10 Ways to Increase these Profits:
Supermarkets and suppliers have promoted their products since time began. Unfortunately, promotions have always been seen as a blunt tool to drive volume. Some promotions are designed and executed with the Supermarket, Supplier, and Shopper in mind, achieving the hat trick of success, though these are few and far between. A typical Supermarket’s Promotions Plan is largely a mirror image of the year before. Yet, designed and executed well, a supermarket’s promotions plan can increase profits significantly. Here are ’10 Ways to Increase Profits on Your Supermarket’s Promotions Plan‘:
1. Avoid ‘Analysis Paralysis’
One of causes for the supermarket’s promotions plan not achieving its full potential is because the impact is hard to detect. There is so much ‘noise’ happening in a category, from availability issues to range changes to other promotions, that it is difficult to sort the ‘wheat from the chaff’. To increase profits, agree the model upfront, by presenting to stakeholders what will be included in the analysis, what will not be included, and manage their expectations that whilst not everything will be analysed and taken into account, when comparing one promotion to another, it is ‘good enough’ to make better decisions.
2. How Much Does Your Supermarket’s Promotions Plan Cost You?
For every product you sell you know the cost, the retail and the margin that you make. Yet we do not know how much we spend per year on promotions and how much we get back in return. Understanding your return on investment is the first step to increasing your profits. Treat the promotions plan like a product; How much does it cost you? And how much do you get back in return?
3. Objectives, Objectives, Objectives!
What are your objectives for your Supermarket’s Promotions Plan this year? At a basic level, to make £Xm profit. A more advanced set of objectives would be to set an objective for each party; Supermarket +£Xm Profit, Supplier +£Xm Profit and Shopper Numbers (Penetration) to increase by +3.1%. By starting with what you need, you will encourage the discipline of knowing what you achieved last year, what each promotion achieves this year, and whether you are on-track to achieve your objectives.
4.The 3 Shoppers
For any promotion and any category, you are trying to ultimately achieve one of 3 things; To get more shoppers, to get your current shoppers to buy more on each trip, or to get your current shoppers to buy more regularly. There are additional aims, like an education strategy, but let’s stick with these 3 main aims. A successful supermarket’s promotions plan needs to deliver for all three parties because to achieve 1 out of 3, or 2 out of 3 can only be short-term, i.e. If the promotions are designed to just make profit you’ll ultimately lose the shoppers. For the category you need to decide what you are trying to achieve and then design each promotion to work towards that aim.
5. Category Impact is Very Important
So many promotions just move money around the category, from one sub category, or sku, to another without achieving anything for the supplier or the supermarket and only rewarding the shopper. To understand which promotions have truly had an impact on the category look at the 4 weekly category market share for your supermarket and identify when the market share achieved above average – Was this because of a promotion? Can this promotion be repeated? Then, do the same for each sub category, looking for where the sub category market share achieved above average.
6. ‘Promotions Eating Promotions’ – Cannibalisation
You’ll be aware of which promotions effect which sku’s and you’ll make allowances for these, as best you can. Some you’ll get right and some you’ll get wrong. This is the promotions guessing game. The challenge is far greater and is about understanding how the shopper shops – ‘Shopper segmentation’. By understanding shopper segmentation you will truly be able to promote with minimal cannibalisation. As an example, fruit is not bought by the shoppers as apples, pears, bananas, seeing each as individual categories, because the shopper has an idea of how much they will spend on what they call ‘everyday’ fruit and then they have a discretionary spend on ‘special’ fruit (Strawberries, raspberries, pineapples, etc.). Better to promote one of the every day fruits and one of the special fruits than promote two in the same shopper segment.
7. Guessing the Forecast
Estimating how much a promotion will sell, is hard, unless you have promoted it before and in the same way. As the Head of Security at Heathrow, once said, ‘…they only have to be lucky once , we have to be lucky every time’. Estimating promotions is a little like this, in that your chances of getting the number right are near impossible. This tool can help – The ‘PRO’ tool; Pessimistic, Realistic and Optimistic. Share with your retailer and production that you have a plan based on 3 numbers – A pessimistic number of x, a realistic number of y and an optimistic number of z, coupled with commentary on a reason as to why each number could be achieved, e.g. If a competitor is not on offer we’ll achieve z. This avoids the need to guess the ‘right’ number and manages everyone’s expectations of what could happen and why.
8. Competitor Intelligence
Many suppliers gather the information on their supermarket’s competitors and have a promotions plan for each supermarket of what was promoted for the last 12 months. This is excellent because it can be a predictor of what will be promoted in the future. The challenge is that not enough is done with all this work. Here are 3 things that can get more from the time spent collecting the data:
- See No.5 above and repeat this exercise for the competitors to understand what they did that had a huge impact on their category market share.
- Identify which products, or ranges, are bought by your shoppers and the supermarket’s competitor’s shoppers, and consider promoting ahead of them and then aim to keep those shoppers afterwards with loyalty promotions.
- Against each of the supermarket’s competitor’s promotions mark whether you think they are aiming for 1. More shoppers, 2. Shoppers to buy more each trip, or 3. Shoppers to buy more regularly, and then check against the market data to see whether they are achieving their aim.
9. Do You Need a New Mechanic?
Considering that most supermarket’s promotions plans are a mirror image of last year, it is probably fair to assume that each promotion is a mirror image and that we trust the mechanics we have always used, ‘3 for 2′, ’50p off’, etc., but are there other mechanics that might yield a better result? It is worth trialling a new mechanic, like ‘Buy one get one free’.
10. No Promotions!
At the risk of being shut out in the cold and never let back into retail – Might ‘No promotions’ be the answer? There are some categories that have proven to only cannibalise promotions, whatever they do. Just moving money around the category. Total category promotions or themes might do better. For example, the delicatessen counter needs to grab the attention of shoppers that pass by and a half price ham might do the trick, but the shopper is probably likely just to buy the half price ham, and rather than buying it on pre-pack. Might a ‘free sampling’, ‘test our service’, or ‘spend over £10 and get a …’, work better? At the very least it is worth trying before week after week just moving money around the category.