P romotion Profitability for a Retailer the role of promotion, brand, category and store characteristics Kusum L. Ailawadi, Bari A. Harlam, et. Journal of Marketing Research Presenter: GUO DONG

Contents PROMOTION Promotion Profitability for a Retailer Data 1 Marketing Modeling I Contents Promotion Profitability for a Retailer 03 09 13 16 Data Methodology Correlates Key findings 1 2 3 4 促销 005

DATA >> Promotion Profitability for a Retailer Data 1 03 09 13 16 Data Methodology Correlates Key findings 1 2 3 4 DATA >>

CVS DATA Weekly point-of-purchase scanner data for 2003 CVS ExtraCare Loyalty program, 2 years panel data Internal company records, et.

HOW CAN WE EVALUATE THE EFFECTS OF PROMOTION

Δ SALES = Promotion Sales – Baseline Sales Gross Lift Manufacturer V.S. Retailer

Stockpiling Store net unit impact = Incremental Lift + Halo = Gross lift – Switching – Stockpiling + Halo Switching

Gross Lift = Unit sales of a item – baseline The number of weeks varies with the turnover Seasonality of the item

Consider two extreme situations Switching Consider two extreme situations Accounting for the gross lift from all promoted items Season Store Frist difference

Loyalty program panel data Stockpiling Estimate the stockpiling percentage for a category across stores 1 Compare promotional buyers with nonpromotional buyers 2 Loyalty program panel data

Halo d goes from 1 to 4 for the health, beauty, edible products and general merchandise departments Separate halo effect for each department Deseasonalize and first difference

Finally, net unit impact and net profit impact can be calculated: Store net unit impact = Gross lift – Switching – Stockpiling + Halo = Gross lift (1– %Switching – %Stockpiling + %Halo) Store net profit impact = Promotion sales – Base sales – Switching loss – Stockpiling loss+ Halo gain

+ – – – + Promotion Sales Base Sales Switching loss Stockpiling loss Halo gain

CORRELATES >> Promotion Profitability for a Retailer Data 1 03 09 13 16 Data Methodology Correlates Key findings 1 2 3 4 CORRELATES >>

“ We are not aware of any research that quantifies the net unit and net profit impact of promotion for a retailer and studies the correlates of that net impact. --by the author

Store net unit impact = Incremental Lift + Halo Conceptual Framework Store net unit impact = Incremental Lift + Halo = Gross lift – Switching – Stockpiling + Halo Store net unit impact: incremental lift Store net profit impact: the retailer’s promotion V.S. regular margin

KEY FINDINGS >> Promotion Profitability for a Retailer Data 1 03 09 13 16 Data Methodology Correlates Key findings 1 2 3 4 KEY FINDINGS >>

Key findings 1

2 There is a positive halo effect of promotion; for every unit of gross lift, .16 unit of some other product is purchased elsewhere in the store. 3 Despite the substantial net unit impact, more than half of CVS promotions are not profitable, because promotional margin is often significantly less than regular margin.

4 Cross-store variation is a small component of total variation in net impact. Cross-category and cross-brand components are both significant, and the latter is particularly substantial in net profit impact. 5 Many promotion and brand correlates that are positively associated with net unit impact have a negative association with net profit impact, revealing a difficult challenge for retailers.

T thanks for your attention

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