admin
October 16, 2010
Business
Standard, New Delhi, October 18, 2010
Amit
Ranjan Rai
Five years ago, Woodland, the maker of outdoor shoes and apparel, with a flourishing business in the country’s metros, decided to test waters in Tier 2 and Tier 3 cities. It opened a store each in the retail high streets of Jaipur and Udaipur, both well-known, well-to-do cities. Woodland had much expectation. But the stores flopped — there just weren’t enough buyers — and had to shut. Woodland then decided to stay away from smaller cities for a couple of years. No more experiments, no more testing waters was the message from the head office in Delhi.
year-and-a-half ago, amidst the buzz about the potential of Tier 2 and Tier 3 cities, Woodland decided to venture into these cities once again. This time it tweaked its strategy a bit. Instead of opening the regular 300 square feet stores, it decided to go full throttle taking up entire buildings or up to 30-40 per cent of all the space in a mall, and converting them into spacious, almost large-format stores. “We decided to make the Woodland store a landmark in such cities. Nothing works like word of mouth in small cities and towns. If people see a big store which stands out, it becomes a talking point and they make sure they visit it,” says Woodland Managing Director Harkirat Singh.
For the time being, the strategy seems to be working. The response from such stores has been encouraging. But Singh admits what’s also working in his favour is a sea change in the retail landscape and consumer attitude in the past two or three years. Smaller cities are buzzing with retail activity. Branded stores are coming up left, right and centre, and the consumer is no longer shy of opening his wallet. “The consumer in these cities is now ready. The youth is becoming brand conscious, and we see them much more open to spending,” says Singh.
No doubt, Woodland has been on an expansion spree in Tier 2 and Tier 3 cities. While currently 60 per cent of its 300-plus stores are located in metros and 40 per cent in smaller cities, Woodland wants this to change to 50-50 in the next one or two years, and then gradually to 40 per cent in metros and 60 per cent in smaller cities. “In the past two or three months alone we’ve opened stores in Varanasi, Allahabad, Vapi, Sangli, Thrissur and so on. Unlike five years ago, many of these stores have been doing well from day one. Our plans for the next two to three years will be concentrated on Tier 2 and Tier 3 cities,” says Singh.
“Certainly there is a big difference in real estate costs when it comes to Tier 2 and Tier 3 cities versus the metros. But what companies like Woodland will have to be careful about is that not every such city is going to work. Not every location drives enough demand for such products for the business to sustain. Yes, latent demand is there in many cities and locations, but Woodland will have to carefully evaluate the sites before selecting them,” says Devangshu Dutta, chief executive, Third Eyesight, a retail consulting firm which has been tracking the sector in Tier 2 and Tier 3 cities.
But that’s a significant shift for a brand which has primarily been catering to the urban middle class in big cities for almost two decades. Woodland is a sub-brand of Aero Group which started as a winter boot manufacturer in Quebec, Canada in the 1950s. Called Aero America then, it manufactured outdoor winter boots for Canada, Russia and Europe. The company entered the Indian market with Woodland in 1992. With a factory in Sonepat, it catered primarily to Delhi and some other large cities in North India.
(Article continues below…)
admin
October 15, 2010
MINT (A partner of the Wall Street Journal)
Mumbai, 15 October 2010
Sapna Agarwal
Indian beauty salon chains are looking to expand operations, offer cheaper services and increase the share of product sales in their earnings.
Chains such as VLCC Healthcare Ltd and Kaya Skin Clinic are opening new outlets to meet growing demand for their services.
Kaya, a chain of premium skin clinics owned by Marico Ltd, runs 81 outlets in India and nearly 20 overseas. At the beginning of 2010, it had announced a freeze on domestic expansion.
International operations contribute 45-50% of its revenue. In the current fiscal year, it has opened three stores in West Asia and one in Bangladesh. It plans to open three-five more stores in West Asia this year, chief executive Ajay Pahwa said.
In India, he said, Kaya has reworked its business model and made its services more affordable to compete with the cheaper neighbourhood salons.
