Promotional Planning - Careers Case Study
Our client is a national grocery and drug store chain, which has been steadily losing market share to its competitors. Our client utilizes a high-low pricing strategy, in which regular prices are typically slightly higher than those of an everyday low-price retailer. However, periodically high-low retailers drop prices significantly. During the time period in which a product’s price is decreased, the product is also promoted through print and in-store advertising. Our client expects a significant lift in sales during the periods in which a product promoted. However, benchmarks against industry averages indicate that our client does not experience as large of a lift in sales as its competitors do during promotions. What would be your approach to increase sales lift when an item is promoted?
- Everyday low pricing vs. high-low pricing. Shifting pricing strategy to an everyday low pricing model is not an option. The client has made the decision to focus on being the industry leading high-low grocer. They feel they can compete with everyday low-price retailers once this goal is achieved.
- Competition. There are one or two major high-low competitors in each of the local regions in which the client operates. Our client’s everyday prices, promotional cycle timing, and percent discounts are virtually identical to their competitors in each market.
- Promotion planning at the stores:
- Timing. Store managers place orders with their distribution center for promoted products several weeks before the promotion takes place.
- Predicting promotion volume. Typically, store managers base the size of their promotional orders on the quantities ordered in the past on a similar promotion and more subjective factors like length of time since the item was last promoted and the store manager’s gut feel based on his years of experience. (Most store managers have at least 10 years’ experience in the grocery industry).
- Unexpected promotion volume. If an employee notices the shelves are running low or out of stock on a promoted item, the store manager will place an order for additional product. Orders must be placed by mid-afternoon and are delivered the next morning. On occasion, the store will not know that they are out of stock on a particular item until a customer complains.
- Distribution center ordering process. Buyers at the distribution centers do not receive enough lead time to incorporate store orders into the orders placed with suppliers for promotions. However, buyers have access to the quantity of product sold during similar promotions in the past. Buyers typically use this data when determining how much product to purchase for a given promotion.
- Customer experience. Customers routinely complain that promoted products are not on the client store shelves during promotions. Customers are typically loyal to a particular grocery store, provided that it stocks the products they consume at a reasonable price.
Determine source of disappointing sales lift. A good candidate will peel back the onion to understand the source of the disappointing sales lift on promoted items one layer at a time:
- Client’s promotions generate less volume than competitors’. Our client’s regular and promotional pricing is virtually identical to their competitors’ pricing. Therefore, we are generating less volume on any given promotion compared with our competitors.
- Promoted items not in-stock. The primary driver behind this lack of sales volume is the client’s inability to keep promoted items stocked on its shelves:
- We can’t sell it if we don’t have it on the shelf.
- Customers may not come back if they experience repeated shortages on promoted items.
- Ineffective promotion planning and execution causing missed sales opportunities. Store managers plan volumes for promotions based on gut feel and quantities ordered in the past for similar promotions—not based on quantities sold.
Lay out plan to improve process. The candidate should recognize that we need to devise a way to utilize data on quantities sold during past similar promotions.
A good answer will lay out a strategy to include past sales on similar promotions in the planning process as detailed above. A great answer will also note that stores must have better visibility on the inventory of promoted items on their shelves.
Access to data that illustrates real-time movement of promoted items would give stores more lead time in the event that items are selling faster than expected. A simpler non-technical solution, which could be implemented immediately, is to institute scheduled stock updates throughout the day, especially just before the daily store order deadline. This would help avoid products being out of stock for multiple days.