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Retailing

MKTG 3346

Retail
Retail Promotions
Promotions
Professor Edward Fox
Cox School of Business/SMU

Communications and Promotion

Source: Levy/Weitz

Communications and Promotion


RETAILER vs VENDOR
Vendor

Retailer

Long-Term Objectives Short-term Objectives


Product-Focused

Category/Store-Focused

National

Local

Specific product

Assortment of
merchandise

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 stores volume

Retailer Promotions
Short-Term Incentives Offered by the Retailer that
Lead to Immediate Purchase
Retailer-Promotion
Objectives
Generate
GenerateStore
StoreTraffic
Traffic
Improve
Improvethe
theRetailers
RetailersPrice
Price
Image
Image
Generate
GenerateProfits
Profitsfrom
from
Consumers
and
Consumers and
Manufacturers
Manufacturers
Reinforce
Reinforcethe
theStores
Stores
Positioning
and
Positioning andImage
Image

Retailer-Promotion
Tools
Feature
Feature
Advertising
Advertising
Price-Cuts
Price-Cuts
Displays
Displays
Retailer
Patronage
Coupons
Rewards
Shopper
Patronage
Cards
Rewards

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 retailers 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
Relative importance of promotional objectives
Purpose of Promotions

Relative Importance

Store traffic

50%

Price image

20%

Profitability

20%

Strategy/Positioning

10%

8.

Source: Center for Retail


Management, Northwestern
University

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 cant

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


Promotions become unprofitable
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 items 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

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
Ad Size Continuum
Generate
Traffic

Large

Small

Improve
Category
Profits

Source: Center for Retail Management, Northwestern University

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

Increase profits
Increase sales and profits
Improve price image

Expose customers to
sale prices
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-ofstocks

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
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., Sams 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)