A key to attracting new customers and keeping current customers loyal is a strong promotion plan.  Price promotions are a part of every retailer’s marketing plan.  In the customer path from Awareness to Trial to Repeat to Loyalty, strong product promotions give customers an urgent reason to visit your store and make purchases.  While branding builds awareness, promotions are a call to action.

    First, create a basic calendar of events.  Savvy retailers align their promotions to customer buying patterns to give them reasons to purchase.  For example, January is organizer and clearance sales, March is spring cleaning sales, June is graduation events, August is back to school and October and November are holiday ramp-ups. See my earlier post on Retail’s Mini-Seasons for more ideas.

    Next, create goals around each event and build your promotion to deliver those goals.  For example, if your goal is to collect 250 new emails during the event, give a discount to first-time customers when they sign up.  If your goal is to increase sales of a particular brand, promote the best-selling items in the line to create a widely-appealing range of product.  Goals should be clear – and clearly communicated to your sales staff.  Make your goals specific and measurable.

    Select items that support the basic theme of the event.  Balance appeal with profit.  Most retailers categorize their products as either “traffic-drivers” (items with broad appeal that bring people into the store) or “profit generators.”  The sale of even a few profit generators can offset the price discount on traffic generators.  A balance of highly appealing products at a low price to bring people into the store with new items or fresh products that can be promoted at nearly full price is ideal.  Another common practice is to physically surround the sale-priced item with full-priced accessory add-on items in the store.

    Understand the purchase cycle of your customer.  If customers re-purchase on average every 8 weeks, a promotional cycle of 6-7 weeks will anticipate their needs and keep them returning to the store regularly.  A common practice is to pantry-load customers by promoting in multiples.  Customers tend to purchase in the multiple of the promotion.  Thus an item on sale for $1.25 will not sell as many units as the same item on sale at 4 for $5.  (Up to a point. Obviously, while that is true for consumable items like pens or soda, it is not true for cameras or televisions.)  Pantry loading is a good way to gain market share on consumable items, but do it with a plan for recapturing those customers as they come back into the market to repurchase.

    Accurately forecast expected promotional sales.  With a promotional goal to increase sales by 40% during the month of June, you must purchase more than 40% above your average amount to ensure that you account for variability in the sale (some sku’s could sell more than +40%) and to come out of the sale in a good in-stock position.  Retailers who do not have enough stock to cover customer demand in the final days of the sale risk short-term lost sales and long-term customer desertion.

    After the promotion, measure and maintain a record of the result for future promotional improvements.  To refine promotional effectiveness in the future you must have a record of the past.   Good records include the items on sale, their average (baseline) sales and sales lift during the promotion, the wording of the offer, the marketing used to promote the sale and the location of the sale item in the store.  This allows savvy retailers to test the results when store locations are changed, price ratios are changed or different marketing vehicles (radio, newspapers, internet or email campaigns) are used.

    Finally, keep records of competitive promotions.  Even the best-planned promotion can be unsuccessful if a competitor is surprisingly aggressive.  A library of promotional prices kept on file will let you review your promotional plans against market prices to ensure you are as competitive as possible.   All retailers tend to follow a similar promotional calendar year after year.  If Competitor X advertises all bedding products on sale the third week of January this year, chances are he will do the same next year.  That knowledge puts you in a good situation to decide whether to advertise bedding products the second week of January (to intercept his promotion) or to advertise a different category the third week of January to appeal to different shoppers.

    At some level, every retailer must engage in price promotions.  Following these guidelines can transform them from a necessary evil to a business-building strategic advantage.