Retail Promotions and Effectiveness
Faculty Contributor: Ashis Mishra, Assistant Professor
Student Contributors: Mamta Kathuria, Sathish M
The retail market in India today is flooded with promotional offers in order to attract customers because of increasing competition. Managers' incentives make them concerned about their own motives and often forget what the customer actually values and prefers. Satisfying these unstated needs of consumer can give any brand/store an intangible and inimitable competitive advantage. This article focuses on the needs of different types of consumers belonging to different age groups (15-24 and 25-40), their perception on discounts and what they value most.
The retail market in India today is flooded with promotional offers to attract customers because of increasing competition. In this scenario, most managers are only concerned about getting the sales through. In order to measure the effectiveness of any promotion offer, managers often fail to realize that a consumer can have his/her own parameters to evaluate, which can indeed vary depending on age of the customer.
Types of Promotions
Today, consumers are left with a range of promotions to choose from, in almost all the product categories
A retailer can offer any type of promotion mixes: Advertising, Personal Selling, Public Relations, Sales Promotion, Visual Merchandising, in store decor. They also offer consumers, different types of discounts such as Price Discounts (happy hours, reward program, cents-off deal, loss leader among others), Price reduction may be a percentage marked on the package, direct % off, indirect example: 50%+20%, Quantity Discounts, Coupons (free standing insert, on-shelf couponing, on-line couponing, mobile couponing among others) Games and Events (Online interactive promotions, contests/sweepstakes/games). Therefore the consumer today is left with a range of promotions to choose from, in almost all the product categories. Despite the economic attractiveness, it is highly likely that the consumers will not be able to evaluate or take advantage of every offer they come across.
The Three Faces of Consumer Promotions
There are three aspects through which a deal can affect a consumer: economic (changing the economic utility associated with a product purchase), informative (influencing consumer's beliefs about the brand or industry) and affective (Affecting the feelings and emotions aroused in the consumer) (Priya Raghubir et al, 1996). The Economic route focuses on both monetary as well as non-monetary (time and effort) gains and losses. Non-monetary benefits can accrue as well, such as decreasing transaction time or effort required for a consumer to make a decision by simplifying the decision process (i.e., providing a good reason to buy). The information route focuses on the information conveyed such as price expectations, quality expectations and promotional patterns. These factors lead to crucial implications on brand equity. The affective route focuses on the emotional aspects of consumer such as, does the consumer feels proud after the deal, does he feel embarrassed due to the cheap price product. Based on these three aspects, we developed the 3E model of deal evaluation - Economic, Evaluation and Emotional and developed research on these aspects.
In order to proceed with the research, we decided to compare two cohorts of customers so as to consider the age factor. In order to choose our cohorts, we did a content analysis of Indian history and tracked major events that might have had an impact on consumer behaviour. The major event in the history of India was gaining independence. People of that period are not very technology friendly and are unwilling to explore advances in technology. The second major event was the Green Revolution. The Revolution created plenty of jobs not only for agricultural workers but also industrial workers by the creation of lateral facilities such as factories and hydro-electric power stations. People from this cohort are hard working and less of leisure seekers. The third major event is advent of Television. This brought with itself an age of easy information dissemination. This incident signaled the start of technological inventions. The next major event that impacted Indian consumer was the advent of internet and mobile phones. This gave rise to the next cohort which is totally influenced by the western culture but holds Indian values deep within.
Thus we have selected the age groups 15 - 24 and 25 - 40 as these people mark the new beginning of Indian culture and these are the most observed supporters of mall culture. However, there are many differences within these two groups itself. In urban areas, usual age when one gets married is 23 - 27 years. Marriage is an event after which one's life changes immensely and thus we decided the average of this period as our interval break.
Evaluation of a deal heavily depends on the type of discount offered and complexity involved
Through our survey, we found a lot of similarities and interesting dissimilarities among these groups. Both the age groups value discounts equally and tend to increase their spending whenever there is a good deal offered. They also prefer to spend time in searching for deals and visit multiple stores before making a purchase. They also do not prefer to wait for their favourite retail store to go on promotion and search for deals in other stores. However, customers belonging to the two groups differ significantly in terms of evaluation of deals. The older group tends to evaluate the deals carefully and then selects the deal that gives maximum value, whereas the younger group does not prefer to spend time in evaluating the deals and are attracted easily. Also, there is a difference in the types of discounts preferred. The older group prefers quantity discounts while younger prefers price discount. Another similarity that was found was that both the age groups prefer better organization and in store services during the time of promotion. They give equal preferences to store services. Thus, we observed that, Economic aspect of customer's way of measuring the effectiveness of a deal is the same across all ages. Customers are ready to pay high prices for trusted brands; however, they want fair deal when the store claims to be on sale. Low value discounts which often do not compensate even for search costs involved might lead in severe brand image erosion. Evaluation of a deal heavily depends on the type of discount offered and complexity involved. As we observed, one category of customers do not mind the complexity of deal if the value associated with it high. However, the other group of customers might get irritated with the type of discount offered, thus eroding the store image in their minds. Intensity of deal also matters heavily for all customers as they strongly believe in the fact that 'price is an indicator of quality'. Simple efforts like additional billing counters, better arrangement of toilets, queues, trial rooms etc can lead to better image of stores in customer's minds, which is valuable to initiate positive word of mouth advertising and affect the customer through the emotional route.
