Decomposing the Impact of Sales Promotions on a Large Scale Retailer’s Business Performance

Abstract

Promotion, one of the 4Ps of the marketing mix notion, is an essential component of marketing eco-system. Although originally, sales promotions were positioned as short-term actions to receive immediate increases in sales, nowadays, marketers recognise them as integral tools of creating sustainable sales performance. Yet, promotions’ link with different key performance indicators of the business system makes the task of distinguishing the net value added a hard job. A recent study indicate that 20% to 50% of promotions generates no noticeable lift in sales or worse. In this paper, we employed store level transactional data, provided from the database of a large scale national Fast Moving Consumer Goods (FMCG) retailer, to test the impact of sales promotions on business performance. Primarily, repetitive patterns such as seasonality are investigated. Afterwards, a time series model is established to capture the change in the volatility of sales with respect to the total number of products in promotions. Results suggest that, the total number of stock keeping units (SKUs) on promotions have a significant effect on a retailers’ overall sales performance and should be used as an input for decision models and support systems aiming at optimising the components of marketing activities.