Without promotion planning, demand planning fails
Based on Wikipedia, promotion is defined as:
“In marketing, promotion refers to any type of marketing communication used to inform or persuade target audiences of the relative merits of a product, service, brand or issue. The aim of promotion is to increase awareness, create interest, generate sales or create brand loyalty. It is one of the basic elements of the market mix, which includes the four P’s, i.e., product, price, place, and promotion.”
The goal of promotion is three-fold:
- To present information to consumers and others.
- To increase demand.
- To differentiate a product.
Promotions, as definition suggests, are managed by marketing. That might include, but not limited to price reductions, cross product packages, combining multiple of single products with less prices, sweepstakes, discounts on other products and so forth. All these create more consumption on customers’ side. At least this is the expectation of a business.
Promotions deviate the total market depending on the size of your business. In other words, by making promotions, we are buying market share from our competitors (assuming ours is better than their promotion) and hoping the new customers trying our product, will stay with our brand.
The question here is, what is the realistic expectation of the incremental of the demand?
The question plays a key role, because over-sale of a promotion means buying more market share, but diminishing the profit (since promotions need investment), on the other hand nobody wants to have a low-performer promotion since otherwise we didn’t plan it anyway.
Pre — Promo Planning
Before the promotions, we need planning. What parameters are going to change, what is the contribution of those SKU’s in business, category in terms of sales and profit?
We need to analyze the price elasticity and distribution changes of the SKU’s. We need to get the behavior of them. What are the expected changes in threefold: optimistic, pessimistic and most importantly realistic, based on standard demand planning calculations.
The company should make its plans based on most realistic case, but also get prepared for the optimistic and pessimistic cases to be ready for the real-world.
During Promo Planning
Depending on the duration of promotion, we need to take reports on a regular basis to understand the trend. If it is not preforming well, it is better to discuss how to make it more prominent and which of our assumptions are not working. On the contrary, if it over performs, can we expect a big risk on our profit? We should also take care of our inventory status, it might be an excess inventory if we cannot sell, or can be in shortage if we sell a lot.
Sure that for all risks and opportunities, it would be great to have some mitigation plans.
Post Promo Analysis
End of promotions does not mean end of promotion study.
Now we need to check back whether our assumptions were right or not, what could be better, what could we do to make it better.
All the assumptions, decisions and results should be saved into a database, and this might be a simple spreadsheet. The main idea here is to make all reachable and keep away from forgetting.
Promotion planning is an endless journey of today’s business environment. We all try to steal market share and profit from our competitors. However unless we make it in a clear way, we repeat our mistakes and fail repetitively causing money.
Baris Nurlu has an Industrial Engineering grade having executive management experiences in many multinational companies. Now, he also builds good apps in Baseduo. Check out here.