The study also concentrated on interviewing people from the industry (United Colors of Benetton, Shanthi's, and Reliance) to get their views on motives behind giving promotions. The main objectives for giving promotional offers were to restore normalcy in sale, clear the stocks which had long shelf life, to match apparels with the season, for monetary profits through increased sales, to increase brand awareness and to keep customers in rotation.
Also a common pattern of bi-annual discounts was observed to be given during September-October and during January period. The rationale behind giving sales promotions during the specified period of August and January is as follows. Generally the store gives percentage discount sales during August 1st - 15th. This is an ideal timing to clear the cotton garments that were kept in stock by the company owing to the just concluded summer season. This is because customers prefer "value-add" clothes in the forthcoming season because of the array of festivals during that period namely Onam, Ramzan, Dussehra, Diwali, Christmas, New Year and Pongal. The shop stocks "gorgeous, heavy weight and valuable" dresses for the festive period due to which promotional activities are done to clear the cotton garments and stimulate the sales of the new arrivals.
Also, the cloth manufacturer is piled up with stocks of garments which he gives at a lower price to the retail shops for clearance. This results in more margins for the retail shop. As January nears summer shops give a discount to clear the previous items and stock new cotton garments.
The success of a promotion is measured through various indicators. Some firms look at individual components of promotions like impact of visual merchandising, advertisements, discounts, sales personnel behavior while some others look it as on a consolidated basis. Exhibit 1 gives ways and means, through which these parameters are measured.
Measuring the Promotional Offers
Done through the sales data and footfall measurement. Also customers are directly asked through what means they came to know about a deal in the store and hence the effectiveness is measured.
Number of footfalls and conversion
Average bill value
Average sales per sales personnel
Done through analysis of footfalls. They normally calculate the normal conversion that will take place for a certain number of footfalls. If the billing is more than the result it is attributed to sales personnel effectiveness.
Publicly available financial data for large retail shops like Shoppers stop, West side were used to analyze the impact of promotional discounts on the quarterly sales of the shops. Both give bi-annual discounts in addition to different types of discounts during specific festivals.
Financial analysis on an aggregate basis showed that for Westside the Jan - March quarter was dry sales period because offers were being given during June to restore normalcy. So, the March - June quarter indicate normal sales period. A dip in sales was observed during Jan - March quarter and then discounts were given. The other quarters during September and December have huge sales increases due to the promotional offers given during festival season.
Similar analysis of Shopper's Stop, which also offers a bi-annual discount sale, showed this cycle. In addition some firms provide offers during the year to promote their brand. The normal sales period for Shoppers stop was observed to be as January - March where normalcy in sales was restored. There is a dip in sales during the next quarter and then another promotion is being offered leading to sales increase. The festive season starts in the next quarter and the sales reaches peak.
Promotional offers certainly have its positive effects on the top line of the firm. To further enhance this positive effect stores have to segregate customers into groups. From the customer's perspective two types of customer segments were identified based on their age groups. These segments are unique in nature and have their own way of shopping and deal analysis. These two segments are the primary customers of the large format retail stores in India. So, studying their behaviour is imperative to grow the top line.
Customer survey indicated that the customer group 1 who belong to 15-24 age group prefer simple discounts like flat percentage offers which is a price discount whereas the other group namely the 24-40 age group preferred complex deals like quantity discount wherein the percentage savings is not obvious. They believe that more cost savings occur in this type of deals. This customer groups predominantly consist of married couples with children who shop having their family in mind. They have a notion that with quantity discount more savings can be done as their shopping quantity increases than normal in one purchase itself. On the other hand a young customer group of college students and working professionals value money more than value. They see more savings on a direct discount on the apparel and hence believe that there is more savings in money in price discount. They don't analyze complex deals and the actual savings they derive from it, thus preferring simple deals. One of the main reasons for this attitude is that they are being supported by their family financially and they do not see a reason to save money.
This has huge implications to the store as the consumer surplus can be tapped by targeting both the groups with different discounts and hence increases the top line. Quantity discount should be directed towards 24-40 age group customers whereas simple percentage sales should be offered to 15-24 age group customers. Advertisements of these deals should be such that it appeals to the customer segment on which it is being targeted. So, profit of the store will increase due to proper direction of the offer.
Ashis Mishra is an Assistant Professor in the Marketing area at IIM Bangalore. He holds a Ph.D in Business Administration from Utkal University, Orissa. He can be reached at email@example.com
Mamta Kathuria (PGP 2007-09) is a graduate in statistics from Sri Venkateswara College, Delhi. She can be reached at firstname.lastname@example.org
Sathish M. (PGP 2007-09) holds a B.E in Electrical & Electronics Engineering from College of Engineering, Guindy. He can be reached at email@example.com
Marketing, Retail, India, Pricing, Sales Promotions, Shopper's Stop
Priya Raghubir, J. Jeffrey Innan, Hans Grande, 1996, The Three faces of consumer promotions: Economic, Informative, and Affective, Working paper 9/1996, Haas School of Business, University of California
Sonal Kureshi, Vandana Sood, Abraham Koshy, 2007, Comprehensive Analysis of Exclusive Brand Store Customer in Indian Market, Working paper 8/2007, Indian Institute of Management, Ahmedabad