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Price Promotions (Part 3 of 3): Use more data to measure promo effectiveness

In part 1 of this price promotions series, we touched on how to design promotions to drive consumer behavior. In part 2, we discussed how to build a promo cadence. In our last article of this series, we address the issue of needing more data to measure promo effectiveness. As brands and retailers work together on promotional plans, it is getting harder and harder to answer the question, “Was the promotion effective?”  

You might need more data to measure promo effectiveness.

While sales lift can be an important measurement, it’s not the only metric that should be used to define success, and in some cases, it might not be the right measurement at all. I mentioned in the first blog of this series that the worst promotion is one that gives a discount on consumer purchases that would have happened regardless of the sale price, which means the best promotions or successful promotions, influence a desired consumer behavior.

The easiest data source to use as a brand when reviewing promotional results is purchase order units or sales units. If demand from your retail partner increases leading up to the promotion or following the promotion, it is easy to label the promotion as successful. The majority of post promotion reporting relies on this metric and these data sources because they are readily available. However, to measure whether consumer behavior was actually influenced with the promotion, you’ll need to look at more metrics and that means more data sources.

A lot can be deciphered from POS data by using multiple timeframes.  In addition to sales lift during the promotion, the next data point to gather is post promotion impact. If the promotion was designed to drive new customers in a repeat purchase category, did the consumer stay with the brand after the promo? This halo effect can be lagged based on purchase or usage cycle, so make sure to account for that in the timing of measurement. If the promotion was designed to drive new consumers in a non-repeat purchase category, measure the post period for a deceleration which can be a sign that the promo only shifted purchase patterns earlier vs. creating new demand. The same is true for a stock-up promotion. In both cases of post promotion measurement, the results should be included to account either for additional promo benefit or opportunity cost.

Transaction information can also provide insights that could have been missed if measuring only units.  Transaction information can show how many of the promoted item were purchased on one ticket vs. individual tickets giving insights into the consumer purchase behavior, assuming each consumer transacted only one time. This is particularly helpful when evaluating a multiples offer like a BOGO. This can also give insights into whether an impulse purchase was incremental to the basket, or data at this level can define the true value of the loss-leader-traffic-driving promo item. Even actual selling retail at a transaction level uncovers new data points on trade-up. Without understanding what was in the purchase at a consumer level, there are insights that can be missed.

If you have access to consumer purchase data, use it.  This is perhaps the most insightful data to get your hands on. This data can provide visibility into new, lapsed, or repeat consumers. If the goal of a promo is retention to the brand or store, consumer purchase data is a great way to measure this impact. Purchase frequency can also be super interesting to review when it comes to multiples promotions or even return to store in another category on a loss leader. If a loss leader promotion drives loyalty to the retailer and subsequent purchases, it makes a compelling case for a brand to pitch this idea. Think also about a stock-up promotion that increases a consumer’s annual purchase units from 6 units annually to 10 across 3 to 4 transactions. That total value would be missed if not analyzed at a customer level.

Market share can be a luxury if you are in a category that doesn’t have detailed reporting from sources like Nielsen or NPD.  Coming from the footwear and the pet industry, I was surprised that detailed market share information was not available for all industries. However, if you do have this data, it can also be effective in measuring strategy success. It is difficult to measure one promotion’s success through market share information, but as a brand puts together their annual promotional plan with their retail partners… among other tactics that align with the strategy… market share is one of the best measurements when it comes to comparing performance against the competition.

That’s a lot of data.

It is somewhat easy for me, a former retailer, to list out all of these type of insights as critical.  In my past, with the right systems, all of this could be accessed. However, for a brand, not all of these data points are obtainable. What should brands do if they don’t have access to all this data?

Use what you have.  That doesn’t mean settle for partial result measurements. That means, find a way to get consumer insights as part of your promotional measurement. Only looking at increased purchase order units is not enough. You could be rewarding undesirable or unsustainable results. You also might miss capturing the opportunity cost. As part of creating a promotional cadence, consumer behavior goals should be identified. From those goals, create a measurement plan, assess your available data and then brainstorm ways to use what you can access to assess more than promo lift.

Work with your retail partners.  This doesn’t mean presenting a long list of reporting requests to your buyer.  This does mean, build a promo plan together. What is the business strategy, and how can promotions help achieve this goal? Share with your retail partner your consumer insights that support a promotion being the right tactic to motivate the consumer. Align together on the types of promotions and the consumer behavior you are trying to motivate. As part of that, work together on how to measure the consumer behavior together, with the brand owning as much of the measurement as possible.

If you were reading this article to find the secret metric or index that balances sales and margin performance allowing you to successfully measure all promotions’ effectiveness, you might be noticing that I haven’t included the answer. The answer isn’t included because all promos are designed with different intentions. Success means achieving the desired consumer behaviors. Remember, offering a consumer a promotion is like handing them money. If the promo isn’t designed to influence their behavior and reporting isn’t created to monitor it, you are handing the consumer your margin dollars.

Love this series and want to get into more details? Don’t know where to start on your promo cadence? Email me.