Participation in Deal Examining within Category and across Category Practices

Retail Promotions Vendor sponsored through discounts and reimbursement – Price, quantity discounts – Advertising allowance, feature in co-op ads – Display allowances, end cap, aisle A component of an overall set of options—but major in impact and resources involved. Marketing, as an academic discipline, has little positive to say about sales promotions.

Promotions Increases category sales Concentrates sales into fewer SKUs Attracts shoppers from competitors Inconsistent across categories Typically done with higher gross margin, higher penetration categories—you don’t select categories with low margins that have low penetration.

“It takes two” When it comes to promotions, it takes two: 1.Motivated supplier, willing to discount, “deal,” or create the promotion—knowing all the potential disadvantages. 2.Motivated retailer, willing to participate in the promotion. When you see “% ITEM $ ON DEAL” it’s a combination of retailer + vendor strategies

Marketing effort Share of category, retailer or supplier Diminishing Returns in Market Share “Negative elasticity to share” High Low

First: Retailer Motivations Competitive retail market or markets – Not dominated by a single retailer – Strong market shares for third or fourth ranked retail competitors – Incentives for trailing retailers to increase share – Incentives to advertise to meet or remain on par with competition – Fear of losing market share, store volume

Competitive Market Structure and Deal

Summary: Market Structure and Deal The proportion of the category sold on deal in a metropolitan market is Negatively associated with – Sales of the top firm and second firm Positively associate with – Sales of the third firm Suppliers are less likely to offer promotions for their brands in more concentrated markets

Second: Supplier Motivations Competitive categories – Not dominated by a single supplier – Strong market shares for third or fourth ranked suppliers – Incentives for trailing brands to increase share – Fear of losing market share, store volume

Coffee Summary The proportion of sales on deal, and sales of the leading brand on deal, Is negatively correlated with the proportion of sales in the leading brand. Retailers are less likely to participate in a deal for the leading brand when it’s from the leading category supplier.

Step 6: Choose Tactics for Category Assortment, Pricing, Promotion … “Every Day Low Pricing” Move from EDLP to “hybrid price” EDLP is no promotion, no “high/low” pricing

Step 6: Choose Tactics for Category Assortment, Pricing, Promotion … Promotions… “may weaken a retailer’s price integrity” (?) “When retailers are promotion-driven versus equity driven (?) they lose their ability to price- manage categories.” “Brand bundling” reduces manufacturers costs (heavier concentration of promotion to a single manufacturer’s brands)

Blattberg on Pricing, Promotion … Destination categories, “Flagship” and “Cash Machine” “Display” is favored over “Feature Ads” “Display as frequently as possible” Feature ads – “Match competition – “Avoid aggressive price points – “Never run items as loss leaders”

Blattberg on Promotion “Maintain/Grow” and “Core Traffic” “Rarely display category” “Display as infrequently as possible” Feature ads – “Never run items as loss leaders – “Decrease frequency of feature ads – “Feature items at price points that offer good value and provide profits to the category.”

30 Food vs. 30 Nonfood & HBA

Looking across categories… Categories with higher penetration (and higher sales in nonfoods) have a higher proportion of sales on deal. Categories with shorter purchase cycles and more repeat buying have a higher proportion of sales on deal. Weak evidence that categories with higher gross margins have more promotion

Retailers’ Advantages for Creating Mindspace Communication with Customer: – “The physical presence of shops following a uniform design, name, logo, and style is equivalent to a permanent poster campaign on premium sites, perfectly targeted. – “Each visit from a shopper provides the opportunity to communicate something about the company and products – In-store advertising providing a major advantage over the difficulties faced by manufacturers attempting to reach a target market)

Retailers’ Advantages for Creating Mindspace Control of Marketing Mix Variables: – Presence and prominence in store, placement on shelves, proportion of display, out-of-stocks, location and adjacencies in the store – Combinations of price with promotions, ability to permit huge swings in volume between suppliers – Promotion combining displays, sampling, trial

Retailers’ Advantages for Creating Mindspace Information: – Retailers have all the data necessary to combine pricing with item movement to maximize category margins – Retailers have “market basket” data unavailable to any manufacturer (Wal*Mart shares this with its vendors, but few others have the systems in place to organize this information.) Challenge: Is it cost effective to use it?

Short-term Communication Objectives Vendor or Retailer? Would it be in the retailer’s interest to promote “Charmin” over “Northern” bathroom tissue? Display and signage in the store—who’s most interested in using this? How do vendor supported promotions work and what’s the impact? How do retailers balance the long-term objectives (“image”) with short-term objectives (“scrimmage”)?

Display Areas Feature areas – End caps – Promotional aisle – Freestanding fixtures – Point-of-sale areas Bulk-of-stock Walls Many retailers keep these display areas available for the additional revenue from vendors through display allowances.

Advertising expenditures Gross margin dollars

Advertising “Elasticity” Continue advertising up to the point where the ratio equals 1.