Promotions for Retailers: Headache or New Opportunities?
Sales forecasting for promotions presents a major challenge for retailers. According to Nielsen statistics, 60% of promotional campaigns fail to be profitable, while the share of sales driven by promotions ranges from 20% to 70%, depending on the country and industry. For instance, the percentage is higher in the U.S. than in post-Soviet countries, and in food retail, it is generally lower than in fashion. Since promotions have become a key competitive tool among retailers, their share continues to grow across regions and sectors.
Sales forecasting is only the visible part of the work involved in running promotions. Promotional activities demand interaction within the supply chain and with suppliers, making it a complex, cross-functional process. How does this differ from regular sales planning, where do the hidden complexities lie, and how can they be addressed? Find out in this article.
Differences Between Promotions and Regular Sales
When we talk about the regular sales planning process, it generally involves the following stages:
- Product assortment selection
- Supplier negotiations
- Purchasing
- Logistics
- Logistics
- Cyclical process involving purchasing, logistics, and sales.
A promotion might last just a week, yet preparing for it requires almost the same amount of work as for regular sales. Therefore, it’s essential to properly organize the process and optimize resource costs.
Many retailers also claim that promotional activities are a “necessary evil” for them. As the share is constantly growing, it’s time to turn this “evil” into a good thing. Read on to find out where to start.
Promotion Processes: Where to Improve Now
Problem areas often reveal growth opportunities, and in promotions, there are several. Analyzing the entire process of organizing and running campaigns, we identified a few key areas crucial to promotion success.
Start Collecting and Systematizing Information
To make promotions more predictable, start by building a proprietary database. Managers should analyze the company’s promotional activities based on multiple parameters, requiring structured data: types of promotions, campaign mechanics, promotional features, all marketing tools used, and discount percentages. Historical data and factoring in all elements that could have influenced sales help achieve more accurate sales forecasts during campaigns.
Optimize the Supply Chain
Once a promotion is scheduled, the process will begin regardless of the level of preparation. All company departments are involved, as the necessary stock must be ordered, displays set up on time, price tags prepared, and much more. The coordinated work of all departments directly affects the effectiveness of promotions. It’s crucial not only to synchronize all departments and participants but also to conduct retrospectives on past promotions.
During the campaign, you should analyze the availability of goods and lost sales. At the end of the campaign, you should analyze the stock and turnover of goods. This analysis should be done collectively by key participants, which will significantly improve the approach to organization and increase the effectiveness of in-store promotions.
Identify Where the Issue Lies
Promotional issues are not always due to poor forecasting. When there is no effective tool to calculate results, and the outcomes of a campaign significantly deviate from the plan, managers often attribute this to inaccurate forecasting. However, the cause isn’t always the forecast. Sometimes it stems from delayed logistics or incorrect product placement on the sales floor. Identifying the actual cause of an issue is key to resolving it.
During Promotions, Analyze Product Availability and Lost Sales
A Promotional Strategy is Developed Before Launching a Campaign. This strategy defines the goal and includes competitor analysis and an assessment of internal resources. Running promotions is generally aligned with two main strategies:
- Increasing turnover by boosting store traffic;
- Growing profits to achieve additional objectives.
For instance, increasing sales within a specific product category—65-70% of all promotions are conducted with this aim. Both strategies can be implemented simultaneously. The marketing department initiates the first strategy, responsible for preparing the retail network for the campaign, monitoring the process, and ensuring results. Category managers take charge of executing the second strategy.
Once the strategy is defined, the next step is planning. At this stage, campaign organizers must address three key questions:
WHAT?
Determine the specific SKUs participating in the promotion and the required quantities. Typically, these involve hundreds or thousands of products across the entire network.
WHO?
Identify process participants. This includes selecting the supplier or manufacturer and assigning retailer representatives: planners, marketers, buyers, and category managers.
WHEN?
There are regular promotions, such as company anniversaries, New Year, and International Women’s Day on March 8. There are also one-off promotions for specific objectives. It’s crucial to track which promotions run concurrently, aided by a promo calendar.
To maximize promotional efficiency, it’s essential to store all information in a structured format and establish smooth collaboration among all participants. Are there modern technologies to streamline the entire process? Find out in the next section.
More than Just a Report: Modern Ways to Measure Promotion Effectiveness
Today, many retailers estimate the expected impact of promotions manually, gathering scattered information from departments and spreadsheets. Yet, AI and machine learning are increasingly prevalent in retail. Perhaps it’s time to introduce these technologies into promotions?
Promo in ABM Inventory streamlines the organization and forecasting of promotions. By uploading historical promotion data, the system automatically generates a forecast, and with each completed campaign, the analysis becomes more accurate as the software learns, updating and cross-referencing promotional data.
Additionally, Promo in ABM Inventory provides a dedicated environment where all participants can interact seamlessly. The system covers every stage of the promotion process:
- Planning — selecting SKUs, determining mechanics, forecasting, setting commercial terms.
- Preparation — assigning tasks, setting reminders, chats, execution checklists.
- Execution
- Completion — plan-vs-actual analysis, effectiveness review, supplier compensation calculations.
The only obstacle that may hinder the system from making accurate calculations is the lack of data on past promotions. Therefore, even if you do not yet plan to implement a promotion management tool, we recommend collecting and storing this data. This will assist managers in both manual processes and when the system is eventually launched.
Conclusion. Retailers often struggle to know whether they’re profiting or losing on promotions, as not all promotions are profitable, and they require significant effort. At the same time, avoiding promotions could cost customers, who might seek “discounts” with competitors. Key focus areas should be:
- Reducing labor required for promotions
- Improving sales forecast accuracy and promotion effectiveness.
There are several ways to optimize promotions internally, but the main priority is establishing a robust supply chain. Numerous solutions help automate company operations, lowering resource expenses and enhancing outcomes.