"We have made the brand more relevant to more people because you have, one, services which are positioned to meet your everyday needs, also they are very affordable. Two, you have products–products are so important because at the end of the day, great skin, I believe, is a result of composition or the holistic approach," said Pahwa.
The company has identified four growth areas: everyday skincare, skin beauty, skin concerns such as pigmentation and acne, and anti-aging.
While the focus will be on everyday care, even specialized services will cost less. For instance, Kaya has brought down the average price of the so-called aqua radiance ser- vice, which it has been offering for a year in partnership with UK-based TavTech, to `1,500 from `2,000 per session, Pahwa said.
Kaya acquired Singapore- based DermaRx this year and plans to begin offering its products in India soon.
While DermaRx has a business model similar to Kaya, half its revenue comes from products–compared with 15% for Kaya, said Pahwa. Kaya will try to double this contribution to 30% in the next 12-18 months.
For the three months ended 30 June, Kaya reported revenue of Rs. 50.6 crore–including Rs. 5.1 crore from DermaRx–a growth of 14%. It incurred a decline of Rs. 4.7 crore in profits before tax.
Pahwa added that Kaya is resolute about consolidating volumes and improving sales at its existing stores in India before expanding. "Once you are able to achieve that, then it just gives you the desire to expand also."
But VLCC Healthcare, which has 150 outlets in 90 cities, has opened 11 stores in India and will add 16 more this year, said Sandeep Ahuja, managing director. The firm will also launch eight outlets in West Asia, Sri Lanka and Bangladesh.
Ahuja said VLCC Healthcare may allow franchisees to open new outlets and launch relaxation services, such as a day spa, at more outlets. "People are looking at holistic wellness solutions rather than specific individual solutions," said Ahuja, explaining customers are increasingly opting for "body shaping" rather than just weight loss service.
In July, Channel [V], the music channel, had announced a partnership with premium hair salon Juice to open [V] Juice Lite salons that would offer cheaper services than Juice. "The market for health and beauty services is estimated to be a $2.5 billion and is expected to reach $4.3 billion by 2013 on account of increasing health and beauty consciousness," said Raghav Gupta, president at retail consultancy Technopak Advisors Pvt Ltd.
Currently, organized retail accounts for just 2% of this market. But with chains expanding, this could become 8-9% in four years, he added.
"This is a fragmented, price-sensitive, thin-margins, high-attrition, manpower-dependent business," said Devangshu Dutta, chief executive at Third Eyesight, a New Delhi-based retail and consumer products consultancy, He said smaller chains with three outlets are also aiming to expand to five or 10 outlets in the next year-and-a-half. However, despite their growth plans, none of the larger companies is aggressively seeking market dominance.
(This article originally appeared in Mint on October 15, 2010)
admin
September 15, 2010
From
RETAILER, Varun Jain
September
2010
Vishal Retail is reeling under a debt of Rs 730cr; Subhiksha has already closed all their 1600 outlets; Wadhawan Retail’s ambitious retail chain, Spinach, ran out of steam in this competitive retail scenario; and Raymond’s Be: Home, a home furnishings retail format, is already a thing of past.
These are a few examples of big retailers who could not able to sustain their retail businesses, while other players struggled successfully to be on the road to recovery. Let’s do a reality check, as in what other players did right to be still in the game and what went wrong with the formers.
Faulty Expansion Plan
"Retail is a long term game, where there is no immediate success. For this a business should be capitalised keeping the long term investments and returns in perspective", opines Mr Purnendu Kumar, Associate VP, Technopak Advisors Pvt. Ltd. An expansion primarily with a debt can lead to serious troubles, and it happened with Subhiksha, he adds.
Many retail business in India, initially adopted an experimental strategy for their retail venture, in the absence of organised retail history. "It is important that for further expansion, there is a clear strategy in tune with the company’s vision. Retailers must understand the needs of their target or captive customers, and offer appropriate products through the right formats backed by appropriate services to build customer loyalty. There is a need for a strong back-end foundation in terms of merchandising and supply chain that is efficient and aligned to the targeted scale of operations", opines Ms Tarang Gautam Saxena, Sr. Consultant, Third Eyesight.
