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Promoting with confidence

One of the main ingredients of successful retail promotions is information. The better the quality, the better the results. Yet research and measurement are too often conspicuous by their absence in most promotion strategies. Greg Harris draws on his experience to highlight the benefits of good market knowledge.

By Greg Harris

Several years ago, while working in my family’s retail business, I came across a promotion that demonstrated to me the importance of information on how customers make purchase decisions and how retailers and suppliers interact with each other and how the absence of this information can cause unintended results. As I entered the magazine industry, I realised few publishers had access to this valuable information.

Rice and canoes

My family owned a retail marine supply business, selling everything from large-ticket items, such as boats, to supplies such as lifejackets and replacement parts. The promotion in question came about as a co-branding opportunity between Uncle Ben’s (a premium-priced rice) and the marine division of a large conglomerate, making, among other things, military aircraft, named Grumman.

The consumer proposition was quite simple – buy ten boxes of rice over the course of a year and get $100 off the price of a canoe, retailing for $300. I’ve no idea how the deal was structured between the two companies, but the intention was clear enough – increase the purchase frequency of consumers buying Uncle Ben’s rice and promote Grumman’s aluminium canoes, making incremental sales in the process. The result was no doubt quite surprising to both companies.

As soon as my father received the promotional materials from Grumman, he realised an opportunity existed for us to increase our sales of canoes from a handful each year to several hundred. We immediately placed advertisements, with 50% reimbursement from Grumman, under their normal co-payment programme, in all the local press and radio outlets, alerting consumers that our canoes were heavily discounted for a limited period. We also placed sales calls to all local organisations who regularly purchased one or two canoes a year from us – like sports camps and universities – advising them of the special opportunity to expand their canoe fleets at great savings. Since our margins weren’t affected, we were happy to increase our current sales, not worrying about any potential impact on future years.

We then purchased every box of Uncle Ben’s rice for a hundred-mile radius of our shop, emptying the contents and clipping the proofs of purchase in preparation for sending back to Grumman for the hundred-dollar rebate. We also placed an order to Grumman for several hundred additional canoes. Then we waited for the punters to come. And come they did. Our sales spiked that year, dropping back to pre-promotion levels in subsequent years.

I’d like to say that we were the only dealers cottoning on to the opportunity. But this wasn’t the case. All across the United States, canoe dealers were independently duplicating this strategy, achieving similar results.

And how did the promoters fare? In the short-run, I’m sure they thought they had a real winner on their hands. Sales of Uncle Ben’s rice exponentially increased for a short period immediately following the announcement of the promotion while Grumman had to ramp up production to handle the increased orders flooding in from retailers.

Unintended consequences

And were there unintended consequences? You bet! Uncle Ben’s goal was to increase the purchase frequency amongst its core customers from something like five boxes a year to ten. The reality was their customers faced outages as opportunistic canoe retailers bought up every grain they could find. And rice being a staple product (and one which we ate a lot of that year), many customers came to realise that the premium-priced one wasn’t all that much different from the store-branded variety that sold at a fraction of the price. So customers were lost and purchase frequency didn’t increase.

And Grumman? Their sales plummeted the following year as demand for their canoes had been pulled from future years and they were faced with competing with a glut of second-hand units released by consumers who found their impulse purchases were mostly left sitting unused by lakesides across the country.

Lack of basic knowledge

I’m not sure what Grumman and Uncle Ben’s could have done to prevent their unintended results from occurring but my beginner’s impression was that they needed to know more about their customers and dealers before implementing the promotion.

After leaving the family business, my first two jobs in the publishing world were in the newsletter business – where consumer research directed editorial content and design and promotions were analysed to the nth degree to ensure returns on investment were sufficient.

When I finally migrated to magazine publishing, I was quite surprised to find that consumer research and results analysis were not regularly part of the planning process for putting together retail promotions and the spending of rather large budgets. And promotion managers seemed to know little about their customers and retailers. I couldn’t understand how I could possibly consider promotions without possessing this basic knowledge.

Before committing further budget to retail promotion, I posed the following questions and started trying to find the answers.

