Over the past few months, customers have substantially changed their buying behaviour. They have consolidated their shopping by reducing the number of stores they visit each week and their frequency of shopping. Shoppers don’t want to take the chance of jeopardizing their health by going to numerous stores or wait in social distancing lineups longer than needed. This dynamic has served to elevate grocery promotions to a much higher level of importance for brick-and-mortar retailers than it has been historically. When you make the store the destination through great promotions, you win not only customer trips, but trips with bigger baskets.
The go-to tactic for retailers wanting to increase the number of customers through promotions is usually focused on more and deeper price discounts. Though this clearly continues to be a very important aspect of attracting the customers to stores, our evidence — based on our extensive retail data analysis — shows that picking the right combination of items is in fact more important to attracting customers to stores while still protecting margins.
Take any outbound promotional vehicle — having the right item and combination or mix of items will do two very important things:
First, it substantially extends the reach of the promotion by focusing on items that are attractive to multiple customer segments rather than just a few. For example, someone who likes to bake will make the decision to come into a store based on one or two items featured, say flour and sugar. Adding a third or fourth item targeted towards the baking segment will bring very little, if any, additional business. The better approach is to systematically target additional customer segments, substantially extending the number of customers that make your store their destination. Simply put, you want to have five deals for five different customer segments, not five deals for one customer segment.
The second thing the right combination of items accomplishes is that it generates more associated sales and therefore improves margins. For each customer segment that the flyer reaches, it is crucial that the items trigger the purchase of other items, building baskets (commonly referred to as halo or associated sales). So, in the case of our baking segment, the customers came in for a great sale on flour and perhaps butter but picked up five or six additional items as a logical consequence. Importantly, it is these additional halo items where retailers should use the right pricing strategy to recover margin (it is finding the right item and price mix combinations out of billions of possibilities that is at the core of what Daisy does).
The unprecedented and historical breaking of customers shopping habits as a result of the COVID-19 crisis has served to elevate promotions to a higher level of importance for brick-and-mortar retailers. To win the customer trip and capture share from the competition, retailers must put as much emphasis on picking the right items as they do on picking the right price.