Promotional Effectiveness Analysis Helps Fashion Retailer Turn Financial Loss Into Profit

Background and Challenge

A fashion retailer asked L.E.K. Consulting to help refine its promotional strategy. The client's promotional approach at the time of engagement was highly complex, with constantly changing deals and multiple layers of discounts. This made it difficult both for customers to understand the true price of an item, and for management to track changes in customer buying behavior. As a result, management feared that they were degrading margins without driving sales growth.

Approach and Recommendations

Over a four-month period, our team developed a Promotional Playbook that outlined actionable rules for designing promotions with a specific performance goal in mind (e.g. driving traffic, driving conversion, or basket-building) across key business dimensions:

  • Time of Year and Day of Week: when to run certain promotions based on the elasticity of customer behavior
  • In-Stores & Online: how to optimize promotions based on the different purchasing behavior of retail and ecommerce customers
  • Product Categories: which product categories to promote, considering seasonal elasticity and bundling opportunities
  • Promotion Type:  what mechanism (e.g. % off, new price, buy-one-get-one, etc.) promotions should be designed to reach a given day's performance goal
  • Customer Segment: who to target based on different consumers' elasticity to promotion types and depths

In order to inform our findings, we utilized our advanced analytics capabilities to run elasticity analyses, regressions, and product category association analysis to understand the effectiveness of promotions at the SKU-level and used a business intelligence tool to visualize key output. This evidence-based approach was critical to gaining alignment across the executive and leadership team to the new strategy.

Results

The client realized significant benefit from our work, reporting sales and profit growth above analyst expectations, resulting in stock price appreciation of more than 20% upon announcement.

The Strong Winds Driving Packaging Demand

An uptick in new product launches, along with increased private-label/Tier 2 brand participation, is among the key trends driving brand-mix shifts in the consumer packaged goods (CPG) segment. In addition to boosting packaging demand (even through periods of lower economic growth), the rise in product updates resulting from increased SKU proliferation has in turn led to shorter run lengths across numerous categories, while also emphasizing the need for more innovative product packaging. 

In this Executive Insights, L.E.K. Consulting outlines the key trends that are driving demand for higher-value packaging products. To succeed, packaging converters must be cognizant of shifts in CPG trends and their likely impact on different product categories; further, they must be nimble enough to develop innovative packaging solutions on behalf of CPGs as they strive to meet consumer demands. For investors, understanding how these trends are driving mix shifts in packaging substrates and formats, as well as where higher value-add products are being developed, is key to identifying opportunities in the making. 

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Crossing the Digital Divide: No Brand Left Behind

When news broke last spring about Amazon’s courtship of some of the world’s biggest consumer packaged goods (CPG) brands, it touched off a wave of speculation. Did the ecommerce giant simply see an untapped opportunity for its fulfillment solution? Or was it engaged in a longer game to alter the relationships between consumer goods makers and their brick-and-mortar retail partners?

However it plays out, Amazon’s outreach exposed a digital divide in the consumer products world. On one side is the growing interest of brands in direct-to-consumer (D2C) models. On the other side are persistent worries about conflict — not just with traditional distribution channels but also with retailers carrying the brand. To bridge this gap, we identified seven dimensions along which a variety of pioneering brands have arrived at an effective digital strategy.

Understand how digital serves different consumer segments. That way, brands can deepen engagement by bringing people together for shared experiences. Kimberly-Clark, for example, specifically designed its Huggies rewards club to attract and educate new parents. Luxury brand Burberry maintains microsites where customers share snapshots of themselves in their own Burberry coats, and streams exclusive fashion shows for younger users of its mobile app. And on Twitter, fast casual restaurant chain Denny’s replicates the sort of fun, laid-back quips one might overhear from one of its booths.

Use the right digital channels. A D2C initiative can involve one platform or many, depending on things like image, objectives, target audience and what’s feasible in a given market. Longchamp, for one, bases its D2C efforts in China on the blockbuster WeChat app. Whirlpool differentiates its brands — including WP, Maytag and KitchenAid — by conveying each unique brand voice across a mix of landing sites, social media and YouTube channels.

