Effectiveness of Promotions

In order to increase turnover, boost the average bill, enhance the frequency of purchases, or expand the consumer basket, manufacturers and retailers invest considerable amounts in seeking out and implementing diverse marketing strategies.

Creating a distinct and captivating offer for the target audience, implementing promotional strategies, and advertising special offers constitute the procedural aspect of this job. Firstly, it’s crucial to assess the feasibility of marketing activities. This entails predicting the effectiveness of promotional efforts before their launch, as well as measuring their effectiveness based on results achieved.

Naturally, all entities strive to optimize the impact of investments when promoting products and their offerings. Nonetheless, even if the outcome is negative, it is still a result for evaluating the target audience, their requirements, and preferences. Assessment of the outcomes makes it possible to reduce further expenses and improve the efficacy of the whole promotion.

Parameters of Quality Offers in Promo

Solving problems associated with increasing the average bill, boosting sales, attracting new customers, and fostering brand loyalty is always crucial for management. The primary objective of marketing activities is to prompt consumers to take a specific action.

To achieve economic and business goals, the offer must be well crafted. The effectiveness of whole promotion depends on it. In its turn, the offer quality depends on:

the fact that information is fully communicated to potential buyers;
describing the benefits of choosing your products/services over those offered by competitors.
motivation sufficient for making a purchase now rather than postpone it indefinitely.

In addition to the product's quality, consumer properties and safety are important aspects to consider. It’s essential for the purchase to evoke positive emotions and deliver a pleasant experience for buyers when engaging with both the manufacturer and seller's brands.

Basic Principles of Working with Marketing Analytics

In order to assess the effectiveness of promotion, it’s necessary to compare the data obtained before and after the event. Here, the question arises regarding the number of parameters to assess. Relying on a single indicator, such as a boost in sales, does not suffice to accurately evaluate the effectiveness of campaign, especially within a particular store. This data is highly insufficient for accurately portraying a true picture. Therefore, several indicators are selected and calculated.

Before launching the campaign, it’s required to make a forecast that reflects nearly achievable results. Control measurements for selected parameters are taken both during the process and after the measures have been completed.

The specifics of marketing promotions for different products can vary greatly, as can the results of promotion. If Coke sales increased threefold in one company during the promo, and heavy truck sales only increased by 10% in another, it does not imply that the former's efforts were 30 times more effective. Both of these values are within the norm, as the cost of goods, the sales cycle and characteristics of the target audience must also be taken into account. Calculating the effectiveness can be done for most advertising campaigns. But different industries have their own peculiarities that affect analytics as well.

Basis for Calculating the Promo Effectiveness

It can vary depending on the goal and be evaluated on the following parameters:

increase in the number of sales (pcs),
growth in sales volume (money),
the emergence and growth of positive reviews on various sites,
improvement of the brand image,
emergence of new partnerships, etc.

Before launching a campaign, it’s necessary to clearly articulate the goal towards which the efforts will be directed. For example, with a tool such as marketing activities, one of six objectives related to the improvement of different indicators can be realized:

The power of brand is to increase awareness, improve image. This indicator is reflected by development of a positive perception, the formation of customer preferences, and, most importantly, the customer's inclination to choose the company's products or services over those of its competitors.
Consumer behavior — encouraging potential customers to buy a product for the first time. Increasing the quantity and frequency of purchases is facilitated by an efficient promotional campaign.
Quality of Distribution.
Consumers’ Attitude. Developing an interest and attachment to a product are outcomes that stem from forming a positive impression of it.
Relationships with Intermediaries. The positive opinion about the product, formed by the intermediaries, contributes to an increase in the volume of purchases, as store employees start recommending the product to potential buyers.
Sales Dynamics. Increased operational efficiency leads to increased profits, market share, and store turnover.

It’s necessary to evaluate the solution of a specific task based on the product's features and the closeness of achieved results to the predicted ones.

Evaluating the Effectiveness of Promotion

It’s impossible to accurately assess the effectiveness of marketing actions that are only planned. However, a large number of ways have been developed to analyze the results. Often the incremental volume methodology is used for this, which includes:

Conducting pre-promotion sales volume analysis.
Evaluation of this indicator during the conduct period.
Calculation of annual sales including additional sales generated during the promo.
Calculation of additional profit.
Calculation of the average number of sales to one customer during a certain period.
Calculation of the profit that one customer has made over a certain period.
Evaluation of the purchase dynamics during the campaign.
Calculation of net profit on sales that were made because of the promo.
Comparison of net income resulting from the offer to the net income obtained during the period without the offer.
Conclusions.

A promo can be considered effective if an additional profit of 8% or more is generated during the period of its implementation.

