Is loyalty the next big step for promotions?

August 26, 2009

Promotions attract everyone from cherry pickers to productive frequent cardholders.

Promotions attract everyone from cherry pickers to productive frequent cardholders. What’s been missing too often is the longer-term view of customer retention and loyalty to stores that attract shoppers with offers.  Program lift is the frequent goal, and sales spikes with each event form the usual pattern.

CPG and retailers are working smarter toward the superior objective of keeping customers over a long horizon—through strategic promotions that connect to the specific needs of targeted customer segments.

“Strategically sound promotions do more than just create awareness and achieve short-term goals,” says Retailers: Making Promotions Pay Their Way, a white paper co-authored by Stuart Westmore, director, and Jon Weber, vice president, of L.E.K. Consulting. “If done properly, they can be a powerful source of direct and sustained earnings improvements and build loyalty with customers.”

The best promotional campaigns use ‘right to left thinking’ that first identifies the goal and works backwards to align each program element to achieve that goal. While this white paper details the anatomy of Best Practice campaigns, it suffices here to say that campaigns can’t take on too many objectives or they’ll be likelier to fail.

To select the right campaign platform (category, brand, SKU), the retailer “must concentrate on how to influence consumer purchase behavior in a profitable way. This requires a thorough understanding of the role an item plays in the store,” the paper states. It further recommends that retailers answer several key questions before selecting the platform, including:
•    How does the item relate to the category?
•    What does the promotional item say about our store?
•    What kind of store does this item best serve?
•    Product or price – which are we promoting?
•    Can promoting one item help sell other, higher-margin items?

With store trips and shopper spending still down in this recession, believes that revisiting promotion practices, and campaign selections and expectations is a worthy exercise. While L.E.K asserts that loyalty can be gotten through promotions, the best proof of that will come over time after the industry measures a series of well-strategized and well-executed campaigns under the microscope against controls.