Promotions play a key role in affecting purchasing decisions that are based on your customers’ judgements of value for money. In this article I will focus on in-store promotions and how to design effective campaigns that will make you money.
Note: In a previous blog post entitled, "Effective Growth Through Promotions", I outlined how shoppers think when making their purchase decisions. I’d urge you to read that article first in order to get full value from this one.
In its widest sense, a “Promotion” can be defined as influencing customers to choose you, when your offering meets their purchase needs and / or occasion.
Delving deeper, a promotion could simply be a well written piece about the features of your shop or product range and why these things are a benefit to potential or existing customers. It could also be a mailshot or in-store Point of Sale signage.
The most common usage of the term promotions though, is the offers that customers can get in retail outlets and in the next section we will look at what customer behaviours in-store promotion can affect.
In "Effective Growth Through Promotions" I explored the three mechanisms to grow your revenue and using these as an objective for your promotion.
In-store promotions are most effective at increasing your customers basket spend. You "Sell More" by breaking the “auto-pilot” shopping behaviours of all customers, whilst in your outlet.
A profitable promotion must influence your customers to shop your outlet differently; if it doesn’t then why are you putting time and effort into it?
Customers in farm shops tend not to be as "price sensitive" as those who shop regularly in one of the discount food stores but I can assure you they are “value for money sensitive".
Given this, you can influence your customers' behaviour by demonstrating better value to them - this is the role of an in-store promotion and this statement should be at the front of your mind when thinking about your promotions.
To put it another way, a promotion should not reduce the price of a product, but should give customers an opportunity to get better value because shopping at your store is already good value!
The quid pro quo is that to get this better value your customers will need to purchase more than they might normally do.
An effective In-store promotion must have the right mechanic (through design) and implementation of the promotion. To fail to do either of these will compromise meeting the point of the promotion and potentially negatively affect the financial benefit to you.
There are three main considerations that should be satisfied in the design of a promotion that will generate you a significant return.
In simple terms, this is the number of transactions that will be influenced by a potential offer. A typical farm shop will see upwards of 2,500 transactions a month (and some will see much more).
If your offer triggers in say 50 transactions that month, then you’ve demonstrated better value to only 2% of your customers! How have you delighted the remaining 98%?
Also, I would suggest that having an increase in revenue in just these 50 transactions will hardly move the profitability dial.
So, choose the products you promote wisely; you can of course group similar products within an offer to ensure that your offer will have as broad an appeal to as many shoppers as possible.
When you have decided on the products that will achieve your objective, you need to understand how they are currently purchased. Not all shoppers will shop the same way on every visit to your outlet and some will regularly buy more than others.
A single offer will reward some customers and may encourage others to buy more, but don’t push customers too hard or they won’t buy into the offer; unless, that is to say, that it’s a "No-Brainer" of an offer i.e deeply promoted.
50% margin on a £5 product that sits on the shelf is zero. 25% margin on the same product that sells through the till in a multiple of two is £2.50 – which would you rather have £0, or £2.50 cash profit?
Do the maths on the offer to check you will get more cash profit through the offer (unless of course you are using the promotion to shift stock).
If you have an EPOS system, like the one provided by The EPOS Bureau, then you have a wealth of data available that can help you to understand how your customers shop your outlet; the products they purchase and the quantities they purchase in.
Harnessing this to choose the right mechanic will lead you to a successful promotion, like the recent example below from one of my clients.
In this real-world example, the Cheese Counter of the deli needed a revenue lift. We analysed the shopping habits of transactions containing Cheeses and the number of different types of cheese purchased per basket, using the data from their EPOS system. It quickly became clear that most customers were purchasing only one product line per basket.
The biggest opportunity, therefore, was to encourage customers who buy one product to buy more than that. That said, according to the data, there was still a significant number of customers who were already buying two or more lines per basket.
After our analysis and discussion, we decided on giving10% off when you buy three (or more) cheeses from the Deli Counter.
We accepted that we would inevitably end up subsidising some customer transactions, containing three or more lines anyway, but this was the minority and it doesn’t hurt to reward your best customers from time to time.
Look at the charts below showing average basket spend and average basket quantity of cheese and see if you can identify when the promotion started and ended?
Clearly customers bought into the offering sufficient volumes to significantly change the overall average basket values.
This type of offer did not significantly increase the number of transactions containing cheese (it was not designed to), but it did significantly increase the purchasing of cheese buyers by giving them better value in return for increasing their spend.
During the promotion we increased the number of lines in enough baskets to increase revenue and the subsequent 40% margin on a £10+ spend in promoted transactions was more cash margin than 50% margin on a circa £5 normal spend.
I hope you’ve seen that your EPOS data is key to the design of a successful promotion. I’d be so bold as to say if your promotions don’t show a significant uplift then they have not been properly designed. My clients see the benefits from the right analysis in forming their promotional mechanics, so if you want results like the above case study, why not join them by undertaking the right analysis?
Contact me using the links from my profile below and we'll take a look at how you could be giving customers more value whilst getting more money in the till.
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