Now, let us consider the unique aspects of evaluating the effectiveness of promotions in various segments of the retail market.

Promotions in Restaurant Business

Analyzing the effectiveness of promotions in the catering industry can be accomplished by using three formulas. These formulas can not only calculate the actual outcomes but also determine the expected results:

ROMI estimates the Return on Marketing Investment. With the aid of this calculation, one can estimate the return on the forthcoming campaign, particularly the amount of money that will be yielded from the investment in advertising. The outcome is presented as a coefficient, whose size directly indicates the effectiveness of the marketing investment. Accordingly, the higher it is, the better. The coefficient can be calculated using this formula: (Total Return on Investment - Total Costs) / Total Costs.
Stock Rating. Indicates the relative popularity of an advertising campaign relative to its peers. Formula: (Promotional checks/Total number of checks) x 100%.
The cost of customers engagement. May include customer returns, if so tasked. At the same time, the price of a repeat visit by an old guest should be lower than the price of attracting a new one. To calculate, divide the Total Costs by promotional checks.

These three indicators are independent. At the same time, equal investment in promotion with equal benefit for the customer can give different effectiveness in the analysis. Therefore, it’s necessary to consider them comprehensively.

Promotions in Retail

Comparison of sales in network enterprises is often used to obtain data related to network promotional performance. At the same time, only promotional items and their analogs are taken into account. Analysis may be performed for:

comparisons of sales of promotional products in stores (if they have the same format);
A/B sales level comparisons. For comparison purposes, the stores where the marketing event was conducted and those that operated normally are used;
comparing the effectiveness of the campaign for the chain's stores operating in different formats. The evaluation here concerns the comparison of the effectiveness of the promotion in small outlets "at home" and, for example, hypermarkets or discounters that belong to the same chain.

To make the picture the most complete and reliable, you need to calculate additional variables using special formulas:

Growth in sales per unit of money spent on marketing. The result is a coefficient, the size of which directly indicates efficiency. Formula: (Sales Now - Sales Before)/Advertising Expenses x 100%.
Examining the expenses incurred from the sale of products in a promotional manner. Products are accounted for in kind (pieces, liters, kilograms, etc.). Formula: Advertising Costs/(Sales Now - Sales Before).

Promo and Sales of Household Appliances

Promotions in such stores have their own peculiarities, which must be taken into account in order to calculate the effectiveness of the event. Before launching a promotion, you need to perform a marketing analysis: calculate how gross margin, revenue and sales will change. In order to analyze the effectiveness of campaign, the calculation of three indicators is required:

ROI of promotions - indicates how profitable the short-term investment was. This indicator is expressed as a coefficient, the size of which directly indicates efficiency. Formula: ((Revenue Now - Revenue Before) x Margin - Advertising Expenses)/ Advertising Expenses.
The change in sales level is also a ratio, the size of which directly indicates efficiency. Formula: (Sales after - Sales before) x (Cost per product x Margin)/Advertising costs.
Change in gross profit. To calculate it, you should subtract from the gross profit after the company, the same figure before its launch.

It is worth realizing that an accurate assessment of marketing performance can be obtained only when conducting a fine analytical work, involving data on the company for several years, including similar promotions. The more data the company has accumulated or acquired through CRFs and other sources, the more useful conclusions can be drawn for further work.

Psychological Effectiveness of Marketing and How to Measure It

Ultimately, promo is more often than not aimed at allowing a brand to take a place in the customer's mind, to be memorable, to become the first choice. In other words, an emotional response must arise in the psyche, a stable connection must be formed, a certain set of associations and preferences.

If with how to calculate the effectiveness of the promotion, everything is more or less transparent, then with how to calculate the psychological effectiveness, things are more complicated. It is necessary to evaluate the strength of the promo's influence on the potential consumer. A number of indicators are analyzed to assess it:

Target Audience reach - the number of people who have seen the information at least once, whether it is advertising, promotional items or other forms of message delivery.
Understanding - how accurately the average customer has understood the message embedded in the communication.
Memorability level - how strongly the information is anchored in the consumer's memory. It often happens that the consumer who has seen the promo many times is unable to remember this fact, in other cases, having seen the advertisement only once, he will calmly retell its content or even quote verbatim. This is already the level of creativity and the creative team's ability to create a vivid impression. And more often than not, this realm lies outside the realm of rational thought, though it is digitizable.

Gathering this data allows you to cut out the unfortunate moments in advertising, as well as pick up hidden associations, find new insights, work through the overall message, and engage in adjustments to marketing activities. Information for evaluation can be obtained through a survey, experiment, or observation. Often, psychological effectiveness is analyzed by using a whole set of evaluation methods, including focus groups, various surveys, testing and analysis of sales statistics.

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