Deep discounting by retailers, accompanied by a blitz of promotions, is a long-established and well-accepted strategy for boosting brand and category sales. But relatively few studies have analyzed store-level data in an effort to compile systematic empirical evidence on the impact of deep discounting on such store performance metrics as traffic, sales, and profits. New research delves into the numbers to find out if the received wisdom is justified.
For each week in each of the two dozen stores, the authors compiled data on overall traffic, sales per transaction, and margin, for a total of 13,815 transactions, with a mean value of $15.44 and margin of 23.6 percent. They looked at the impact of loss leader strategies, including promotional expenditures, on penetration and frequency, impulse buying, stockpiling, and store brands. Besides confirming the legitimacy of the strategy in general, they unearthed insights that could help shape retailing strategy.
Among the findings that can give retailers an edge: the data showed that discounts on high-penetration, high-frequency items – staples such as meat and produce – and low-penetration, low-frequency items – fill-ins, like beer and spreads – led to increased traffic but lower sales per transaction, suggesting that these features tend to attract small-ticket customers. However, discounts in these categories were associated with higher margins, especially with the low-penetration, low-frequency category, suggesting that the smaller transactions generated by the discounts tend to contain an above-average number of high-margin items in addition to the discounted items – a result driven mainly by beer, which was featured almost every week.
Gaining real-world experience in a career that you love. Earning credit toward your major. Making a difference in your community.
All from one class project. Pretty cool, huh?
For the spring 2017 semester, Anne Velliquette, clinical assistant professor at the Sam M. Walton College of Business, assigned a service-learning project to her Integrated Marketing Communications class. Teams formed and assignments were made. The project developed full blown advertising campaigns – and the research and pitches that go along with it – to promote Rockin’ Baker, a local mission-focused, benefit corporation bakery located in North Fayetteville.
Walton students Alexa Wood, Bethany McClain, Connor Clark, Demrie Lowry, Emma Meyer and Danielle Deats teamed up to create the Creative Lense Advertising agency for their team project and claim first place in the class competition.
“For this project we formed teams to create an advertising agency, which included coming up with an agency name, logo, and tagline, in order to prepare a campaign for our client, Rockin’ Baker,” said marketing major Demrie Lowry. “We were required to prepare three visual advertisements, a creative brief and we also created a social media plan.”
“I intend to pursue a career in marketing and this project will definitely help me in my career. It allowed us to work firsthand with a real client who actually wants to hear our ideas and feedback,” Lowry said. “I believe it will set us ahead because we have actually prepared a creative brief for a client based on their goals, which is exactly how it will be in a real-world setting.”
The client – Rockin’ Baker – prepares fresh breads such as traditional baguettes or sourdough, along with sourdough accented with nuts, herbs, olives, bananas, rye flour or chocolate. Tuesday through Saturday, it supplements baked goods with lunch sandwiches and salads.
When opening the doors of Rockin’ Baker, a rush of warm bread fresh from the oven awakes your senses. The shop doesn’t just smell good; it promotes good as well. The bakery is a registered nonprofit. It creates jobs and develops job skills for at-risk people who are interested in the culinary industry.
The team set out to reflect the social mission and fresh bread the bakery is known for.
“I learned how valuable it is to have something that sets your business apart,” said Alexa Wood, a marketing major. “For Rockin’ Baker, it’s their social mission. There are various other bakeries in NWA, but no one has the same mission and values as her, and that’s why people are loyal to her business. If you can provide something of value to customers, that’s when you get their repeat business and loyalty.”
With themes of “rising up to empower others” and “natural ingredients for the natural state,” Creative Lense team members promoted the bakery’s fresh bread and its mission to train workers in artisan baking skills, safe food handling, quality control and other marketable skills.
“Students overall embraced the social mission of Rockin’ Baker and did their best in fully understanding the challenges and limitations,” said Daymara Baker, founder and chief executive officer of the bakery. “Some of them went beyond their assignment to provide additional support to grow the business.”
The second place team, Avenue Advertising, pitched ideas for their ad campaign and used “baking a difference” to project the good work Rockin’ Baker does in empowering others through job training.
“Ultimately, we were trying to create a campaign that would be extremely low-cost, sustainable, and effective in order that Rockin’ Baker can grow and increase capital stability,” said Rachel Simpson, Avenue Advertising team member and a junior with a double major in marketing and accounting.
The integrated marketing project is a junior/senior level class and provides a hands-on experience to get students ready for the job market.
“It is a challenging yet very rewarding experience for the students. Ultimately, they are able to gain experience in two distinct advertising agency roles – that of the creative designer as well as the account executive,” Velliquette said. “Many of them have the goal of working in some capacity for an ad agency. And even those that may have other plans, the real world experience provides great resume and job interview material for the students. Many past students have told me how proud they were of their work and that during interviews, it helped them to land an internship or job.”
To learn more about Rockin’ Baker, visit rockinbakeracademy.org on the web or on Facebook under RockinBaker. The bakery is located at 3761 Mall Avenue in Fayetteville.
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A study by Dinesh K. Gauri, a professor in the marketing department at the Sam M. Walton College of Business and holder of the Wal-Mart Chair in Marketing, has been accepted for publication by Management Science, one of the top journals in the field.
The study, entitled Measuring the Efficiency of Category-Level Sales Response to Promotions, focuses on measuring the efficiency of category-level sales response to promotions across various categories and stores. The study’s authors develop a promotional efficiency frontier model and estimate it using data from multiple sources (point-of-sales data of 20 frequently bought categories across 24 stores of a retail grocery chain spanning millions of transactions, census block level socio-demographic information and data on individual store features from syndicated services).
They find that there are substantial differences in efficiency of category and store sales response across all categories and stores. Their study states that “the variation in efficiency of this sales response can be attributed to specific store and category characteristics such as selling area of store, distance to competition, number of SKUs in the category and average interpurchase time.” The authors mention that understanding of the roles played by these characteristics in impacting the efficiency of sales response can aid managers in devising a strategy that maximizes sales towards different segment of shoppers.
Gauri is publishing the study along with co-authors Minakshi Trivedi, a professor of marketing at the SUNY at Buffalo, and Yu Ma, associate professor of marketing, Desautels Faculty of Management, at McGill University in Montreal, Quebec, Canada.
News from the College of Business at the University of Arkansas