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AI and Retail Promotions: How to Hit Your Promotional Goals

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Two mannequins behind a window with promotion signs adhered to the window.

Promotion planning is a constant balancing act. You have many types of promotions to choose from, each with its own effects on consumer behaviour and the resulting outcome. These promotions must also fit within your overall promotional strategy which supports your company’s business goals. Sometimes those goals will require running promotions that are only indirectly linked to store sales.

What’s more challenging to keep in balance are the hundreds of variables, some more subtle than others, that affect promotion outcomes. The math needed to account for these effects is hard enough. Multiply that effort by the hundreds, or thousands, of promotions you run every year and the workload quickly balloons beyond the capacity of any planning team.

Let’s go over common promotional goals, types of retail sales promotions, and how technology like Predictive Analytics and AI can be leveraged to optimize promotions and significantly reduce labor costs and time involved in promotions

Promotion Goals & Retail KPIs:

Your company’s overall business goals will require a balanced approach to promotion planning. Sometimes, that will mean a focus on increasing sales. At other times, however, the link to sales will be more tenuous as your promotions support the business’ longer-term goals.

Driving traffic exposes more people to your store experience and gets them started on their customer journeys.

Winning market share will impact short-term profits, but these promotions help position a new retailer for sustainable sales in the long term.

Spreading awareness is another goal that does not produce sales immediately but helps keep your business top-of-mind when the customer is ready to buy.

Vendor collaboration lets you extend the reach and impact of your promotional budget while reinforcing your long-term vendor relationships.

Keep in mind that promotions are not the same part of a product’s pricing lifecycle as Markdowns. Any price changes you make are temporary, restoring the product to its full price when the promotion ends. In contrast, markdowns are permanent changes designed to clear inventories at the season’s end.

Sales Promotion Examples:

You have an array of sales promotion methods to choose from to achieve your goals. Each method has its own effect on customers’ value perceptions and will generate different impacts on different products.

  1. Percent discounts work best when you promote lower-priced products. A 10% discount on a ream of printer paper sounds a lot more impressive than the actual $2 savings.
  2. For higher-priced items, featuring the dollar discount has a bigger impact. Customers looking at a $1300 TV will respond more strongly to a $100 savings than the equivalent 7.7% price reduction.
  3. Buy One, Get One (BOGO) offers pair a full-price purchase with a free offer or a discount. People buying prescription glasses often buy a backup pair if they think they’re getting a good deal.
  4. You can form a link in the customer’s mind between the promotional savings and a multi-unit purchase by creating a Multi-Buy offer. Someone who only planned to pick up one pair of jeans, for example, may jump at a three-for-the-price-of-two offer.
  5. Any of the sales promotion examples we’ve just discussed can be worked into a rebate promotion on the current purchase or on future purchases. The closer the rebate’s redemption is to the current purchase, the more effective it will be. Moreover, in many cases customers will not even go through with the rebate allowing you to keep the difference.
  6. Financing promotions can change a customer’s mental math. Rather than focus on the total cost of that new dining set, your customer considers their ability to make the monthly payment.
  7. You can generate awareness and drive store traffic by offering free samples and contests. These work best when clearly linked to your business as when bookstores promote a signed copy of an author’s book.
  8. Bundling combines the purchase of multiple items into a single transaction. Vendors can create a hard bundle that you SKU separately or stores can ring up a soft bundle from their existing assortment.

Challenges with Promotional Success:

Deciding which sales promotion methods you use to meet your goals and support the company’s KPIs takes time and effort. However, that work may go to waste when internal and external factors undermine your promotion’s effectiveness and don’t perform to expectations.

As we’ve seen, consumer psychology influences the response to each type of promotion. Beyond price, there are many variables — from brand to shelf placement — that affect customers’ mental calculations. Furthermore, there are dozens of other influencing factors such as seasonality, size curves, assortment depth vs diversity, vendor lead times and much more. With so many variables affecting outcomes, your final ROI will never match your forecasts. What’s more, identical promotions run under slightly different conditions will produce different ROIs and make outcomes even less predictable.

The uncertainty in forecasting uplift affects your inventory planning since you can’t be sure each store has enough inventory to meet the additional spike in demand resulting from a promotion. Stock-outs represent lost revenue and hurt customer loyalty. Even if you have the right inventories of the promoted SKU, cannibalization (“stealing demand from related products that are not on promotion”) will reduce sales of adjacent SKUs and create more risk of markdowns.

The hidden factors influencing uplift and cannibalization are part of the reason why keeping your promotional planning and inventory management processes in sync can be so difficult. Co-planning meetings can only get you so far if, like many retailers, you plan promotions and inventory on separate systems. In many cases requiring to consolidate multiple datasets, forecasts, and plans manually.

AI and Predictive Analytics in Retail Promotions:

Retalon’s promotion optimization software solves the challenges of retail promotion and makes it easier to align your promotion strategy with your company’s KPIs. By combining AI with predictive analytics, we help you understand how promotions really affect sales free of other influences.

Our promotions solution intelligently performs SKU-by-SKU and store-by-store scans of your sales and promotion history. Once complete, the predictive analytics engine accounts for hundreds of variables to produce a forecast of true demand for future promotions along with suggestions for the best media for communicating with your target audience. All this down to the Store/SKU level.

Retalon’s software bridges your promotional planning and inventory management processes. The system will review expected promotional inventory levels along with vendor lead times to recommend adjustments for each store while also predicting cannibalization and many other factors.

Going beyond tactical execution, Retalon’s AI and predictive analytics can inform your promotion strategy by letting you explore what-if scenarios. Evaluating the ROI from various sales promotion methods earlier in the planning cycle will refine your budgeting and operational decision-making.

Optimize Your Promotion Strategy:

Retailers in a dozen verticals use Retalon to plan more effective sales promotion strategies and manage their inventories more efficiently. Our software integrates into your existing systems (eg. ERP system) and configures to your business’ unique organization, processes, and business rules.

A proof of concept using your own data is the best way to see how Retalon’s AI and predictive analytics engine can optimize your retail sales promotions.

Know the ROI before you buy! Start by requesting a demonstration of Retalon’s software for your business.

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