Thursday, March 21, 2013

Black Friday: Do promotions really work?

By Stephan Brackertz
Two-for-one margaritas at the bar, half price meals after 9 p.m., cash back rebates – sales promotions are all around us. We love them. Yet, those special deals can also mean waking up at 6 a.m. on Black Friday or calling customer service three times to get paid for that mail-in rebate. We hate them. The reality is that promotions are all around us…and they seem to be proliferating.

In the world of motor-vehicle aftersales, promotions usually take the form of campaigns. Two types of campaigns are common:

  • Sell-in (or push) campaigns: The typical parts campaign allows dealers to order a basket of spare parts at a reduced price during a defined period of time.
  • Sell-out (or pull) campaigns: The typical service campaign is a discount mailing to get customers back into the dealership for a seasonal check-up.
Lately, Carlisle has seen more clients requesting consulting projects on sales campaigns, which is a good reason to spotlight this subject. We start with three simple questions.

The first is, “Do campaigns actually work?” Carlisle’s market research and consulting experience show that campaigns actually do work. They can generate loyalty, as well as incremental sales. However, to succeed the campaign design must be smart.

The second question is, “What is a smart campaign design?” This requires a broad campaign strategy. If aftersales departments don’t understand what campaign strategy means, that proves they need one. Campaign strategy answers specific questions such as:

  • Are everyday low prices better than campaigns?
  • How does one avoid campaign fatigue?
  • How can discounts remain credible?
  • Is pulling-forward purchases bad?
  • How will campaigns be tied to other elements of the marketing mix?
  • What is the channel strategy for campaigns?
How do campaigns work in a world where dealers have RIM?
  • Can the supply chain support an unusual demand spike?
  • What legal aspects should be considered?
What does the future of campaigning look like?

The third question is, of course, “How do OEMs measure campaign success?”

Sales departments tell us that campaigns are successful if they create incremental sales. Finance departments want the profitability quantified. For example, sales teams often don’t know if a different campaign, or no campaign at all, would have been better than the sales campaign they’re running. OEM campaign measurement is often poor. Campaign effectiveness, however, can be measured. Here’s how:

  • Define a set of metrics to measure campaign effectiveness, such as incremental sales, pull-forward effect, margin impact, profit impact, etc.
  • Track the daily parts sales by part number over a long period of time (at least one year).
  • Split the timeline into defined windows: pre-campaign, campaign, pull-forward period and post-campaign period.
  • Calculate the performance metrics of part numbers using those time windows.
  • Interpret the data and determine the root causes of the results.
Carlisle has assessed many individual campaigns this way and helped OEMs generate value. In one instance, a cluster analysis reduced dozens of historical campaigns down to six typical campaign prototypes, each with unique characteristics. Two prototypes were actually destroying profit, two prototypes were profit neutral, and only two prototypes created incremental profit. The OEM deleted the four prototypes that didn’t make money.

That’s not all. Of the two successful prototypes, one campaign prototype delivered “good” results, while the other campaign prototype delivered “great” results. Carlisle isolated the factors that turned a good campaign into a great campaign. Based on these insights, the OEM implemented a ‘rule book’ to guide the organization in the rights and wrongs of campaign design. Local market managers can now use the rule book to produce more ‘great’ campaigns than ever before.

Bottom line: OEMs spend a lot of money on campaigns. Isn’t it time to manage the expenditure more rigorously? If you are curious to find out more about this subject, please contact us. We’ll invite you to discuss it over margaritas.

P.S. Increasingly, OEMs are providing tools to dealers to design and implement promotions within their local markets. But, are any OEMs providing tools to dealers that help them evaluate their promotions’ effectiveness? Are we helping them leverage our knowledge of successful prototypes?

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