Evaluating And Planning Promotions In An Increasingly Complex Retail Environment

By Kelli Beckel, Senior Marketing Manager, Nielsen Perishables Group

Promotional strategies and effectiveness have evolved over the past few years, leading to a need to better understand the new promotional landscape and plan future promotions accordingly.

Retail price promotions are often one of the largest marketing expenses incurred by suppliers. It is not uncommon for retailers to request temporary product discounts or the allocation of promotional reserve funds to support reduced shelf-prices for the promotional event. The result is that retail promotions often carry a significant cost in marketing funds for suppliers and, potentially, lost margin dollars for supermarkets.

With improved measurement and tracking, many retailers are increasingly open to promotional input from suppliers who bring promotional evaluation and planning expertise to the discussion, addressing key questions such as:

• How important are promotions to overall category performance?
• What drives “successful” promotions (i.e. discount level, frequency, promotion vehicle)?
• What are the best performing promotional strategies?
• How do promotions impact overall retailer performance relative to the competitive market?

The good news for the industry is that more tools and strategies than ever are available to answer these questions.

As the economy has improved, many consumers report they are becoming less price-focused, depending on the category and products offered. This means promotions are essential to draw in consumers to certain categories, while other categories often are purchased regardless of discount. For example, cherries are highly seasonal and responsive to supermarket promotions. Nearly two-thirds of the cherry volume is sold while on promotion — the highest among the Top 10 produce categories — and the average volume lift on promotion exceeds 200 percent. However, despite the fact that cherry promotions drive a significant portion of sales, they don’t necessarily require a deep price discount to be successful.

Promotional volume and discounts are only two pieces of the puzzle for understanding and planning effective promotions in an evolving produce department. Promotional timing and type, as well as circular ad size, frequency, and location, all must be factored into the equation. The orange category exemplifies how to leverage the complete process.

When examining orange promotions at a national level, promotional volume was down during 2011, while sales dollars, price, and ad presence were all up. Retailers offered an average price discount of 23 percent while on promotion, with an average lift of 88 percent.

Nationally, oranges were discounted between 20 and 30 percent during 2011, which generated an average of 61 percent dollar lift over expected sales. However, the analysis found that volume lift is remarkably consistent at discounts up to 40 percent. However, lift jumps significantly starting at a 41 percent discount.  Interestingly, smaller discounts (10 percent or less) drive strong volume lift, but also provide a strong lift in dollars, usually an important goal for retailers.

Zooming in on top- and bottom-performing retailers provides insight into specific promotional strategies that drive success. In an analysis of the promotional strategies of the top and bottom citrus retailers in 2011, it was found that top retailers discount between everyday and promotional pricing matched the national average (23 to 24 percent), while bottom-performing retailers implemented higher promotional prices. Additionally, top citrus retailers were less reliant on price reductions alone and instead offered multiple citrus variety options to attract customers.  Meantime, bottom-performing citrus retailers focused 80 percent of citrus ads on oranges, rather than including multiple varieties.

Ad location was the greatest disparity between top and bottom citrus retailers. Top-performing retailers used more feature ads,  and typically promoted oranges on the back page or the circular. Bottom-performing retailers used mostly sub-feature ads and chose middle pages the most. When it comes to ad type, top retailers utilized price multiple (e.g. 2-for-$1) ads over two-and-a-half times more than bottom retailers.

Considering the national and top/bottom retailer analysis for citrus uncovers the following insights relating to promotional performance, pricing and ad strategies:

• Don’t let oranges dominate the ad planner. Aggressive orange promotions reduced total citrus performance, and ads with multiple citrus varieties were more prominent in top citrus retailers. Additionally, slightly more back-page ads may be better than a few larger front-page features. When orange ads are used, the price multiple events are important to mix into the ad planner.
• Smaller discounts favor greater dollar lift for oranges. Discounts lower than 40 percent produce similar volume results, and lower volume lifts produce stronger overall results.

These types of insights allow for fact-based promotional plans that articulate the most effective timing, ad frequency, depth of discount and precise pricing recommendations. Once this information is known, the recommendations can be implemented into retailer plans, and later evaluated and refined for further success.