Growing Sales: How a Retailer Can Effectively Plan Promotional activities: An Interview with Alexey Ivasyuk, СЕО MySales Labs

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Promotional activities in retail are an essential tool for competing over customers. In Ukraine, in different segments of the FMCG retail market, the percentage of goods promotional activities varies from 10% to 50%. Meanwhile, across the border in Europe, this has already reached 80% for certain sectors. The efficiency of the promotional activities depends on how accurate the forecast for promotional sales actually is. If sales increase more than you anticipated, then there will be no goods left on the shelves, and you’re just out of luck. This will cause customers being unsatisfied and lead to lost sales, which it turns out is bad. If sales grow less than was forecast, both the retailer and the supplier will suffer losses. Alexey Ivasyuk, Сo-founder, and CEO of MySales Labs, imparts his wisdom on how to effectively plan promo actions in the interview

– What goals should a retailer pursue when he’s running a promotional activity?

– The first goal is to attract an audience that covers both a specific sample and a broad market segment. The second goal is to promote perspective products, which can boost sales in the course of the activity, as well as after It’s complete. As long as the promotional event is underway, a customer can more easily try out a new product, and if the customer finds its quality satisfactory, he or she will repurchase it later. And the third one — the promo can be run using an increase in cash flow margin, as the sales growth accelerates and the supplier joins in on the promo.

– Can the liquidation of stock be the goal of the promo?

– That’s already known as a sale, not a promo.

– What does an effective promo consist of, how can one measure its effectiveness?

– The retailer can measure the effectiveness of the promo by the number of customers, sales volume, and margin. Everyone determines the effectiveness of the promo in his own special way. To make the promo effective, you need to be prepared for it: you have to arrange the materials, manage your stocks, logistics, and communications to customers. As part of the promo, the sales of the items can grow significantly, for example, by more than 10 times. If you’re not prepared, you will lose customers whom you invited for the event, and with those, you otherwise communicated. If you have more products than you need, then you will have a remaining inventory after the promo, and it won’t be sold soon. If you run the promo for products of the category “fresh,” then you will be obliged to write-off the items, which will cause direct losses.

– How should an effective promo be built?

– Everyone plans it out in different ways. Someone might start preparations one week ahead of time because they do everything last minute, others — few months before. Everything really depends on how the promo looks. If you only need to hang the indication on the price tags only, then you can arrange it pretty quickly. If you need to prepare a web page, handouts, hire Paris Hilton to host, well then you need a bit more time. A promo is a very strong competitive tool for retailers. They control who and how the promo runs and try to fight for each client in this manner. It’s absolutely crucial to coordinate the promotion action with the manufacturer or supplier. The retailer and the supplier often execute the promotion actions together, where everyone offers a discount from their own. If you run the promo unilaterally, then it can cause a reduction of margins for the retailer. The supplier also has to plan the deliveries of goods for the promo of the retailer.

– What should be the discount, maybe, 10% off?

– Such a small discount isn’t going to influence sales all that much. However, everything ultimately depends on the goods. As a rule, the most sensitive to the discount are the goods that make up a significant part in the budget of the client, as well as those that have a broad range of available items. This permits a buyer to have a wider choice. Discounts in FMCG retail can reach 30% as well as 50%.

– How can a retailer and supplier make money on this?

– Let’s imagine that the margin is 50%. The retailer gives 40% off and the supplier gives 40% off. If due to the promo, sales increase 10 times, the supplier will earn twice as much in cash flow margins, and the retailer will also earn more while attracting customers. The most important thing in this process is the accuracy of the forecast — whether the sales will grow 10 times or the retailer and the supplier will be able to earn. If you offer 40% off, but there is no effect, then everyone will lose profit. And if the right audience doesn’t come, then no one will win from running the promo. It’s worth noting that during the promo implementation, the retailer loses out, as margins and sales on other goods is cannibalized.

– How to accurately plan out everything?

– The very first question for a category manager who is planning a promo: “How much will I sell, and does that make sense?” Everything is measured by the forecast, its accuracy and the timeliness of the promo implementation. Many factors influence the result of the promo. One thing is when you give only 30% off, as an additional motivation for the client. But if there is no additional communication, then most likely, such promotion won’t work. Another thing, when you organize some additional communications. Someone may have a website, others have a newsletter, there may be an indication of price tags, a banner, an advertising in social networks and on TV. These methods of communication are super effective. To build an effective forecast, we need the historical data on the promo at least for the last year. We need such data as the history of promotion communications, sales, seasonality, trends, temperature, dependence on prices and discounts. For example, if it’s hot now and you run a promo for beer or water with a discount, there will be a nice increase in sales. And if it’s cold during this period, and we have already planned a promo of ice-cream, then the increase in sales will be smaller. Alternatively, do you consider, for example, that if you run the promo on women’s one-off shaving machines in winter, the increment will be less than in summer.

– What kinds of promos work better than others?

– When you give the consumer the best offer for the price and communicate it back to him. The customer should believe that you’re giving him the best possible proposal. In other words, you should keep your eye on other offers on the market.

– Do customers really remember all the prices on the market?

– Like an elephant, customers never forget. They remember the prices of goods that they buy routinely for sure. For example, they remember the prices of bananas, eggs, even if these products may not make up a significant part in the budget of the customer. The consumers may remember the prices of expensive items that make up a significant portion of their budget. The customers may not remember the prices for most goods, but it doesn’t mean that they won’t notice the difference in price or won’t check the previous price. If a buyer notices that he has paid more than usual in the checkout lane, he will start to analyze a problem and will figure out a reason. Your average customer doesn’t remember the prices of goods in a competing shop. But if he goes to your competitor’s store, he will remember your price, and the fact that he paid you more for the same product.

