promotional effectiveness definition
Are monetary savings the only explanation for consumer response to a sales promotion? If not, how do the different consumer benefits of a sales promotion influence its effectiveness? To address the first question, this research builds a framework of the multiple consumer benefits of a sales promotion. Through a series of measurement studies, the authors find that monetary and nonmonetary promotions provide consumers with different levels of three hedonic benefits (opportunities for value expression, entertainment, and exploration) and three utilitarian benefits (savings, higher product quality, and improved shopping convenience). To address the second question, the authors develop a benefit congruency framework, which argues that a sales promotion's effectiveness is determined by the utilitarian or hedonic nature of the benefits it delivers and the congruence these benefits have with the promoted product. Among other results, two choice experiments show that, as predicted for high-equity brands, monetary promotions are more effective for utilitarian products than for hedonic products. The authors then discuss the implications of the multi-benefit and the benefit congruency frameworks for understanding consumer responses to sales promotions, reexamining the value of everyday-low-price policies, and designing more effective sales promotions.
Why is it important to measure the effectiveness of your promotion?
It is important to evaluate the impact of sales promotions on profit because it is possible for promotions to lead to higher sales but lower profits. … For a promotion to be profitable, incremental customer sales must increase and the cost of obtaining one dollar in increased sales must not exceed a dollar.
In the competitive CPG space, your ability to execute at retail plays a massive role in your business’s success. Using in-store promotions is one of the most popular and effective ways to boost your sales, but only if you know how to determine the effects of the product promotion on your company in a promotion analysis. Having a data-driven approach and measuring your results will show you what your invested funds have achieved, and prove whether your field efforts are improving your sales. At the end of the day, data is your biggest ally, as it will tell you where you’ve been, where you’re heading, and where you want to be. Here are the four main metrics you should use to analyze data on the success of your in-store promotion, as well as some suggestions on how to leverage this data:
Promotions, like other investments, fundamentally work by earning revenue in exchange for a smaller investment. It is important to evaluate the impact of sales promotions on profit because it is possible for promotions to lead to higher sales but lower profits. Only 30 out of 45 promotions reported as successes are successful, while 19 out of 46 promotions reported as failures increased profits (Hardy 1986).
For a promotion to be profitable, incremental customer sales must increase and the cost of obtaining one dollar in increased sales must not exceed a dollar. These are measurements you need to pay attention to before, during, and after the promotion, as having solid metrics will give you a clearer view of the effects of your promotion. In the example below, the cost per incremental dollar of sales is $0.64. If the margin that the manufacturer receives from the retailer is less than $0.64, then the promotion is not profitable to the manufacturer.
2. Sales Volume
To accurately measure the increase in sales volume, you need to know your baseline (what sales were before the promotion) using both data you’ve already collected and data you collect throughout the promotion. This equation can be used to find your overall increase in sales:
Overall Sales Lift = Lift in Promoted Item Sales + Halo – Cannibalization – Pull-forward
Source: Cross Cap
Lift in Promoted Item Sales: The difference between the sales baseline and the new sales volume.
Halo: The effect that occurs when promoting one item leads to an increase in sales of another item. Measure using basket analysis – look at historical transactional data across multiple promotional periods and analyze all baskets that contained the item promoted and determine among all those baskets which were the common items that were not on promotion (“Guide To Analyzing The Overall Lift Of A Retail Promotion”).
Cannibalization: When the promoted item’s sales increase but “eats up” the sales of another item. This can lead to a lower category lift.
Pull-forward: When the sale item is something that consumers regularly purchase and has a longer shelf-life, causing consumers to stock up on the item while it’s on sale, causing a spike in sales during the promotion and a dip in sales after the promotion.
3. Customer Satisfaction
Customer satisfaction is a key facet to customer loyalty and long-term brand switching, so you must measure customer satisfaction by collecting data to measure exactly how satisfied customers were with your promotion and with your overall product. Some things to look at: Did you experience more out of stocks than usual because your product was flying off the shelves? What are people saying about your brand or product online? If you are interested in gaining deeper insight, try inviting your customers to fill out a quick survey or use a hashtag with the promo to tell you what they think of your brand. Using the information you gather, you’ll be able to hear the truth of what customers thought of your promotion.
4. Achievement of Set Goals
Take another look at the goals you set for the promotion. Does your data show that you have achieved them? While the principal, the overarching goal of your promotion should have been to boost sales and increase brand recognition, another main goal of your promotion should be to record and analyze the results for future use. Even if your promotion was not “successful” in the way you planned, having accurate measurements of all of the factors at hand will allow you and your team to identify areas for improvement. As we mentioned earlier, sometimes a promotion can seem successful on the surface but can have negative effects on long-term profits. Make sure you are setting multiple goals ahead of your promotion so you can track metrics for all of them and determine the true effectiveness of your efforts.
The most successful promotions have these features:
- friendly, communicative, and knowledgeable promoter
- good in-store positioning
- full stock of product
- harmonized appearance of marketing materials
- focus on brand recognition and increasing brand loyalty
From planning to implementing to analyzing, documenting the entire process of promotion is vital to making it a success. But the only way to determine whether your promotions are truly effective is by accurately measuring the four metrics: profits, sales volume, customer satisfaction, and achievement of goals. Having these measurements makes your life easier when analyzing the outcome of your promotions, and empowers you to learn from your mistakes and take note of what you did well. Next time, your promotions will be guaranteed to be even more successful.