1. 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

2. 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

3. DATA >> Promotion Profitability for a Retailer Data 103 09 13 16
Data
Methodology
Correlates
Key findings 1 2 3 4
DATA >>

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

5. HOW CAN WE
EVALUATE
THE EFFECTS OF
PROMOTION

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

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

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

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

10. 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

11. 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

12. 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

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

14. CORRELATES >> Promotion Profitability for a Retailer Data 103 09 13 16
Data
Methodology
Correlates
Key findings 1 2 3 4
CORRELATES >>

15. “ 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

16. 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

18. KEY FINDINGS >> Promotion Profitability for a Retailer Data 103 09 13 16
Data
Methodology
Correlates
Key findings 1 2 3 4
KEY FINDINGS >>

19. Key findings 1

20. 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.

21. 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.

22. T
thanks for your attention

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