Traditional Promotional Practices Are Not Sustainable for Building Long-Term Customer Loyalty, Says Retail Market Intelligence Firm
Paper from RSR and Symphony RetailAI discusses why race-to-the-bottom pricing is less effective than customer-centric promotions driven by AI
Symphony RetailAI, a leading global provider of integrated AI-powered marketing, merchandising and supply chain solutions for FMCG retailers and manufacturers, today announced the release of “Personalized Promotions: The Key to Bigger Baskets and More Frequent Trips,” in partnership with Retail Systems Research (RSR).
In the paper, RSR revealed that 64% of Retail Winners say that “increased price aggressiveness from competitors” is the top external challenge in winning a greater percentage of consumer wallets. With this in mind, RSR explored the opportunity retailers have to drive profit and loyalty through more customer-centric promotions, breaking away from a routine “race to the bottom” pricing strategy.
“Promotions have always been important. But with blurred shopping channels and changing consumer behaviors, they are more important than ever right now,’” said Brian Kilcourse, Managing Partner, RSR. “In short, it’s no longer about what a retailer wants to sell, but what a consumer wants to buy. The question for retailers is how to put offers in front of consumers at just the right moment and in a way that maximizes the effectiveness of the offer. In this age of cut-throat competition from both traditional retailers and digital ‘pure-plays,’ retailers have come to realize that ‘the right offer’ is much more than just a deal that beats the competition on price. Instead, customer-centricity – indeed, consumer experience and relevance – is key to driving greater retailer loyalty.”
While important, low prices aren’t the only driver of consumer loyalty
Benchmark research from RSR over the last 10 years has consistently found that price is one of the top business challenges retailers face. In 2018 and 2019, 65% and 59%, respectively, of retail executives said they agree with that “aggressive competitors and consumer price sensitivity make price our primary demand driver.” With a focus on base price, any strategy related to promotional offers generally falls to available CPG trade funds, yielding the lowest, but not necessarily the most optimal, price. RSR states, “With margins already tight – and the investments needed to enhance mobile fulfillment – retailers need to think about developing customer-centric promotions that maximize trips and baskets – not just those that minimize price.”
Delivering highly relevant, customer-centric offers influences purchase decisions
RSR findings suggest a steady increase in promotional activity in the last decade, but it’s clear that a cycle of never-ending mass promotions has not succeeded in winning long-term customer loyalty. In fact, in 2020 RSR found that 50% of FMCG retailers and 53% of hard goods retailers agree that they are in need of better promotional tools, recognizing that a continued investment in price reductions isn’t a winning strategy. Instead, promotional programs can better target investment on promotional offers that will be most relevant to consumers, personalizing them to the customer, their preferences, and their propensity to buy, along with the basket size that accompanies certain promoted items. Unlike mass promotions, personalized offers are difficult for competitors to copy since they are dynamic and one-to-one.
In the paper, Kilcourse writes, “To maximize the value of the relationship both for the customer and for the retailer, it’s important to not only understand customer buying behavior and preferences, but to be fast and flexible enough to use that knowledge to design and execute the most relevant promotional offers that satisfy and capitalize on consumer needs.” As the paper explores in more depth, AI makes this optimization possible.
AI-powered solutions for promotions bring synergy to CPG-retailer discussions
Promotions that have been evaluated and planned using AI solutions have distinct advantages, especially in maximizing retailer and CPG collaboration. Instead of ongoing promotional funding negotiations, retailers and their vendor partners can work together strategically to improve customer loyalty and grow market share. AI provides a single source of truth to evaluate historical promotional performance, identify the best and worst promotions, and redirect promotional spending accordingly. Both parties can have the assurance that their investments are achieving the intended sales and profit goals, not subsidizing sales that would have occurred anyway or funding promotions that will never work.
“A retailer’s objective should not be to sell more products at the lowest price, but rather to keep customers at the center of their promotional strategy,” said Sy Fahimi, SVP Product, Symphony RetailAI. “The RSR Executive Perspectives paper outlines a number of recommendations for retailers related to promotions, from implementing or rethinking loyalty programs, to performing market basket analysis and improving retailer-CPG collaboration. The greatest opportunity, we believe, for retailers to take hold of is the efficiency that AI and machine learning bring to an organization, complementing the still valuable human intelligence of their promotions manager and marketing teams. AI stops the guesswork, forecasting the effect of promotional plans and optimizing promotional spend, so that each investment is made even more efficient. Optimizing retail promotions is paramount coming out of a year like 2020, and helping retailers to do that through AI-enabled solutions is meaningful work for Symphony RetailAI.”