It is rather a paradox that discount retailers such as Subhiksha and Vishal Retail have run into difficulty during the business slump when they could have been thriving. Ms Saxena further feels that Subhiksha tried to do too many things for many people in its ambition to scale up rapidly. Its rapid growth across multiple product categories and through different formats clearly was not sustainable. Further, the scale of its operations (1,650 stores), making losses did not go down well with consumers. Vishal Retail may have experienced some difficulties on account of financing, but the main issue they needed to address was related to merchandising and supply chain.
Mr RC Agarwal, MD, Vishal Retail Ltd. also admits that and comments, "Coupled with the external challenge of global turmoil, our overambitious expansion plan and low consumer sentiment brought us in a challenging situation". Vishal Retail Ltd, with 170 outlets countrywide, is seeking to reschedule debt of around Rs730 crore. Café Coffee Day, the largest and the most successful café chain in the country, understand the market and its potential extremely well before taking on expansion, confirms K Ramakrishnan, President- Marketing, CCD. We gauge the catchment in terms of the number of footfalls that could be, and ensure that we can undertake conversions before we open an outlet, he informs.
Where Else Does the Problem Lie?
Wadhawan Retail, which downed shutters of their Spinach stores operating across Mumbai and Kolkata, has interests in real estate, retail, financial services, education and hospitality, and runs operations in India, the UAE and UK. They didn’t take their business too seriously, and if reports are to be believed, the caretakers of the company were busy looking after their real estate business and many suppliers backed out from their commitment with the company because of the non-payment of the bills, which were huge.
In case of food retailing, this is one segment which is very difficult to manage. "This is more so in the food and grocery business where the trade margins are lower and there is a very strong competition from the kiranas. For a retailer in this category, a proper value proposition with private labeling is the key to make the store profitable", quips Mr Kumar. What also drives a footfall in these outlets are the availability of the fresh products. Visiting many of the affected store, you will find the shelves empty with very little or nothing to choose from. Stock and supply chain were not in sync. "Having a sound supply chain and well stocked stores is an absolute must as nothing is more fatal for a retail business than disappointed customers who do not find products in the store. Having processes for the retail operation and trained store staff adhering to certain store operating principles are equally important at the front-end during the growth" explains Ms Saxena.
Be: Home which was relaunched in 2008, with the intent of selling premium fashion designer labels in soft furnishings at affordable prices, sourced from across the globe in large volumes, closed down all its four stores within two years of its operation. This can also be the result of venturing into the space which is already cramped up with major players like Future Group, Bombay Dyeing, Shoppers Stop and many more. The timing was also not perfect for a brand which is primarily an apparel retailer to venture into a new space. Thus, it becomes very important to evaluate the market before taking the plunge.
Economic Slowdown, A Spoilsport
Vishal Retail, which created history by creating 149 stores in a span of almost 10 years, bore the brunt of economic slowdown. "The recent global turmoil, which affected the Indian retail industry deeply, had implications on Vishal Retail also to some point. But Vishal Retail has stood through all the odds and managed 35% YoY Sales growth last quarter", says Mr Agarwal.
But then there are retailers who were extremely cautious during the slowdown and made very calculative moves to see the light of post-recession. Big retailers like Reliance and Spencer’s went on the back foot and let the rough weather pass. They slowed down expansion, started cost cutting and today they are back again healthy in the same old ways. For Lifestyle, recession was like a blessing in disguise and just by tweaking the price range to suit the condition, their business grew four times.
"To survive the lows in a business cycle, the retailers
should have focused on its core strengths in terms of its product
offers and formats. The retailers should have had a grip on the
performance of various product categories and pruned down the
non-performing categories", opines Ms Saxena, further adding
that the retailers that survived the economic downturn took the
market slump as an opportunity to critically analyse their operations,
closed down non performing categories and stores, and made corrections
in their back-end processes rather than amplifying the weaknesses
through rapid expansion.
admin
September 15, 2010
RETAILER,
Vrinda Oberai
September
2010
Initially, stocking additional merchandise was treated to be
a tool for branding but nowadays the same has managed to become
a source of additional revenue. Retail chains like Barista Lavaza,
Costa Coffee and Gloria Jeans Coffees among others are witnessing
an upswing when it comes to adding up to their sales by retailing
a broad inventory of coffee equipments and related merchandise.
