Promotional activity is an important strategic lever for many retailers. However, promotional programs can be costly and complex, and it’s not always clear what is and isn’t having a positive impact. A clear playbook that defines the roles and rules for managing promotions is critical to ensuring that your promotional strategy is creating value. L.E.K. Consulting combines its proven approach, advanced analytics and industry expertise to help clients develop promotional strategies that drive real results.
Our approach is grounded in the development of a client-specific fact base, generated by sophisticated analysis of historical promotional activities and outcomes. Key questions for evaluation often include:
- What roles do promotions play within a client’s business?
- Are promotions delivering on their intended roles?
- Which promotion types have been value accretive versus destructive? How does this vary by consumer segment, market and store type, channel, season, etc.?
- Which product categories are most versus least responsive to promotional activity?
- What are the optimal frequency and depth of promotions?
- Which promotional types should be diminished, stopped, altered, increased?
Based on this fact base, we create a customized playbook to drive promotional strategy, accompanied by a “test and learn” program to further refine key promotional tactics over time. We also help clients institutionalize the learnings and processes required to operationalize the strategy.
Global fashion retailer: We were asked to redefine the client’s promotional strategy, which had seen a major proliferation of discounting and promotion types. We deconstructed the client’s promotional activity to determine elasticity and profit incrementality across many dimensions. This led to the development of an enterprise-wide promotional framework that eliminated redundant and ineffective promotions and focused the company on high-value tactics tied to strategic promotional roles.
National discount retailer: We helped a retailer optimize its circular program, which had become large, complex and haphazard in its weekly construction. Our rigorous analysis led to clear rules for circular development, spanning category and product space allocations, product relationships, page roles, and offer types, as well as distribution size and frequency by market type. Our solution delivered margin improvement and a vastly simplified and structured approach to circular design.
National sporting goods retailer: We combined deep analytics of historical performance data with feedback from a structured test-and-learn program to define drivers of promotional efficacy, including discount depth, cadence, method of distribution, channel, market-level characteristics (e.g., competitor presence, grand opening events) and seasonality. We then synthesized these findings into a promotional “rule book” to guide and monitor future promotional activity. Substantial profit improvement was yielded within the first year of implementation, and is continuing.
A global packaged foods leader: We assessed historical trade spend effectiveness and key marketplace factors to inform the design of an optimal retail trade and promotional strategy program. First, we analyzed data at a store-, SKU-, and program-level across a number of different trade spend types in order to identify volume uplift and completed a detailed review of systems economics to identify profitability patterns by type of trade spend. Taking the detailed review into account, we developed a comprehensive trade and promotion strategy for the future. This included identifying a number of profit-destroying promotion events for the system to limit/eliminate (considering retailer and client/supplier economics), as well as recognizing multi-pronged events to increase in the future. The client implemented our trade strategy and process and realized immediate results.
Please see our Executive Insights “The Biggest P&L Line Item You’re Not Paying Enough Attention To” to learn more.