Communications and Promotion
Source: Levy/Weitz

Communications and Promotion
RETAILER vs VENDOR
Vendor
 National
 Specific product
Retailer
 Long-Term Objectives  Short-term Objectives
 Product-Focused  Category/Store-Focused
 Local
 Assortment of merchandise
Adapted from Levy/Weitz

How Important Are Promotional Sales for
Retailers?
 For a traditional high-low packaged goods retailer, the sales from items in the ad represent approximately 25% of weekly grocery sales
 Roughly 100 items out of many thousand are therefore responsible for onequarter of a store’s volume

Retailer Promotions

Retailer-Promotion
Objectives
Retailer-Promotion
Tools
Feature
Advertising
Generate Store Traffic
Improve the Retailer’s Price
Image
Generate Profits from
Consumers and
Manufacturers
Reinforce the Store’s
Positioning and Image
Price-Cuts
Displays

Retailer Promotions
OBJECTIVES
Promotions are used to:
 Generate demand
 Draw traffic into the store
 Improve the price image of the retailer
 Profitability
 Sell incremental units of the promoted product, while reducing the cost of goods
 Strategy
 Reinforce the retailer’s positioning in the market (e.g., price leader, variety leader)
Retailer promotions also generate excitement and provide customers with a reason to visit more often

Retailer Promotions
OBJECTIVES
 Relative importance of promotional objectives
8.
Purpose of Promotions
Store traffic
Price image
Profitability
Strategy/Positioning
Relative Importance
50%
20%
20%
10%
Source: Center for Retail Management,
Northwestern University

Retailer Promotion Objectives
STORE TRAFFIC
 The retailer has a better “feel” for which items and promotions might generate traffic than for the contributions of promotions to price image and store positioning
 Store traffic generates immediate results for the retailer, particularly in the promoted category
 However, buyers/category managers may believe that nearly all categories can generate traffic – they can’t
Source: Center for Retail Management,
Northwestern University

Retailer Promotion Objectives
STORE TRAFFIC
Promotions affect store traffic by:
 Generating more shopping trips
 Causing consumers to switch stores
 Affecting price image
 Increasing store loyalty
A caution, however...
 If categories are overpromoted (too often) and over discounted (too low)
 Consumers learn to buy only on promotion
 Promotions become unprofitable
 Total category profitability declines

Retailer Promotion Tools
PRICE DISCOUNTS
 “N-for” and “buy one, get one” promotions
 Cause multiple units to be purchased
 Cross bundling - with complementary items
 May reduce the item’s volume, but increases total revenue and
(generally) profits
 Price points (end-in-9)
 Avoid pricing promotions at 8s or 7s because they reduce profits without gaining any additional sales or price impression
Source: Center for Retail Management, Northwestern University

Retailer Promotion Tools
FEATURE ADS
Ad Sizes
AA
A
B
C
Ads on the front and back pages of the retailers’ flyers, or Free Standing Inserts (FSIs), are especially likely to be noticed

Retailer Promotion Tools
FEATURE ADS
 AA ads should be used for traffic generation and price image
 A ads should be used for price image, as well as traffic generation and profitability
 These three objectives should be balanced in any given ad
 B ads and C ads (liners) should be used to improve category profits
Generate
Traffic
Large
Ad Size Continuum
Small
Improve
Category
Profits
Source: Center for Retail Management, Northwestern University

Sales Promotion Tools
FEATURE ADS
 The market share of the brand also influences the size of the ad that should be run
 Larger brands are much more likely to draw traffic and make a price impression than smaller brands
 In general, private label brands should be advertised less often, though…
 Some retailers differentiate based on private label (e.g.,
Sears)
 Some retailers run private label events
In general, larger brands should be used in AA- and
A-size ads
Source: Center for Retail Management, Northwestern University

Retailer Promotion Tools
MERCHANDISING DISPLAYS
Displays should be used to:
 Encourage customers to choose a sale item
 Generate unplanned purchases
 Expose customers to sale prices
Increase profits
Increase sales and profits
Improve price image
Displays influence customer behavior by exposing shoppers to the product, and increasing the probability of consideration
Adapted from Center for Retail Management, Northwestern University

Retailer Promotion Tools
MERCHANDISING DISPLAYS
 Displays can also be used to sell related, or complementary items
 Wings
 Adjacent space on the end-of-aisle, table or other fixture

Wings with complementary, or related items, should be a key element in the design of displays
Adapted from Center for Retail Management, Northwestern University

Retailer Promotion Tools
MERCHANDISING DISPLAYS
• Often, however, displays are used primarily to reduce labor requirements and avoid out-ofstocks
Adapted from Center for Retail Management, Northwestern University

Retailer Promotion Tools
COUPONS
 Entitle the Holder to a Reduced Price or Percentage Off
 Manufacturer- or Retailer-Sponsored
 Objectives
 Induce customer to try products for first time
 Convert first time buyers to regular users
 Encourage large purchases
 Increase usage
 Protect market share
But…
 Since coupons encourage larger purchases, may be stealing sales from future
 Coupons may annoy, alienate, and confuse customers

Retailer Promotion Tools
COUPONS
 In-ad coupons can be used to increase profits (if suppliers pay for the coupon)
 By reducing the number of consumers who get the deep discount:
 increases average promotional margin
 generally preserves the price impression of the deeply discounted price
 Coupons may also be used to limit the purchase quantity of consumers at the deeply discounted price
Adapted from Center for Retail Management, Northwestern University

Retailer Promotion Tools
SHOPPER CARDS
 Shopper cards are a
Customer Relationship
Management (CRM) tool that is designed to increase customer loyalty and gather data about customers
 Retailers gather customer data from:
 Frequent shopper or shopper loyalty cards
 Membership cards
 Store credit cards
 Identifiable tender

Retailer Promotion Tools
SHOPPER CARDS
Shopper cards are used to:
 Reward customers based on purchase amount
 Confer special privileges and special treatment to the best customers
 Involve customers
 Personalize/customize transactions

Retailer Promotion Tools
SHOPPER CARDS
 Shopper cards are predicated on the value of knowing customer purchase histories
 To create incentives for shoppers to give retailers their purchase histories and related information, retailers may offer:
 low everyday prices (e.g., Sam’s Club, Costco)
 special discounts (e.g., Kroger, JCPenney, Foleys)
 special incentives for purchase volume over time
(e.g., Neiman Marcus, American Airlines, Java City)

How Retailer Promotions Affect Category
Purchase Behavior
 Expand category volume
 Cause brand switching
 Cannibalization
 Change purchase timing
 Cause stockpiling

How Retailer Promotions Affect Category
Purchase Behavior - Example
For beer …
 Category expansion Yes
 Brand switching Yes
 Purchase acceleration Yes, but only if the deal is very good (due to the high frequency of promotions)
 Stockpiling Yes, but again only if the deal is very good (due to the high frequency of promotions)