Effectiveness of Consumer Promotions in Brick-and-Mortar Retail Stores

ABSTRACT

The purpose of this study is to identify the factors that aid in the measurement of the effectiveness of consumer promotions in brick-and-mortar retail. The already highly competitive landscape of retail is set to undergo a huge transformation post the COVID-19 outbreak, which will inadvertently lead to manufacturing cutting down costs wherever possible to maintain their margins and stay afloat. Advertising spends are bound to go down, and there is a need for a statistical model to measure the effectiveness of the capital spends by a firm towards consumer promotions. For the study, national level sales data of 4 sub-brands of a particular toilet soap brand (shower soap bars) was analyzed for a leading retail chain in India from January 2018 to February 2020. Regression analysis was used to do the data analysis. The study focused on price-off consumer promotions only for the designated period for four variants of a popular Indian soap brand. The discount percentage (including both promotion spend by the manufacturer as well as a retailer), the quantity of the particular unit sold on which the promotion was run during the period when the promotion was run, the effective price to consumer per gram, and profitability for the manufacturer in terms of the net contribution percentage were the factors which were found to show a strong correlation and formed the input variables for the regression equation. The regression analysis showed that all the factors, namely overall discount percentage, quantity sold, the effective price per gram, and the net contribution (profitability), were statistically significant in determining the uplift in sales quantity due to the discount (the effectiveness of the price promotion). The equation provides retailers and manufacturers a model to measure the effectiveness of promotion spending for price promotions that are run every month at a national and state level by giving state-level values as inputs. It also helps arrive at a baseline sales quantity for a particular SKU if no price-off promotion is run.