Products on offer
Some of the coffee equipments and other related merchandise that
one can find at coffee outlets include plungers, thermos, coffee
beans, mugs, coffee makers, jars, insulated and designer sippers.
Thus, coffee shops can now be trusted for being one stop shop
for all your coffee related merchandise!
Mr Saurabh Swarup, Head- Marketing & Product Development,
Barista Lavazza says, “Our focus has always been to provide
a differentiated offering. We do this by using a guest touchpoint
model that focusses on the product innovation. The launches are
based on global inputs from Lavazza team, international trends
and guest feedback with the objective of creating guest excitement
with relevant offerings.”
However, things at Costa Coffee are bit different! Mr Santhosh
Unni, CEO, Costa Coffee (India) comments, “Branded merchandise
does not form a part of Costa’s standard product offering
at the stores. However we do offer our consumers, merchandise
from time to time as a part of our store promotions and as a part
of corporate gifting.”
Driving factor
Merchandising at cafes is known to be driven by two main factors.
Mr Devangshu Dutta, Chief Executive, Third Eyesight avers the
two factors to be – merchandise that is related (such as percolators,
grinders, whole roasted beans) but which is not available easily
outside the café and the desire to associate with the brand
image even outside the café. The factors explain the purchase
of mugs, T-shirts and other merchandise such as music CDs that
help to carry the ‘mood’ even post the experience at
the coffee outlet. Mr Dutta opines, “The first factor is
more of a driver in India at the moment for brand-extending products,
the brand itself needs to be extremely strong, consistent and
desirable. This is not yet the case for the cafe brands present
in India presently. However, the related products also need to
be carefully thought as the profile of the customers at each outlet
is quite diverse and not all outlets may be appropriate for the
offering of the associated merchandise.”
The resultant sales
Merchandise is undoubtedly a tool for building brand awareness
which indirectly has a positive impact on footfalls. At Costa
Coffee, the addition made to the revenue generation by the additional
merchandise comes up to be Rs 4 to 5 crore/annum. “The merchandise
definitely helped us to increase the footfalls. However we do
not look at merchandising as a way of increasing footfalls but
as a part that helps complete the ‘coffee experience’,”
shares Manish Tandon, President- Citymax Hospitality India Pvt
Ltd. Mr Swarup adds, “All the coffee lovers who come to Barista
Lavazza store for enhanced experience always pick up merchandise,
showcasing their love for the brand. Barista Lavazza offers high
standard and great quality merchandise. The café chain
does see some additional footfalls through this category as well.”
Marketing strategy
Targeted and successful merchandise stays in people’s lives
and minds for a long time. It is pertinent to bear in mind that
the item in context does not only suit the company products but
also builds a strong feeling of connection between the target
customers and the brand.
Mr Tandon comments, “The most effective way of selling these
items is through creating visibility. We keep the merchandise
close to the counter to make it more visible. Also, suggestive
selling works well for us.”
Mr Swarup adds, “Merchandise displays are an integral element
of the overall merchandising concept which seeks to promote product
sales. The recently launched open display cabinets help the consumers
to see and feel the product while making a choice before the purchase.”
Perceiving the future
The merchandising business in India has already taken off in a
big way riding on the ongoing retail revolution. According to
the industry analysts, the business is set to triple over the
next two years to an estimated Rs 900 crores. Mr Swarup comments,
“When consumers purchase, wear or display corporate-branded
merchandise, they’re demonstrating their brand loyalty and
advocacy. It’s a brand manager’s dream.”
