Promotions are everywhere. There are good ones and there are bad ones. If only there was a recipe for running good promotions.
And I’m indebted to Tim J Smith who has written an excellent technical pricing book – ‘Pricing Strategy’ from which I’ll summarise.
What is a good promotion?
One that delivers incremental sales and margin and doesn’t drag down customers price expectations. You need to leave them feeling they got a deal but not expecting it all the time, otherwise they’ll question your everyday price.
The 4 pillars
Good promotions are
Only promote lines to customers who are price responsive and who are valuable to you. Blanket deals cost a fortune because so many customers aren’t sensitive to that deal and so don’t buy extra. You’ll need some idea of your customer segments and a way of promoting to those segments.
50% off sofas – it’s no big deal is it? You expect it because the deals never end. So you know never to buy a sofa without at least 50% off. 70% off ‘blue cross’ deals for one weekend are attractive because you might lose out if you don’t get there in time.
Give a reason for the deal otherwise customers will expect these deals time and time again. The reason doesn’t have to be 100% legally binding. Psychologists have shown that just providing a reason is enough. ‘It’s been raining so we’re offering 25% off’, ‘It’s the Jubilee …’, ‘To celebrate National Beer Week…’. You want to leave customers with a feeling that these prices shouldn’t be expected week in week out.
If you know what deals are coming, you plan your purchases. There is little incrementality and customers suspect the value they get when you’re not on these regular promotions. When do you buy a kitchen? Try Boxing Day. What’s the minimum discount you need? 50% off minimum. We’ve learned this.
Good luck with your next promotion!