Size and frequency

The first question concerned franchise size and customers’ purchasing habits. Basically, how many customers did we have and how many issues a year did each buying segment purchase. At the time, the general consensus answers to these questions were that the franchise size equalled our average retail sale and that all customers purchased all issues. These assumptions drove a retail promotion strategy that attempted to gain trial purchases in hopes of attracting new buyers who would purchase all issues, thereby increasing sales. But sales weren’t increasing and justifying investment in this strategy seemed difficult.

What the research revealed was a retail franchise significantly larger than average sale (by about ten times) and most customers were purchasing only a handful of issues each year. Armed with this information, we developed a promotion with the goal of increasing purchase frequency by offering a free gift to be awarded on return of ten proofs of purchase (in this case, bar codes) out of the next twenty issues (this was a weekly publication). The promotion was advertised on the cover for a six-week period, allowing us to reach most of the retail customers and attracting trial buyers in the process. The result was a significant and retained increase in sales with a by-product being the collection of thousands of customer names for future use, including subscription offers.

For retail promotion managers, knowing the answers to the size and frequency question are vital for developing promotions that work effectively and produce intended results. If your research tells you that most of your customers do buy virtually every issue, you should think hard about attempting to increase trials by using promotional devices such as cover mounts and supplements, as you’ll just be eroding margins and potentially giving core buyers add-ons they don’t want. And possibly making the product more difficult for core buyers to find by obscuring the cover.

The purchasing decision

The second question related to how customers in the buying franchise made their decisions to purchase, or not purchase, our product. Many magazine publishers tend to forget that the cover is a major tool in retail promotion. Here, we have a lot to learn from packaged goods brand managers who utilise research intensively to attract the best attention on the shelves for their products.

To get a handle on why some of our issues sold more than other ones, we conducted some basic "desk" research that took some time but did not cost us anything. In doing this, we analysed three years of issue by issue sales results, attempting to remove seasonality and promotional bias that appeared so we could compare like with like. We then reviewed each cover for content and design and were able to come up with a basic understanding of why some sold well and others didn’t. Some things like obscuring the logo with images, placing headlines in areas that would not be seen in normal retail displays and the featuring of certain topics were revealing, allowing us to provide the design and editorial teams with feedback that improved our packaging, and ultimately sales.

Moving beyond the desk, we commissioned research that allowed us to put prospective covers in front of our customers to gauge their purchase interest. We then tested the research and found the technique to be highly predictive in determining if a cover would increase or decrease our sales. We were also successful in using these methods to help drive our retail promotions – from in-store to broadcast.

Again, these are methods often used by packaged goods brand managers, offering excellent potential for increasing sales, but often overlooked by magazine publishers.

Results measurement

The third question I posed concerned results measurement. Again, coming from a newsletter publishing background, where most circulation was generated from subscription and there was no advertising revenue to determine if we were profitable or not, I found it difficult to accept that so much money was being spent without understanding the return on investment. There seemed to be a need for testing and monitoring results over time to justify spending.

To solve this problem, we divided our retail market into segments where we could expose consumers to different types of retail promotion. For instance, we were able to test the impact of television advertising on short and long term sales by constructing our media buy to exclude one of the segments. We then measured sales over an extended period and found that the promotion did not provide customer retention, hence we were able to significantly reduce our advertising spend. We were also able to utilise this same technique to test price, allowing us to increase with confidence.

Sounding out retailers

The last question posed was how retailers viewed the various promotions we developed. For their feedback, we implemented a regular contact management system whereby we visited as many retail outlets as possible, talking with managers and considering how product was displayed. This was a humbling experience demonstrating how insignificant magazines were to most retailers, with most not noticing our promotions. But in general, they welcomed our attempts to promote, as long as they didn’t have to do anything but display product. As a result, we dropped attempts to push signage into retail outlets and re-doubled efforts to streamline handling instructions to retailers.

All of these issues go to illustrate that you shouldn’t underestimate the value of gaining insights into your customers – both consumer and trade – when developing your retail promotions. Also the necessity of conducting proper analysis when determining how your promotion performed. These elements can work together to increase your sales and profits while limiting your exposure to risks from unintended outcomes.