Discern Differences Deep Discounts Make

When tracking the key performance indicators of your retail store, stay aware of the range of benefits an initiative ends up producing. For instance, researchers at University of Arkansas, University of Texas-Dallas, University of Connecticut, and University of Buffalo find that deep promotional discounts might improve store traffic significantly without noticeably impacting weekly store revenues or profit margins. They also showed how joy at improvement in one KPI might blind you to simultaneous deterioration in another KPI. In their study of sales of 27 product categories in 24 grocery stores over 55 weeks, the increased profits from deep discounts on multiple items in a merchandise category were accompanied by a deterioration in store profit margins.
     Here are more findings you can use to analyze effects of deep discounts on a range of KPIs:

• The best discounts for building store traffic are on best-selling items. Having more shoppers in your store can boost awareness of all that you offer and add excitement to the shopping experience. The payoffs may be in long-term repeat visits even if not in the short-term. 
• When discounting low penetration, low frequency items, look for the payoffs in increased sales of profitable complementary items. In the study, discounts on beer positively influenced sales of salty snacks, which have a higher profit margin. Findings from other studies indicate you’re wise to stock such complementary items adjacent to each other or at least post pictures of the higher profit item in the areas where you’re selling the discounted item. 
• Discounts on branded items more strongly affect sales per transaction than do equivalent discounts on generic items. Other research finds that consumer behavior toward generic brands becomes similar to that toward nationally branded items when premium versions are introduced. 
• Because of stockpiling effects, track sales of items you’ve deeply discounted for a few typical purchase cycles beyond the period of the discount. If customers are purchasing high quantities of storable merchandise, your results for short-term profits on that item will look different from the longer-term results. 
• Your pattern of KPIs from a deep discount depends on whether other retailers are offering deep discounts on those same items at the same time. Other research finds that loyalty to your store can be maintained or enhanced when you’re matching the low prices of your competitors even when sales of those items are not increased in your store due to the discount. 

For your success: Retailer’s Edge: Boost Profits Using Shopper Psychology

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