Why 2016 Is The “Year of Promotions” For Retail

Merchants are capitalizing on the power of deals more than ever before.

According to DynamicAction’s Retail Index: Holiday 2016, retailers have increasing their promotions and offers by 52 percent this holiday season. By analyzing more than $8 billion in consumer transactions globally, the index found that more retailers are turning to deals, discounts and rewards than in previous years.

Whether it’s buy one, get one free or just a 20 percent off coupon, merchants are answering the call for shopping promotions.

In 2016, the number of orders using a promotion have increased by 34 percent compared to last year in North America, helping reduce product profit margins by 19 percent YTD for North American retailers.

“From BOGO offers to 40 percent off everything, Amazon began this process of training consumers to expect a sale, but nearly every major retailer has now joined in this costly race to the bottom,” Sarah Engel, SVP of global marketing for DynamicAction, said in a statement.

“In order to cut through the clutter and answer shoppers’ emotional desire to get a good deal, promotions have become table stakes for the holiday season. However, customer-centric retailers, who will also drive profits, are those who understand their cross-organizational data and act on it quickly to provide excellent shopping experiences and promote wisely without destroying profit margin,” Engel explained.

In order to achieve this balance, DynamicAction suggested that retailers test out shipping thresholds before implementing expedited shipping. As the holiday shopping deadlines draw near, many shoppers will overlook their financial concerns in order to meet gift giving time constraints.

It’s also important, DynamicAction noted, for merchants to understand and promote the types of products that will lead shoppers to purchase additional full price items even though they may have only planned to shop based on a specific discount or deal.

Also, retailers shouldn’t focus solely on undercutting competitors with costly price cuts and percent-off deals, instead they can also stand apart in the eyes of consumers by segueing to promotions. This can be done by offering a free gift with purchase that may be low-cost to the retailer but has a high perceived value for a shopper to own or regift.

With more shoppers opting for eCommerce and a lower number of doorbuster offerings being made available, retailers must rely on price as a way to draw in consumers.

Farla Efros, president of HRC Retail Advisory, recently echoed this sentiment in an article for Chain Store Age. Based on HRC Retail Advisory’s own data, 89 percent of consumers surveyed said that discounts were a key factor in deciding which stores they planned to shop in during the holiday season.

“Sales and coupons are more influential than any other tactic in motivating a consumer’s decision to enter a store this holiday season,” Efros said. “Already, since Black Friday, we’re seeing retailers comply with heavy in-store discounts well below what we expected, as they look to eliminate their excess inventory and drive top-line sales.”

“And 79 percent of consumers surveyed said they would be influenced on what stores to visit this holiday season based on a retailer’s website,” Efros added.

She noted that this holiday season, retailers must also rise to the challenge of determining the best ways to reach and serve consumers across different generations.

“This is a very interesting time for retail, as we’re in the midst of a generational shift of consumers. As Generation Z begins to gain a foothold in the consumer-spending environment and millennials mature, their expectations are transforming the retail landscape,” Efros said. “In order for retailers to remain competitive, they must begin to develop a balanced approach to serving baby boomers and Generation X (who still have the vast majority of the spending budget), while positioning themselves to best serve the emerging and future consumer segments for longer-term success.”