In project management, there is the well known concept of scope-creep, defined as: “uncontrolled changes or continuous growth in a project’s scope.” This is generally seen as a negative consequence of poorly defining the objective of the initial project, or poorly managing the project delivery. If left unabated, scope creep at a minimum can result in a poor project performance by way of delayed schedules, and in the worst instances can destroy an entire project. Faced with this potential threat, effective project managers will invest the time upfront, to ensure a project is sufficiently scoped, and all stakeholders are aligned before they begin execution.
A similar, and equally alarming, phenomena has emerged over the past few years in retail; namely, promotion creep. We first brought attention to this during our eCommerce Toronto Meetup recapping the holiday shopping season at the end of 2014, but examples of this can be found from all around the web. Since we are on the topic of preemptively preparing for the 2015 holiday season, today we are going to discuss a framework to evaluate your promotions, as well as the varying degrees of success retailers have had with such an approach. Much like effective project managers, effective marketers need to be fully aware of the risks of promotion creep, so they can effectively prepare against it.
Since we are now in June (and the 2014 holiday season seems like it was forever ago), let’s recap with a few examples from last year:
Here at Demac, we are fortunate enough to work with a wide array of merchants, spanning multiple verticals. We have retailers who have bought into the promotion creep, and others who have not. This puts us in a unique position to assess the effectiveness of this strategy, and to identify the factors that lead to the success (and failure) of their choice in promotional strategy.
Understanding Effective Promotions
Before getting into the specifics we must first understand what makes an effective promotion and why we do promotions in the first place. In order to do this, I’m going to have to take you back to Marketing 101. Pop quiz time! Who remembers the 4P’s of marketing? That’s right, product, place, promotion, and price are all core pillars of a marketing strategy.
Fundamentally, we promote to incentivize a sales lift above and beyond your typical business. Relatively straight forward right? You would be surprised how many merchants we talk to who do not measure their promotions in a meaningful way. Although the purpose of this post is not to serve as a guide to promotion measurement, it is definitely helpful to understand a basic framework for evaluating your promotions, since measuring your promotional effectiveness is essential in evaluating whether extending your promotion works for you.
Understanding Your Business Base
In order to define what “a meaningful way” truly means, let’s decompose the statement above. The first component of that statement we want to understand is “beyond your typical (base) business”; on any given day, what sales can you reasonably expect with zero promotional effort (protip: this will depend on time of year). So step 1- understand your base business, and understand how that base changes seasonally. As an example of why this is important, consider the example where we are assessing a promotion in January, and we are comparing it against a non-promoted week in December. Easy right? Look at sales during our promotion, compare them against our selected base, and voila! However, adopting this measurement strategy could inadvertently lead you to believe your January promotion was ineffective given that December tends to have stronger sales for most retailers. Know the seasonality of your business, and measure your events accordingly.
What are you incentivizing?
The second component we want to evaluate is “measure their promotions in a meaningful way”. This is not as straight forward since the mechanics of it are subjective. Step 2- think about what behaviour you are trying to incentivize with your promotion, and measure the specific response accordingly. Tailoring your metric to apply specifically to the incentive provided is essential. As an example of this, consider a promotion where you add a gift with purchase over $75. In this hypothetical, we are concerned with how our incentive changes the behaviour of people who qualify for this promotion. There are going to be two groups of people impacted by this promotion, those who are near threshold, and trade up to reach the purchase level, and those who came to shop specifically for that promotion. In both instances, we want to observe how the behaviour of people above the $75 threshold changes with our promotion. A simple example of how we would want to measure this is as follows; on our base day, we typically observe 100 transactions above $75, however on our promotion day we observe 220 transactions above this threshold. We can then reasonably assume that the 120 extra transactions are driven by our promotion, and the revenue attributed to these transactions are incremental sales. In order to understand why promotion creep could be potentially damaging, it’s important to remember:
Call to actions diminish with time.
What are you more likely to respond to: “50% off, today only” or “50% off, ending whenever”. The former is likely to elicit: “OMG, I NEED TO BUY NOWWW!”, while the latter might result in “meh, I’ll get around to it eventually…” With this in mind we might go from incentivizing incremental sales with our promotion, to simply subsidizing a base of existing customers.
With these conceptual tools in our belt, let’s revisit our gift with purchase example above. Suppose we run the event and we see the following results. In this example, suppose we have $1,000 in incremental sales on a single day.
Now, let’s say we take the same promotion, and extend it over the weekend. Due to the decrease in urgency of the call to action, we now have the same incremental sales ($1,000), but spread over three days. No harm right? Wrong, this promotion cost 3x more than our example above since we need to give the blue bar the incentive as well, despite the fact that this group would have shopped regardless.
Test, Before You Creep this Holiday Season!
Of course there will be examples where prolonging your promotion, leads to sufficient increases in incremental sales to drive sufficiently high to offset the increase in base cost, but if you’re not looking at your events analytically, you would never know if this was the case. As is the case with most of my posts, the overarching theme is to test your promotional strategy and learn from the results. Experimentation is the path to enlightenment.