He also avers that character merchandising as a business is now
booming in India. As per the internet data, the trade source estimates
that Harry Potter merchandising sales were at a whopping Rs 1
crore. Following a close second with an estimated sales figure
of Rs 60 lakh a year were the WWF characters. Krish made around
Rs 25 lakh while Hanuman was not far behind, clocking around Rs
20 lakh in sales.
Mr Tandon opines, “We look at merchandising as something
that adds value to the whole guest experience rather than just
a source of revenue. We want our guest to remember us through
our merchandise even when they are not in the café.”
Mr Unni shares that Costa is an aspirational brand within the
cafe category and consumers want to be associated with the brand.
However, merchandise will play a role in the coming years, but
will never be more significant than the core product offering
of these coffee chains, which is coffee itself.
admin
September 12, 2010
IMAGES
BUSINESS OF FASHION, September 2010
Nalini
Singh
A sales promotion or “sale” works as a branding tool. It is an effective way to stimulate demand. But to perform better and stay ahead in the competition, retailers need to understand the cause and effect relationship of sales promotion.
Given the growing importance of sales promotion, there has been considerable interest in its effect on different dimensions, such as the consumers’ price perceptions, brand choice, brand switching behaviour, evaluation of brand equity, effect on brand perception and so on. The concept of sales promotion in India is as popular as in any other Western country. But unlike the West, the number of retailers factoring the expenses of sales promotion is negligible.
In a country like India, sales promotion takes place at least four times a year. The approach and the strategies of an Indian retailer are different compared to the West. An average Indian retailer is only interested in the sales figures. Few look at the footfalls, conversion, average bill size, etc. during promotions. And even fewer measure profits by relating revenues to costs of promotions. Isolating the effect of different promotions in a situation of promotion overlap is not even considered.
So, we come to the question: Do Indian retailers by and large ignore or underplay the cost of promotion while assessing the success of a sale campaign? “It is a debatable issue. We at our level try to be judicious with our expense budget and the sale forecast. We never underplay promotion activities but ensure that there is no overdoing,” says Sanjay Arora, Marketing Manager, Chunmun.
Strategies affecting sales promotion
Today, we find marketers making use of the smallest of excuses
to launch a promotional campaign. Father’s day, Mother’s
Day, Women’s Day, you even have a Grandfather’s Day
and Grandmother’s Day – name it and there’s a day
to celebrate. These are largely gimmicks to attract footfalls
and, if figures are to be believed, pretty much mimic a global
phenomenon. “We are in the process of converting big days
into properties and recently have done a few like Father’s
day, Women’s Day and Mother’s Day, to name a few,”
says Samir Sahni, Director, Ritu Wears.
The primary objective of a sales promotion is to bolster sales by predicting and modifying the purchasing behaviour and pattern of target customers. Not only that, it also attracts new customers while retaining the existing ones. With so much cut-throat competition, no retailer wants to lag behind in capitalising every emotion and sentiment of the consumer. Once one big retailer starts, it becomes a trend.
Today, the Indian consumer has more disposable income and is more inclined towards the higher-end brands. They wait for the time when brands offer the best discounts. Last year, retailers preponed festival sales or ran them for extended periods to be able to clear the inventory. Many brands went on sale before the usual last week of July. Moreover, stores are still stocking more discounted items than fresh merchandise.
A pertinent question here would be that apart from the “end of season sale”, do other campaigns employ the “push and pull strategy” during the year. “Yes, they do but not to a great extent because footfall during these periods are not as high,” says Arora at Chunmun.
Interestingly, Independence Day Week is becoming another popular significant event arousing interest among retailers in India. Almost all retail chains – big or small – have come up with special deals and drawn up ambitious sales figures for this event. However, these could be strong indications of modern retail in India. Indian retailers have successfully created newer shopping seasons to drive consumption by providing special deals.
This trend garnered 10-15 per cent incremental growth in sales. According to industry circles, an apparel store, during any big promotions, can easily achieve sales of Rs.50-60 lakh a day.
