Retailing
MKTG 6211
Retail Promotions
Professor Edward Fox
Cox School of Business/SMU
Communications and Promotion
Source: Levy/Weitz
Communications and Promotion
RETAILER vs VENDOR
Vendor
Retailer
 Long-Term Objectives  Short-term Objectives
 Product-Focused
 Category/Store-Focused
 National
 Local
 Specific product
 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 one-quarter of a store’s volume
Retailer Promotions
 Short-Term Incentives Offered by the Retailer that
Lead to Immediate Purchase
Retailer-Promotion
Objectives
Generate Store Traffic
Improve the Retailer’s Price
Image
Generate Profits from
Consumers and
Manufacturers
Reinforce the Store’s
Positioning and Image
Retailer-Promotion
Tools
Feature
Advertising
Price-Cuts
Displays
Retailer
Patronage
Coupons
Rewards
Shopper
Patronage
Cards
Rewards
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
Purpose of Promotions
Relative Importance
Store traffic
50%
Price image
20%
Profitability
20%
Strategy/Positioning
10%
8.
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
Ad Size Continuum
Generate
Traffic
Large
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
Increase profits
 Generate unplanned
purchases
Increase sales and
profits
 Expose customers to
sale prices
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
 This may encourage add-on sales, and so
increase the profitability of a display
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
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
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,
Nordstrom)
 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)