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

Communications and Promotion Source: Levy/Weitz

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

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

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

Retailer Promotions OBJECTIVES 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

Retailer Promotions OBJECTIVES Source: Center for Retail Management, Northwestern University Relative importance of promotional objectives

Retailer Promotion Objectives STORE 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

Retailer Promotion Objectives STORE 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 Consumers learn to buy only on promotion Promotions become unprofitable Promotions become unprofitable Total category profitability declines Total category profitability declines

Retailer Promotion Tools PRICE 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

Retailer Promotion Tools FEATURE 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

Retailer Promotion Tools FEATURE 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 Source: Center for Retail Management, Northwestern University Improve Category Profits Ad Size Continuum Generate Traffic Large Small

Sales Promotion Tools FEATURE 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

Retailer Promotion Tools MERCHANDISING 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

Retailer Promotion Tools MERCHANDISING 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

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

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

Retailer Promotion Tools COUPONS 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

Retailer Promotion Tools SHOPPER 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

Retailer Promotion Tools SHOPPER 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

Retailer Promotion Tools SHOPPER CARDS value of knowing customer purchase histories 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)

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

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)