What Is Promotional Pricing and Promotion Planning?
A staple of retail business, reduced price promotions of various types help to increase sales of individual products and bundles of items. But, what are the basic considerations that retail Pricing teams (Pricing Managers and Category Managers), Buying teams, and Marketing teams must bear in mind to perform effective promotion planning? Why is it a necessity for the majority of retailers to run promotions? And what are the benefits, challenges, and pitfalls you need to be aware of as a retail organization when running promotional campaigns for thousands upon thousands of SKUs?
Let’s start with the absolute basic question: what is a promotion, by definition? It is a price or series of prices set lower than the regular base price. And, in the case of EU retailers, promotional pricing means communicating discounts with respect to the Omnibus price. The promotions run for a limited period of time to raise sales on a particular product or group of products.
In summary, promotion planning and promotional pricing is creating campaigns around products that offer prices lower than the regular price for a specific time period to boost sales of designated products.
Regional Needs for Promotional Pricing Differ
In some countries, retail businesses don’t do promotional pricing, or they do it very sparingly — as per our internal knowledge, in Switzerland and Germany there is a very low promotional share, for example. However, in the Balkans, 90% of their sales are promotional. In the Czech Republic, approximately 50% of retail sales are promotional; whereas in Spain by 2020, 43% of Spanish retail businesses offered promotional discounts.1 It’s also interesting that 71% of Italian households now shop at retail businesses due to the discount prices they offer.2 As we can see, the need for promotion planning differs across countries, even in the EU.
What is critical to mention is that promotional pricing indeed can be a double-edged sword — it can offer retail businesses increased sales, or it can also stunt potential profit if the promotions are not priced optimally or if the strategy is not well-planned.
In this article, we will analyze the benefits and pitfalls of promotional pricing, and why it is so critical to execute effective promotion planning.
Why Promotion Planning and What Results Should It Deliver?
It should be no surprise that the true end game behind running promotions as a retail organization is to help drive a more successful business. A retail leader’s perception on promotions ought to be, “Yes, we lower prices at times, but we do so to improve our results with each and every promotion we run. If we do not achieve this end result and improve upon KPIs with each promotion, then our promotional efforts are failing.”
As such, promotion planning should achieve three primary results:
1. Attract and Retain Shoppers Through Improved Customer Price Perception
Customers of retail shops expect the best prices on the market for any given product. Doing bigger shopping at a better value is a business model that virtually all retailers espouse. Without this dynamic, the true purpose and value of retail shops diminishes significantly.
For example, the SMB but well-known Czech retailer Kosik.cz is a household name in the region of Central Europe — their recently established motto in Czech, “Velkonákupy. Velkovýhodně.” means, “Big shopping. Big saving.” (Or, more accurately translated, it means, buy in bulk at affordable prices). And, even on the other side of the Atlantic, massive retail conglomerates like Wal-Mart use the slogan, “Save money, live better.” The focus for retailers and what they want their shoppers to associate them with is almost always doing big shopping at better value — the traditional retail business model.
But, can every retailer truly offer the best value? This is a huge consideration for consumers — who offers the best prices and promotions? These high expectations require careful analysis by pricing teams in order to satisfy customer price perception, all while not damaging sales and overall margins.
Thus consumers’ perceived value of products and the prices retail businesses offer for items have a direct impact on overall sales, as well as brand recognition.
2. Boost Sales and Overall Business Profits
We get it — the main goal of promotion planning should be to drive profits — period. This is a fact that your customers don’t need to know (if they don’t already). But, it is true nonetheless: Business only thrives when sales and profits are healthy, if not excellent, especially when it comes to selling SKUs at reduced prices, or giving gifts and other exclusive limited-time offers. Promotions reduce the regular price of items on sale, and as such, this should be a great way to ensure a product sells and doesn’t stay on the shelf — or even worse, get thrown away.
In the end, if your promotions don’t help to generate more sales, higher profits, and overall better end-results, something is clearly wrong with your promotional strategies and this should never be left unobserved or unattended.
