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Improving Promotional Effectiveness

BCG has worked with leading retailers to help them measurably improve promotion performance.

Promotions are one of the most important tools a retailer can use to improve performance, and they often make up 10-45% of sales. Yet BCG has found that such performance is highly variable. Based on our research, as many as half of all promotions generate no discernible lift on sales. (Worse, many retailers can’t accurately gauge the performance of promotions, or predict their performance in advance.) By employing data analytics—and understanding their consumers—retailers can markedly improve their promotion performance.

Promotion plans typically fail for several reasons:

  • Many retailers lack a clear promotional strategy to drive day-to-day decisions. All too often, plans are based on “what we did last year” and are not linked to the company’s larger strategic objectives.
  • The promotional calendar is often based around individual products and business units, with little coordination of promotions across the company.
  • Retailers often don’t have clear insights as to which promotions and mechanics work, so they’re unable to systematically improve their performance over time.
  • Some companies lack the processes and organizational capabilities to roll out promotions effectively.

Overcoming all of these challenges requires a focused strategy. BCG collaborates with our clients to embed new insights and build up internal capabilities at our clients' organizations, based on four essential pillars:

  • A promotion strategy guides promotion spending and allocates resources across the entire product portfolio, in line with the company’s strategic goals.
  • A promotion selection process uses data analytics to accurately gauge the performance of promotions, determines causal effects, and selects future promotions based on their projected value on the top and bottom line.
  • Implementation processes enable retailers to roll out promotions effectively, in partnership with other players along the value chain.
  • Organizational capabilities serve as a foundation that supports the other aspects of promotions, based around three core elements: the IT department, an analytics team, and category managers.

Improving promotion performance is a crucial and sometimes complex task. BCG has delivered significant long-term value to retailers by helping them build the capabilities required to deliver effective promotional plans.

Retail
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