Growth through “end-of-season sale”
“Generally, as per collection, sales increase more than two-folds,”
says Arora. On an average, a brand doubles its sales through the
end-of-season sales. Samir Sahni at Ritu Wears explains, “The
brand easily achieves 70 per cent of the top-line growth through
this particular promotional mix.”
Studying the Indian retail market, we find that an average company in the country focuses more on top-line growth and decides the success of the brand based on the net sales which according to them automatically improves profitability. Typically, when a retailer plans an expensive promotion, he needs to hire extra staff and increases ad spends. On the face of it, profits are high, but actually short term. Competitors are bound to come out with better offers, better products and better features, and the whole effect will be neutralised. The hype may lead to more customers trying their product and services. In the process of attracting more customers, the retailers forget that these are fair-weather customers and are attracted only by the discounted rates. Meanwhile, when the customers find that the offerings are of much value they exit.
“Most of the time a promotion that offers a great price advantage to the consumer is seen as successful as it allows retailers to get rid of old stock. However, the cannibalisation of sales of other dull-price merchandise is not taken into account. Hence, it is not merely about what happened due to the promotion, it is also about what didn’t happen as a result of the promotion,” points Sahni at Wazir Advisors.
Cannabilisation of the product
Cannabilisation of the product could be one of the major drawbacks
due to heavy sales promotion, but most of the brands try different
strategies to avoid it as much as possible. “Since the promotions
we run always have time tag lines, there is no question of cannabilisation,”
says Samir Sahni, Ritu Wears.
“While there is a possibility that promotion of one category could cannibalise other categories within a store, a successful promotion would ensure higher footfalls and overall higher demand, to offset any potential cannibalisation,” says Devangshu Dutta, CEO, Third Eyesight.
Sales promotions effects are short term, unlike other integrated marketing communication tools, and also the strategies do not have everlasting impact on the brand. Increases in sales often last only during the period of promotions. After that no consumer loyalty is noticed because the majority of consumers in an aggressive promotion have tried the brand already. Sales promotion also leads to high price sensitivity; consumers try their level best to purchase the item during the time of sales only. This leads to reduction in the profit margin of the brand. Sales promotion is a calculated risk, but one that needs to be planned and handled carefully to be truly effective.
Business owners should recognise that sales gains from promotional campaigns often falter after an initial spurt. One may sacrifice the long-term brand equity for achieving short-term goals but that is a myopic way of conducting business. Moreover, too many discounts will dilute the image of exclusivity.
Having said that, it is also true that sales promotion could be a good opportunity to create a strong and loyal client base. Retailers can target a new segment in the market by focusing on demography and psychographics of users such as users with high and low purchasing needs.
Promotional overlapping
Promotional overlapping is another factor which could spring up
due to two or more promotions taking place at the same time. This
leads to confusion and delivery of fuzzy messages to consumers.
Some brands do successfully manage two promotional campaigns simultaneously. A recent example is Levi’s, who are currently managing their “end-of-season sale” with a “change your world” campaign in order to celebrate 15 years in India.
“How can one manage promotional overlaps?” Arora asks. “As a retailer we always ensure that there is no overlapping. If we have net price counters they don’t merge with the routine discount offer.”
Cost of a month-long campaign
“The cost for a store chain like us is in the range of Rs.60
lakh to Rs.85 lakh in terms of activities. We spend 70-80 per
cent on public address media (i.e., newspapers, hoarding and FM
radio etc.) and the rest is for in-house activities,” Arora
reveals.
Typically, a brand spends 70 per cent of the total expense on above the line expenditure (ATL), with the balance being assigned for below the line expenditure (BTL). The reason could be that publicity vehicles such as media, radio or hoardings build up the top of mind awareness (TOMA) very well.
“We spend around Rs.70 lakh, wherein ATL is Rs.45 lakh and BTL is Rs.25 lakh,” says Samir Sahni at Ritu Wears.
The brands use ATL because they think this strategy works for brand recall. On the other hand, the brand incorporating BTL will provide hard numbers in terms of revenue increase.