3. Avoid or Reduce Waste
As we very briefly noted directly above in the Boost Sales and Overall Business Profits section, retailers run promotions and markdowns to prevent waste of products. In the 21st century, waste reduction is not solely about securing profits and not throwing money away, but also in itself an ecological consideration. Most shoppers in modernity have a tendency to respect the well-accepted ethos that food waste and pollution are a big problem that we all must resolve, fast. With that said, a great way to ensure that your business doesn’t throw away its own resources, all while reassuring current and potential shoppers that your brand cares about the environment, is by diminishing waste to a bare minimum, if any.
In this sense, promotion planning should have the following two goals in mind:
- Use promotions to drive sales and profits even at reduced prices, so that your efforts lead to a more lucrative approach to business overall.
- Help create a better retail brand image for your organization by being a business that genuinely cares for the environment.
In the end, reducing food waste is not just great for sales, but also for marketing purposes, and our planet.
Challenges Inherent in Promo Management and Pitfalls Caused by Poor Promotion Planning
The concept of what promotions are, why retailers run them, and how or why they can be effective strategies to propel retail businesses forward is very simple to grasp, in theory. But, in practice, it’s extremely difficult to consistently launch impactful and genuinely results-driven promotions that are easy to track, understand, and improve upon. More often than not, pricing teams fall into promotion planning pitfalls and challenges that should never be overlooked.
We’ve observed 6 major challenges and pitfalls retail pricing teams and leadership encounter when it comes to planning and executing their promotions:
1. Constantly Running Copy and Paste Promotions
The most common promotional pricing “sin” retail teams commit is to simply copy and paste the same promotion and prices from the previous year(s). Promotions that are launched in this manner are really a big mistake because it in itself is not a well thought-out approach or strategy, at all. Simply repeating previous promotions as a default the exact same way they were done before, without careful analysis, forethought, and relevant hindsight, is a missed opportunity, at bare minimum — or a notable amount of money loss and damaged profits and margins, in the worst cases.
The alternative to this flawed copy and paste approach is to use advanced pricing technology that helps analyze and track past and current promotions. Tracking results and actually seeing where there is room for improvement is the most precise way to continuously run effective promotions that improve year-after-year.
2. Following Suppliers’ Conditions and Demands without Further Action
Suppliers are often the catalyst for promotions, and in many of these cases, they have a list of conditions and demands that come with the purchase of their product at an astronomically low price just for retailers, B2B. However, the supplier will set the conditions and often schedule exact dates for multiple different retail competitors for when to run the promotional sale of their product(s).
The above-mentioned scenario can play out as follows: Coca-Cola sets the schedule of when to promote their sale for 1 Liter bottles of Coca Cola Light (or Diet Coke, in North America). The suppliers then dictate when every retail partner they distribute to is running the same promotion so that the dates don’t coincide between competitors.
Well, this is great for the Coca-Cola company as they are sure to make money hand over fist, but it may not be such a great deal for the retailers. It’s not necessarily bad for business, but it is a bit of a straitjacket in the sense that it locks the retail organizations into how to and when to run the promotion. And in some cases, it can actually be a counter-productive promotion that results in lots of work, but little benefit to the retailer.
What can retailers do to protect themselves from this situation? The important thing for retailers being given demands to run promotions in XYZ manner is to have a price management product that has a promotions feature or module that can track the results of these promotions. In this manner, pricing professionals of a retail business are armed with data that helps them steer the promotion or negotiate better terms with their supplier.
Much like the copy and paste scenario, doing nothing and taking a passive approach is almost always not the best option for business purposes.
3. No Thorough Analysis of Previous Promotions
You run a promotion. People buy the product. The promotion ends. Job done. Right?
Wrong! Promotions offer a bounty of relevant data, something that you can act upon by analyzing it in order to continuously improve your promotions. This data is gold in the sense that by studying and understanding what works and what doesn’t, you are able to improve upon past promotions almost as a default. It also helps your team steer clear of pitfalls that they were not aware of while running past promotions.
Pricing software is your best ally when it comes to analyzing promotions in order to understand what best works for your retail organization and strategy. Investing in price management and analyzing your promotions is the key to ensuring continual progress and improved sales.