– Can I just copy the same promo from last year?

– Let’s just say you ran a promo last year, during the same period of time. You do not have changes in items, in prices, and also the competitive environment remains the same. In this case, you can copy it. In other cases, it won’t work out. During the course of the year, the range of products can be subject to a change of 80%, that is why you can run the same promo, but in other conditions. In order to implement an effective promo, It’s important to simulate it, in order to choose the best range of goods, level of communication, and discount system.

– And what do you need to do this?

– Our solution is a modular package for building models and forecasting promos. It’s made of machine learning algorithms that take into consideration various factors: prices, discounts, communications, weather, seasonality, cannibalization, etc… We configure different scenarios of promo running inside the program and teach the system uniquely for each customer.

– When did your “promo module” appear and what does it offer now?

– It was the second module that we developed in 2016. When we created the first basic forecasting module, we attempted to forecast promos with our customers. And we noticed that the same 30% off discount can give different increases in sales under different conditions. For the same product with the same discount, you can get an increment of 2 times in one case, and by 10 times in another case. That is why, it’s very difficult to forecast the promo. Rarely does a customer purchase the products of the category “fresh” with plenty to spare, so you’re unlikely to receive a tenfold increase by them. The price and the demand for bananas start to grow from October and reach their peak in April, after which they decreased to their minimum by July when the season for local fruits starts. Their price can vary even up to several times a week. So, depending on the time when you run the promo, there will be a difference in price level and in sales increments.

People rarely buy household detergents, cosmetics or perfumes, but with good discounts and promotional support, you can get multiple increments even for these types of goods.

– How accurate is your “promo-module” forecast?

– Talking about the accuracy, we provide a guarantee that no other system will build an automatic forecast better than ours on the very detailed levels. In contrast to the forecast that our client has before implementation, our solution noticeably increases the accuracy of the forecast. Our system permits you to simulate many scenarios with different data: discounts, communications, prices. You will receive the best possible and advantageous scenario. We build an accurate automatic forecast for the promo at the finest possible level: SKU — shop, for each combination, we are able to consider many factors, even such complications as sales cannibalization. It’s important for a retailer to optimize the promo for earning money.

– Which communications are more effective, and which are less effective?

– Up to 70% of all buyers are “promo-hunters.” They literally hunt for discounts. For this reason, the information about a promo should be indicated on the website, because these buyers check it before going to the store. The customers will pay attention to the promoted item if you post the information about it inside the store. Promotions in retail is a very powerful marketing tool for driving sales, in which suppliers have an interest.

– How attractive are “promo-hunters” for retailers? It’s difficult to make them loyal customers.

— The main goal of the retailer is profit. If he receives a tenfold increase in sales, and 70% of this increase comes from “promo-hunters,” he earns. A few percent of these “promo-hunters” will become loyal.

– According to statistics, 40% of goods in retail are sold during a promo, with discounts, etc?

– It really depends. For example, in the Drogerie chain, you can sell in a promo maybe more than 40% of goods. In Europe, this figure has already reached 80%. This is due to the fact that drogeries have a big variety of goods with a long shelf life. The percentage of goods promo actions in the grocery retailing is up to 20%. And in some segments, this index is less than 10%. But still, the percentage from sales promotions is growing every year.

– If you sell so many goods due to discounts, then why do you need to invest in creativity?

– First of all, the offer should be advantageous. Creative advertising won’t work without a sweet offer accompanying it. You need creativity to make a consumer remember advertising. An ad should captivate the buyer, otherwise, the advertiser will lose interest. What’s more, creativity heightens conversion rates, even if it’s not possible to accurately measure it.

– How should marketing, commerce, and logistics effectively interact with one another?

– Generally speaking, marketing is tasked with communication and preparation of materials, a price image. Commerce is in charge of the selection of the range, prices, and discounts. It stays in touch with marketing on how and when it would be better to run a promo and coordinate with a supplier a promo running. The task of logistics is to provide the goods for promo implementation. It often happens that during the promo there could be a lack of goods. And that really isn’t the fault of the logistics department, but rather an inaccurate forecast. Marketing and logistics often live their own lives, and it’s tough to build effective communication between them without a system. It’s important for the logistics department to receive on time information, and it must be accurate. The promo isn’t something that can happen out of thin air, it has to be a planned-out event. And if the goods run out during the promo, it doesn’t mean that logistics has worked poorly. It means the forecast was bad. Who exactly is responsible for a wrong forecast?

Well, that is a whole other question.

If the system doesn’t connect a promo running with the key departments, then a forecast will never be accurate.

– What would you recommend today to retailers looking to implement an effective promo?

– To begin with, classify your promos. Arrange your promos in terms of discounts, communication, mechanics of implementation, etc. One thing is, you could just give a nice discount, but another is to put such a product in the highly coveted checkout area, where all the customers can see it. All the suppliers compete for the checkout area, as it’s considered the best location. Start to gather information. What we see is many people can pick up information on sales for previous promos, but we do not often know about communications, mailing lists, or additional discounts. It’s important to connect the promo to an item, a city, an event, a store. If you don’t have such information, you won’t be able to find a comparable promo and understand how different it was. It’s a very good habit to store all the information in the system. We advise you to collect information, not only concerning yourself, but also concerning your competitors. You can do it by monitoring prices online and offline.

Authors: Yuliya Belinskaya, Aleksandr Shokun
Translation:
Taskforce.ua
English text editing: David Roberts

Original link on Retailers.ua

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“If you don’t understand how the forecast is built, you can’t trust it” — Alexey Ivasyuk, CEO MySales Labs