Effective Growth Through Promotions

Whether you are starting a new business or looking to grow your existing store, promotions, done properly, are a great way to get your bottom line racing.

To Promote or Not - that is the question.

In some circles, promotions are frowned upon. The perception can sometimes be that promotions cheapen the shop brand and reduce revenue; so are only suitable for discount retailers – the pile it high and sell it cheap merchants and not for high-end quality retailers.

Whilst it is reasonable to say that many Farm Shop customers will be less price sensitive and willing to see the value in the quality and provenance that they get from their Farm Shop, all customers are value sensitive.

Think about how you shop for a given product. I’d love that, but can I justify the expense?

Effective Growth Through Promotions Lobster

  • Customers Needs

Customers choose a retailer (and products) based on a number of “needs” including, but not limited to:

- The occasion they are shopping for;
- The range and quality of products;
- Provenance;
- Location;
- Customer service.

There are many more and these are all needs of the heart – i.e. things that encompass the sentiment... “I’d like that”. They are applied in different weightings for different shopping decisions.

Farm Shops can stand out from the crowd on many of these needs but the final decision on where (or what) to purchase is usually made by the head. Justifying these needs against the expected cost (real or perceived) of the products, to ascertain whether there is sufficient value for money, comparing the price to their needs.

If you fail this value comparison, then you’ve either not met their 'Value Need', or their 'Heart Need' was not so great so as to warrant the cost. Either way, the customer is then unlikely to purchase from you.

Effective Growth Through Promotions Wrong Way

If you do what you’ve always done then, at best, you'll get the same results.

Your regular customers accept the value for money you offer, for the products they buy from you – that’s why they are your regulars. However, relying on this pool alone means that it is unlikely that you will grow your revenue beyond its current level as you’re not changing the decisions that your existing customers are taking.

Customers are creatures of habit, stick with products they are comfortable with and rarely take a risk on buying something different. This can be both an opportunity for stability, but also a threat to growth.

By accepting the status quo, you’re also allowing any potential good future customers to continue to believe that you do not meet their needs – which is why they don’t shop with you already. (or regularly)

If you’re happy with flat revenue in a world of increasing costs then good luck to you; read no further. If, however, you want to grow your business revenue then you need to address customer decision making; giving them a reason to choose to spend (or spend more) with you.

Simply put and in its’ widest sense, the art of promotion is to either advertise things that 'speak' to “heart needs” that you can service well to all potential customers (existing and new) or enhance the customers value perception of your offering for their "existing needs", encouraging them to give you a trial.

Doing one (or both) of these through promotion will make customers more likely to choose you; assuming that you meet both their needs and value.


Growing Top Line Sales

There are only three ways to grow your top line – these apply at basket, department or product level:

  • SELL – You need customers, in order for them to purchase. The bigger the pool of customers you have for a given shop, department or product, the more transactions you will have and therefore revenue will grow.
  • SELL MORE – When you have a customer in your shop, you can increase revenue by increasing their basket spend - either by increasing prices or through the quantity and range purchased. How much would your revenue increase by if every transaction this month was £1 more than it was last month?
  • SELL MORE OFTEN – if you can increase the frequency of purchases, then you will get more transactions and therefore revenue from repeat customers to the product, range or shop – but this assumes you have met their needs on their last purchase.

All of these growth objectives can be affected positively by the right promotion.

Effective Growth Through Promotions Carrots

Effective Growth Through Promotional Activity

In my experience, most Farm Shops are quite good at using social media to promote their values, but I mainly see in-store promotions being used to sell through stock. This does reduce running costs, by reducing wastage, but rarely increases turnover or attracts new customers.

So it is my view (and the view of all successful retailers), that in-store promotion should be seen as a tool to help grow your business; by changing your customers' behaviour in a way which increases revenue; by addressing the value that a customer gets from achieving their needs through purchasing from you. To use promotion in any other circumstance will lead to poor results and/or negative payback.

Unless you know why you’re running a promotion, you also can’t possibly measure whether it has been effective.

In order to use promotions effectively to grow your revenue, the promotion must have an objective other than to increase revenue – that’s a given.

The objective for the promotion should be one of the three drivers of growth above, but only one. Promotions stop being effective if you try and get one to do all three and the payback model differs between promotion objectives.

Also, the uptake of any given promotion is a key measure of promotional effectiveness; it becomes absolutely crucial to shift the dial in terms of effectiveness.

A promotion seen in a handful of baskets per month will have clearly had less impact, than one in hundreds of baskets. This may affect the level at which you run a promotion (product, department or basket) and the choice of the items in the promotion.

So to Promote, or not to promote - that is the question.

The answer is that if you want to grow revenue ahead of increasing costs, you can either increase your prices to maintain margin (but at the risk of alienating existing customers), or grow revenue and reap the benefits from changing your customers' behaviour positively.

In my future articles, I will explore the ways to make a promotion more effective, including how to measure payback and the right type of promotional mechanic to use to achieve a given objective.

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Duncan Syme

Duncan Syme

Contributor

www.datastrategyconsulting.co.uk

Duncan Syme is a retail data consultant specialising in the food retail sector. He has been working with retail data for over 10 years providing data-driven, business growth consultancy services to some of the biggest brands and retailers in the UK. He now runs a business to grow smaller retailers using customer behaviour insights.

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