Add value to the consumer. This includes making decisions about whether to sell online and what assortment to feature. Either way, consumers need a reason to tune in, and mass-offered discount coupons are increasingly insufficient. Instead, Patagonia secures customer loyalty through its “Worn Wear” website, where environmentally conscious consumers can purchase secondhand clothing at a discount and trade their own used duds for gift certificates. Meanwhile, Subaru extends well-matched offerings at the right time in the consumer life cycle, from prepurchase targeting to end-of-lease management and loyalty incentives to repurchase.

Look for measures that matter. CPG manufacturers in particular can use analytics to make all of their digital direct-to-consumer channels better. At Procter & Gamble, for instance, technology says it’s time to remind parents about Pampers while analytics says that direct marketing is the best way to do it. Then there’s L’Oréal, which, through its work with Google, discovered that ombre hair color was trending. The cosmetic company’s response? A new product, backed up with a dedicated consumer marketing plan.

Make room for new technologies. They’re increasingly important to marketing, customer engagement and sales — in any sector. For instance, as a technology company, it makes sense that Samsung uses virtual reality to help consumers visualize space for its TVs. But what about Rebecca Minkoff? The accessories and apparel designer uses in-store radiofrequency identification to send clothing items to dressing rooms, helps customers choose different styles and sizes, and shows stock availabilities in stores and online. There’s also MATCHCo, which uses an app to scan the customer’s skin tone and deliver the perfect foundation. Finally, consider home goods seller Wayfair’s augmented-reality app. It lets customers evaluate virtual, full-scale 3-D models of furniture and décor amid their own day-to-day surroundings.

Keep the online conversation going. If brands don’t create a social media presence themselves, customers will create one for them. Fast-food purveyor Wendy’s famously took command of social media with its clapbacks, showing how wit can gain consumer attention in the Twittersphere. But for brands with a more conservative sensibility, alternative social media strategies can work as well. For instance, L’Oréal signed on 15 social media influencers to review the company’s offerings, record video tutorials and cover behind-the-scenes beauty events. 

Find a way to work with Amazon. Despite concerns about losing the customer relationship, high-profile multibranded websites are worth consideration, if for no other reason than the online traffic they bring in. Nike agreed to sell its athletic gear through Amazon and Instagram, for example. Brands participating in Amazon’s Prime Wardrobe — where members can order clothes without paying and get discounts on the pieces they keep — include Levi’s, Kate Spade and Theory. For its part, Prada sells its ready-to-wear outfits via third-party websites in Europe, with plans to replicate its ecommerce success in Asia.

Bringing it all together, brands tread a narrow path with digital. Retailer relationships can impose varying levels of constraint in D2C selling — less for apparel, perhaps, and more for CPG. On top of that, the online world is tough for brands to influence. But brick-and-mortar retail doors are closing, especially for apparel, as shoppers take their business online. In this environment, a failure to think digitally may have the most severe consequences of all.

So someday soon, digital agility will be as important to consumer brands as traditional capabilities like brand-building, new product development and distribution. What that digital response looks like will vary from brand to brand. For now, product makers can look to retailers and innovative brands for lessons in ways to balance universal best practices with choices that are authentic to the brand, the evolving consumer purchase process and the specific channel environment.

Crossing the Digital Divide: No Brand Left Behind was written by Robert Haslehurst and Chris Randall, Managing Directors, and Noor Abdel-Samed, Principal, in L.E.K. Consulting’s Consumer Products practice. Robert, Chris and Noor are based in Boston.

For more information, contact consumerproducts@lek.com.

Beyond the hype: What will Amazon’s Australian entry really look like and what can retailers do about it?

Summary

In the years ahead, Amazon will have a profound and lasting impact on the Australian retail sector. However, the rollout will be more considered and steady than many expect.

In this Executive Insights, L.E.K. explores some of the important questions that need to be addressed:

  • What does the Australian opportunity look like from Seattle?
  • Why has Amazon chosen to launch in Australia now?
  • What will the launch profile look like?
  • How will consumer behaviors change?
  • What should local businesses be doing to prepare?
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