Guest editorial
The value of promotions in travel retail
Promotions are the second-largest cost for any brand, but do they always add value? Voiceback Analytics CEO Shubhra Misra explains how companies can embrace promotion analytics to maximise their worth.
In the cluttered and fiercely competitive landscape of modern business, the ability to launch effective promotions with hard-hitting communication is crucial for success. Since all businesses understand the power of promotions in this commercial warfare, markets are cluttered with them.
Promotions are the second-largest cost component of a store (after rentals) and a profit margin reducer in the P/L of the operator. Even if the brand is paying the cost of the promotion, typical margin share reimbursements ensure that while your profitability margin stays intact, your actual profit earned is reduced.
A duty-free store in a busy travel hub such as Dubai, Singapore or Hong Kong is likely to have 30,000 SKUs and many live promotions at any one time.
But in this cluttered market, are all promotions contributing positively to their respective brands? The unequivocal answer is no.
Voiceback Analytics CEO Shubhra Misra
In order to truly unleash the power of promotions, businesses need to leverage the power of promotion analytics. It is only by harnessing the insights provided by promotion analytics that businesses can make informed decisions, optimise their promotional strategies and maximise their return on investment.
Managers and analysts are regularly approached with the question: which promotions are delivering for us, and which are destructing value? This question is gaining momentum as it becomes clear to all stakeholders that some promotions bleed the bottom line.
How promotions can influence average spend according to Voiceback Analytics
Questions that brand and store owners need to ask:
- Is it possible that a promotion that works for the brand bleeds the store, and vice versa?
- What type of promotion works best for different brands?
- What depth of discount optimises bottom line?
- Do stores, destination ports and flights influence the impact of a promotion? How?
This is one of the most exciting and evolving fields in business data analytics. Business considerations and market-place realities make promotion analytics only more complex.
- For each brand, there are multiple promotions ongoing at the same time across different SKUs.
- Often one-on-one free promotions give one SKU free with another SKU, making sales on one SKU zero, which leads to decline of sale.
- Seasonality can colour the impact of promotions.
- Impact of promotions can be completely different for the brand and for the store.
Modern Day Data Analytics can develop a promotion analytics model encompassing all these complexities. An adaption of the classic test – control research design – this model is based on the core principle of comparing brand or store bottom line on promotion (test) and baseline (control). It is being applied today by practitioners to increase the profitability of their businesses.
Baseline sales: The concept of baseline sales is revenue that the brand is generating when no SKU is on promotion/discounted. There are occasions when at least one brand is running a promotion each day. In this scenario, we work with complex algorithms to assess baseline sale value. This works as a control metric for this model.
Promotion sale: This is the test metric of this model that simply assesses the sales that a brand is making on promotion days.
Lift: The difference between the test and control; or the impact of promotions on the brand sale value.
Halo: Promotions on one brand or SKU also impact other brands and SKUs in the category and also outside the category. If, for example, a customer walks into a store looking for luggage, they may also pick up a dress. There are algorithms that can assess the ‘halo impact’ of a promotion on store sales.
Choice of metric: Sales are the most relatable impact metric. However, they are strongly driven by passenger movement in travel retail, which is not in brand or store control and in turn impacted by seasonality. To address this, we do not recommend sales value as an impact metric but recommend using sales per passenger – a derivative of sales value as seen appropriate in the current business context.
How getting the promotional mechanics right is a difficult task to implement, and to measure
Outcomes
The total impact of each promotion is simply Lift + Halo. This calculates the impact of individual promotions on each SKU in concrete terms at a fragmented level.
By carefully tracking and analysing the performance of promotions, businesses can gain valuable insights and determine which are driving the highest levels of impact on revenue.
Regression-based modelling is done to understand the role of variables such as type and depth of promotion, brand, store, time of day or designation port on results.
By identifying patterns and trends in the data, businesses can plan future promotional activities and refine strategies over time. Learnings can be structured into evaluating promotion options in future, guiding brands and SKUs in identifying promotions likely to deliver value and which store and destination port to target for optimum results.
Promotion analytics are an invaluable tool for businesses looking to make more informed decisions and drive greater success in the marketplace with sharply targeted promotions.
As the business landscape continues to evolve, the ability to harness the insights provided by promotion analytics will be essential for staying ahead of the competition and achieving sustainable growth.
Voiceback Analytics is at the forefront of promotion analytics. It helps businesses target customers with a focused approach to promotions. Contact us at contact@voicebackanalytics.com for more information.
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The Moodie Davitt eZine Issue 338 | 27 September 2024
The Moodie Davitt eZine is published 14 times per year by The Moodie Davitt Report (Moodie International Ltd). © All material is copyright and cannot be reproduced without the permission of the Publisher. To find out more visit www.moodiedavittreport.com and to subscribe, please e-mail kristyn@moodiedavittreport.com