4. Delivering Visible and Appealing Marketing Communication
Your Marketing team must create a buzz around current items on sale and promotions. Assets like PPC ads, pop-ups on your website, snazzy graphics, catchy messaging and promotional punchlines, as well as the traditional leaflets, newsletters, and so forth are all a big part of getting the word out to ensure your customers are in the know of the products on sale that interest them. And, if you want to raise the basket size of your shoppers during promotions, a great way to do this is to whet their appetite and get them truly excited about the products you have on sale. Last but not least, are the different channels you are running promotions on effectively showcasing the sale?
Yet, nowadays these techniques are well-known to virtually anyone who hasn’t been living like an absolute hermit for the past 50 years, or more. The fact of the matter is that it’s hard to stand out today with good marketing alone. It has become evermore necessary as marketers today to establish great brand awareness consistently. By doing so, marketing teams have the best chance to obtain great results for business during promotions by combining truly memorable Marketing campaigns that are reinforced by a healthy approach to brand awareness, year-round.
5. Forecasting the Right Amount of Product(s) Per Promotion
The Buying team and Suppliers won’t always get it right — too large a quantity of a product and you may have a classic case of oversupply, which goes straight into the trash. And, undersupply of the products for promotion may lead to your team kicking themselves in the rear for not having ordered more, since this would have really helped meet quarterly, if not yearly, sales objectives. Either way, it is evident that not having on-point orders from the Supplier of a product or group of products is a significant pitfall in a promotion planning strategy, one to avoid at all cost.
Tracking the total number of individual sales of items per promotion as well as how well-received the product was overall and other key metrics is the best way to hit the promotional stock sweetspot.
6. Choosing the Right Type of Promotion
Though seemingly a standard consideration, choosing the right type of promotion to run is in itself a challenge, not to be taken lightly. Some obvious options are running a promotion with a percentage of the regular price discounted, 2 for 1 deals (or 3 + 1, etc.), cross-sell promotions where you promote items that pair well together, and so forth. The main consideration behind the promotion should be to always align the promotional concept with the primary business objective behind it.
The use of price management software offering data on how your various types of promotions performed in the past is the best way to guide your pricing team’s decisions. Excel and antiquated or rudimentary tools will rarely ever be the best or easiest way to perform this analysis, as it results in loads of man-hours, meetings, and wasted time. In the end, if you truly want to make the most of your promotions, choosing the right format is oftentimes a challenge in and of itself. Facilitating collaboration across teams with a reliable and up-to-date price management system can offer the best insights on the best types of promotions for your business.
Conclusion: Promotions Are an Ongoing Process
Launching effective promotions is almost as much a science as it is an art form. There is always room for improvement — the business of Buyers ordering and managing products from Suppliers, to the science of pricing teams analyzing data to set prices accordingly, all the way through to the art of truly great Marketing needed to communicate promotions in a manner that gets shoppers excited about the products you put on offer, all must be in sync. A well-oiled retail pricing machine never rests, and as such, the process of creating the “perfect promotion” is perpetually an ever-evolving end-goal, ridden with challenges and pitfalls that must be addressed in order to obtain great financial results.
If you would like to find out how Yieldigo and our team can help your retail organization run more effective and seamless promotions, you can talk to our pricing expert.
- Capgemini (2020). Los comercios minoristas impulsan sus capacidades online y planean ofrecer mayores descuentos conforme se preparan para un repunte del gasto durante el periodo festivo. Capgemini, April 17, 2020, https://www.capgemini.com/es-es/noticias/notas-de-prensa/los-comercios-minoristas-impulsan-sus-capacidades-online-y-planean-ofrecer-mayores-descuentos-conforme-se-preparan-para-un-repunte-del-gasto-durante-el-periodo-festivo/. ↩︎
- Pekic, Branislav (2023). Seven In Ten Italians Consumers Shop In Discount Stores. European Supermarket Magazine, April 5, 2023, https://www.esmmagazine.com/retail/seven-in-ten-italians-consumers-shop-in-discount-stores-236965. ↩︎
