A retailer used random forest & quantile regression to measure impact of promotions on revenue.
The specialty retailer was running multiple Promotional campaigns across stores. Some of them were well designed campaigns and a few others were in response to competitor activities. They were however not sure of which promotions were working for them and the product groups for which the promotion worked better. The client also wanted to know if running a promotion on one product group had an impact on other product group sales.
Right promotions to boost sales
Promotions took up significant percentage of the marketing budget. Their effectiveness was unclear due to multiplicity of promotions and competitor activities.
- Volume decomposition by campaign and calendar
- Reallocation of promotional spends using RoI estimates
- Promo planning tool to simulate and build annual promo plan
The study enabled the client to simulate potential events and generate different promotions optimization scenarios.
Gap between promotions and sales
Measuring the impact of promotions involved is a difficult task due to multiple factors impacting promotional sales. The first challenges is the different types of promotions - limited only by the imagination of the marketing team.
Flat discounts, Buy One Get One (BOGO) promotions, cross sell & upsell offers, coupons, bundling etc. are all some common examples of promotions that businesses use.
Time (season) of promotion, the duration for which a promotion is active, the perceived value of promotions and the frequency of promotions all have a bearing on promotion effectiveness. Competitor promotional activities and their impact on sales as well promotions on one product having a halo effect on the other. We configured the study into post event analytics, pre-event prediction and pre-event optimization and state space model for sales decomposition.
Promotion planning tool
Different promotions have different effect on sales. The primary objectives of the study were:
a. The promotions that are most & least effective
b. What promotion category is most & least effective (Feature, Display, Price Reduction etc.)
c. Does a product group on promotion impact sales of other product groups
d. Impact of competitor activities on promo effectiveness
We provided the client with a promotion planning tool to run different scenarios and create an annual promo calendar. Promotion return on investment (RoI) models enabled us to identify reallocation of spend to achieve higher promo margins.