1. romotion Profitability for a Retailer P 商大师 http:/www.3dashi.com

2. PR OM OT IO N 促销促销 005 Contents Marketing Modeling I Promotion Profitability for a Retailer Data Methodology Correlates Key findings 12341234 03 09 13 16

3. DATA >> Promotion Profitability for a Retailer Data Methodology Correlates Key findings 12341234 03 09 13 16

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

5. HOW CAN WE EVALUATE THE EFFECTS OF PROMOTION

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

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

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

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

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

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. Store net unit impact = Gross lift – Switching – Stockpiling + Halo Finally, net unit impact and net profit impact can be calculated: = 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 Methodology Correlates Key findings 12341234 03 09 13 16

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. 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 Methodology Correlates Key findings 12341234 03 09 13 16

19. Key findings 1

20. 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 5 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. 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. thanks for your attention T