timing • Cause stockpiling

23. How Retailer Promotions Affect Category Purchase Behavior - Example For beer… • Category expansion - Yes • Brand switching - Yes • Purchase acceleration - Yes, but only if the deal is very good (due to the high frequency of promotions) • Stockpiling - Yes, but again only if the deal is very good (due to the high frequency of promotions)