Promotion in marketing mix modeling for retailer

calculating the incremental return of promotions

1. What to promote? – Which promotions bring the biggest profits?

2. How to promote? – E.g. What promotional tactics should be used to promote the product? How big should the discount be in order to maximise profit?

3. Where to promote? – E.g. In what media and areas should the product be promoted?

Making such optimisations requires calculating the incremental return of promotions. The measurement should include various side effects that affect the promotion effectiveness:

Stock-up Promotions can cause consumers to stockpile products or to buy them earlier than normal (Abraham and Lodish, 1987; Silva- Risso et al., 1999). The effect can appear as a dip in sales after a promotion and result in a reduced margin. For example, a lucrative promotion of a storable item can drive people to buy it in bulk and then reduce the high-margin sales later. Similarly, a promotion can cause a consumer to buy an item earlier than normal but at a lower margin. Bulk buying is fairly common: 22% of global consumers report it as one of their money-saving strategies (Magni et al., 2017).
Thus, it is important to also take into account stock-up.
-> 글서 pull-forward 하쥐


Cannibalisation The promotion of certain items might reduce the sales of others (Bavagnoli et al., 2015). For example, a consumer might opt for a discounted toilet paper brand instead of their usual brand. This behaviour is likelier if the brands are close substitutes for each other. The effect can also bring down the overall profits, especially if low margin products substitute high margin products. Figure 2.9 shows an example of sales cannibalisation on a frozen potato product.
-> 글서 substitute도 넣쥐

Halo As described by Bavagnoli et al. (2015), promotions affect not only the promoted item but also the traffic and baskets of customers. For example, a lucrative promotion that is advertised in the media can bring additional people to stores, increasing the total number of purchase baskets. The promotion can also increase basket sizes when people buy more products than usual because of the promotion. This effect can take place through complementarity. For example, the sales of tonics are likely to go up when gin is in promotion. This traffic and basket impact is referred to as halo. The strength of the halo effect varies between promotions. For example, some promotions lure in a lot of ‘cherry-pickers’ that only buy the discounted product but nothing else, reducing the average basket value. This effect can be damaging for the profitability of the promotion if it relies on the assumption that people will buy other items alongside the promoted item. On the other hand, promotions can also lure in big spenders that splurge out on other products. Overall, the impact of the halo can be significant and thus, it should be measured. Receipt data opens up a way to study the effect as it contains information about customer baskets.
-> 어떻게 하는지 아시는 분 계신가요?



Vendor funding Suppliers are interested in maximising the sales of their products. Therefore, it is not untypical for them to do trade promotions with retailers. The supplier can lower the price for the retailer and even pay the retailer a subsidy for the promotion. Suppplier spending on trade promotions can be significant. According to a report by Cadent Consulting Group (2017), the marketing spending of the manufacturers of consumer packaged goods (CPG) in the USA amounted to 20% of their sales in 2016, and roughly a half of it was spent on trade promotions. Thus, the impact of the discounts and payments should be taken into account in promotion effectiveness measurement. Furthermore, suppliers also spend money on their own advertising, which could be taken into account as a control factor in modelling.


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