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One good thing about vacations is they really do clear your head. So along with bringing back lots of photos of blue-footed boobies from my most recent holiday, I also brought back a fresh perspective. And those thoughts revolve around promotions.
Promotions have become like the weather. Everyone talks about them, but it seems no one can do much about them. But that’s not true. Unlike the weather (just finished the hottest July on record world-wide), promotions really ARE something we can control. It’s easy to say the consumer is demanding and expecting promotions, but perhaps that’s because we’re training her to do so. Consider the following:
In RSR’s 2012 Pricing Benchmark, 43% of respondents reported their inability to forecast the impact of their pricing decisions as a top-three operational challenge.
In the same survey, 64% reported that even after the fact they can’t measure the real impact of their pricing decisions.
The very same issue popped up (and hit the top of the chart) in this year’s Merchandising benchmark. Fifty-three percent of respondents reported their inability to holistically predict the impact of their pricing, assortment and promotion decisions as a top-three operational challenge.
So to put this in simple terms, we’re running more price changes and promotions than ever, but we can’t seem to tell beforehand what the impact is going to be, and even after the fact, we’re generally not sure what we’ve actually accomplished.
I’m not here to rail at the industry. There’s no point to that. I am here to say that this situation can be fixed. There are more than a few technology vendors that can help with both – forecasting the impact of price changes, and analyzing the actual impact those changes had on sales, profits and even customer loyalty.
Everyone I know was hoping JC Penney would succeed with its new non-promotional strategy and serve as a beacon of light for the industry, but until now, the other retail truism “Retail is all about execution” has stood between JC Penney and success. A muddled marketing message seems to have confused the customer. That doesn’t mean the strategy was or is wrong. It means the execution was poor. I don’t think this has much to do with technology. It has everything to do with marketing. The strategy started strong – an analysis that 390 promotions in 2011 resulted in an average of four visits per customer per year. But now trips are down even more, and sales and gross margin have declined (that one has me totally flummoxed – how can you have fewer promotions and still take a gross margin hit?).
With all that considered, here’s my 12 step (okay, 7 step) program for kicking the promotions habit:
The very last place I was a CIO before moving over to the analyst world, I saw this analysis in action. We were busily selling wedding cameras (it was a while ago, so not everyone had a camera in their hands at all times). It turned out we were selling a lot of volume, and losing money on every one. NO market basket increase was happening. We were just giving these things away. Our chief merchant raised the price, sold fewer cameras, but made a boatload of money on them. Overall, comps did continue to rise.
Honestly, this is less a problem of consumer expectations than it is retailer desire to see the “rush” from a hot promotion. It really is time we kick the habit. If not all at once, at least let’s reduce our dependence on promotions as a proxy for customer service and interesting products. It’s time for the “pusher” to kick the habit. The customers will follow.