Case Study: A Successful Promotion Partnership
On 19 August, “Groupon” the site known for its local
daily deals often offered by small businesses including restaurants,
gyms and spas in partnership with the fashion brand Gap launched
the deal to offer $50 worth of apparel and accessories at a lowly
price of $25. With a $1 billion valuation and more than 9.4 million
Groupons sold since its launch, it has become one of the most
recognised group-buying sites on the web. By the end of the first
day of their launch, 441,000 Groupons were sold, bringing in more
than $11 million. Groupon usually splits the revenue with partners,
but declined to disclose its share. The discount on Gap items
caused visits to Groupon.com to increase by 37 per cent on the
day of their launch and 51 per cent after a week. Interested purchasers
were also visiting Gap.com immediately after Groupon.com, and
the share of downstream traffic from Groupon.com to Gap.com jumped
to 4.18 per cent on the first day of there launch itself. This
figure is strong from a customer acquisition standpoint because
53 per cent of the visitors referred from Groupon.com to Gap.com
were new, meaning they had not visited the website in the past
30 days. Also aiding in the success of the promotions was high
consumer awareness and shoppers actively seeking the discount.
Searches for “Gap coupons” ranked 4th on the first day
among the search terms driving traffic to Groupon.com. The discount
was also being promoted via Twitter’s Earlybird Offers account.
Means of internal assessment
“Through the assessment of top-line incremental numbers,
we define the success of sales promotion,” says Sahni at
Ritu Wears. This is the major swing among retailers. Most of the
Indian retailers judge the success of any sales promotion through
the top-line growth they have made. Sometimes a retailer forgets
the other main objectives of the sales promotion, in the rush
to concentrate on only net sales made.
Now, the question is, apart from net sales, what all can be achieved through a sales promotion? Most retailers complain that customers only get attracted towards their brand because of the discount coupons or other promotional offers, and once they get it, they keep looking for it. This impacts the business negatively. The solution to this is (as we’ve said earlier) to concentrate on parameters other than just net sales.
Sales promotions must move the product. This usually means more sales, but not always. For example, if you run a scheme in which you are giving one product free with another, you may draw more products out of the pipeline, but overall profitability may nosedive. Also, increased product movement can generate deduction of sales after the promotional period. This is something retailers need to anticipate.
Finally, the question is how to assess the efficacy of sales promotion. The most common method is to examine the sales data before, during and after a promotion. Suppose a company has 10 per cent market share before the period of promotion, which goes up to 14 per cent during the promotion, falls to 9 per cent immediately after the promotion, and rises to 12 per cent in the post promotion period. It shows that the promotion has attracted new customers and also activated more purchasing by the existing customers of that particular brand. After the promotion, sales fell as consumers worked down their inventories. The long-run rise to 12 per cent indicates that the company gained some new customers.
“We have come across businesses where the sales and merchandising teams are incentivised purely on sales achieved. This only results in shelfstuffing, aggressive advertising and discounts. While top-line targets are achieved, the business is not really healthier at the end of the exercise. In Third Eyesight’s view ‘return on investment’ is a good method to apply to promotions, where ‘return’ is the net margin, and investment includes all promotional expenses. Good businesses with mature and transparent processes would evaluate the success of any promotion on the basis of margins retained by the business after all expenses of running the promotion have been accounted for. Costs of each promotion can easily be monitored separately, as can the sales achieved of the products being promoted. In more sophisticated data-driven organisations, analytics can play an enormous role in planning promotions and in tracking their success,” says Devangshu Dutta.
If the company’s product is not superior, the brand’s share is likely to return to its pre-promotion level. The sales promotion can only change the time pattern of requirement rather than the total demand. The promotion may have covered its cost but more likely did not. One study of more than 1,000 promotions concluded that only 16 per cent of the total expenses get paid off.
Holistically viewed, we can see that despite the cons, sales promotion will continue to play a growing role in the promotion mix and will continue to be one of the most important tools. To make it more effective, retailers need to define the sales promotion objectives, selection of appropriate tools and proper construction of sales promotion programmes. Every paisa spent should be accounted for. Only then will Indian retailers spot the cause and effect relationship of sales promotion.
