Sales Promotion Success’ Secret Sauce

“Treat, treat, treat…my brothers, come to your Party meet…Drink and eat!” This was the sixth day of regular loud announcements from the slow-paced bullock cart arranged by neighboring village head, Choudhary saheb. Afterall, the district elections were coming up later next month. Village vigilantes Mahesh and Suresh had been spending their day counting the days to the feast. While Mahesh had decided to starve for a full day to ‘make maximum tummy space’, Suresh planned to binge-eat and then lay idle on his cot for a day or two.

The Promotional feast, to say the least, rocked the routine (read digestion) of both our naïve friends.

We do sales and channel promotions regularly with the rock-star intention to rock the sedate sales curve. Most of the time these are successful…and a few times Newton rocks the boat with his 3rd law.

Promotional peaks pose the routine-shaking challenges for all business functions.

What is a Promotion?

One definition of promotion is: “Marketing communication to target audience informing them about a product or service that is newly launched or is available at a discounted price. Promotions help enhance sales volume and inventory turns/clearance.”

Our business objective is to boost sales and revenue by favourably influencing customer and shopper behaviour.

While shoppers are inundated with plethora of promotions online, Sales Promotion continue to play an equally important role in off-line channels as well.

Promotions are designed with the intent of affecting a shift in the shopper behavior/ choices, and thereby garner an increased market share. One would earnestly wish that the favourable shift in customer choice lasts after the promotions is over.

We have seen promotions done for/in the following business scenarios:

• Generate and increase awareness of your offering
• Seasonal sales: Religious festivals, and lately the “e-comm” festivals
• Tackle competition: to neutralize competitive activity (promotion/ new launch)
• Planned markdowns: common in cyclical products like apparel
• Survive the Lean periods: nudge/excite the customer to purchase
• Disposing off unsold stocks that have aged or are simply not moving from your fast-moving goods warehouse.
• New store opening: driving footfall to create acquaintance with the target shoppers
• Get higher realization for the same inventory (auctions). Interesting, huh? Yes, it is possible in select luxury goods categories.

Is your promotion directionally right or does it have a Goal too?

It is important to carefully define “What is the intention of doing the promotion?”

The purpose of a promotion could be one or more of the benefits enumerated in the previous section.

Promotions may not necessarily have a positive impact on all the parameters (for example, margin may be sacrificed to drive higher sales in certain period/ for certain products).

In an undesirable scenario, you would do a (forced) promotion when near-expiry stocks need to be liquidated. Here you would want to make the best out of the certain loss; clear identification of targeted channel-geography is advisable.

As you could infer, above is case of reactive promotion. It is important to be cognizant if you are doing a reactive or a pro-active promotion.

You are in a reactive stance when warding off competition activity and when re-balancing stock between channel/ depots/ geographies. Needless to say, the benefits (ROI) from reactive promotions would mostly be far lesser.

Further, you would want to define and execute national, regional, and local promotions differently as the business purpose of each is specific and requires necessary customization.  [many local promotions are reactive in nature]

Each promotion should have a defined goal, expressed as one or a combination of key parameters: margin, sales increase, inventory clearance etc. It is crucial to measure benefits/performance of the promotions at the end of each promotion against the intended benefits enumerated when CFO approved the promotion budget. 😊

Beware of the Recoil effect of the Promotion Salvo

Remember, Suresh and Mahesh stomached the ill after-effects of the promotion.

Success of promotions is very difficult to predict. Well-done promotions help boost the sales, but an incorrect/failed promotion can disengage the customer and leave you with unwanted high inventory.

I share below some crucial HYC (Have you considered) points:

• If not communicated well to the shopper/customer (intended beneficiary), the promotion will end up wasted expense, and/or would just sell as many volumes like a regular product (as if there was no promotion).
• While promotions for end-of season sale may be part of markdown strategy, promotions for liquidating ageing stocks are not a planned expense. It will be worthwhile to investigate the reasons for such ageing stock accumulation…was it due to wrong demand, big manufacturing MoQ, short product shelf-life, poor demand planning, or something else?
• Do check if the promotion is cannibalizing another brand of your own stable? Is there an effect on the non-promoted, adjacent products whose sales was positively or otherwise affected during the promotion period?
• Do check if the channel partner (distributor/ retailer) is indeed passing on the complete promotion benefits to the intended shopper?
• Retailers will be encouraging many promotions (including your competition) at the same time to attract shoppers and increase footfall. It is critical for you to ensure that your brand promotion does not lose sheen amongst the many promotions on the retail floor…what should be your checks/ balances here?
• Promotions infuse a jump in sales that is not representative of actual customer demand. Demand planners know this well. I would ask planners: “When you remove the promotion spikes from the sales history data, do you also fill the troughs before and after the promotion period?”
• Companies do similar promotions year on year. The quarterly skew of sales thus gets built into the annual plans for many years in a row. These become hugely predictable promotions for all partners in the value chain. Customers, in fact, delay their purchase with high degree of certainty that a promotion is around the corner. This pattern defeats the pristine purpose of the promotion to drive gains. It only shifts demand from one period to another.
• Many gift items (freebie) stay at your depots for many months after promotion. In most cases, there is lack of visibility as third-party items are not in ERP system. Many companies are completely avoiding freebies/ gifts. In its place they are offering extra qty in same pack to shopper, and extra units in same invoice to channel partners.

It takes a village to raise a promotion

Just as in S&OP process, promotion planning needs orchestrated coordination across functions. For this one must:

• Define all activities across timelines
• Allocate responsibilities and alignment across functions. Activities and stakeholder RACI chart would be beneficial in control and effectiveness
• Maintain Performance dashboard for the promotions
• Respective function leads to take responsibility for timely service/products delivery from their respective vendors
• Define escalation matrix for speedy resolution when things go off track
• Measure OTIF for POS, gift/ freebie items (as done for Finished Goods)
• Quality control checks of the freebie items is important, before they are billed to channel
• Quality control function may be entrusted to play a central role in orchestrating the promotion. This central control will also help ensure legal, safety and regulatory compliances.

#sales #salespromotions #customerloyalty #channelconflict

All views expressed in this article are my own and do not represent the opinions of any entity whatsoever with which I have been, am now, or will be affiliated.