Retailers have faced a brutal reality over the past few years as consumer spending declined due to stagnant wages and deleveraging of household debt. To counteract a slow economic environment, retailers often respond with a heavy dose of aggressive promotions, training consumers to expect deals every time they shop. This produces negative results for retailers that have become reliant on a perpetual cycle of decreasingly effective promotions that put a heavy drag on margins.
In this Executive Insights, L.E.K. Consulting discusses how retailers can avoid promotional traps by using the benefit-based promotional strategy to garner higher same-store sales and more profitable and incremental sales. According to L.E.K. analysis, the use of new analytics to drive personalization and targeted promotions is the best pursuit for retailers to optimize promotional dollars, but it requires a large investment in technology and people. The alternative benefit-based promotional strategy can help retailers garner success in the interim.