Alba Vacas, Nextail Change Manager, provided insights to answer this Nextail FAQ on promotions.
So, it’s time to hold a promotion…
Whether your sales promotion is part of an event like Black Friday or a one-off to make room for next season’s stock (BTW: Nextail helps you avoid this type of discounting and waste), you’ll want to set yourself up for success.
Nextail and an agile retail approach can help you prepare for, execute, and review your sales promotions for efficient and profitable results. These insights can create intelligent feedback loops and even impact your whole strategy. Here’s how.
1. Start planning for your promotion
Smart reports: Pinpoint stores & products ready for a promotion
If you’re thinking it might be time for a small promotion, especially for strategic marketing purposes, Nextail can help you better understand which products and channels might be a great fit for promotional activity.
Nextail Business Intelligence reports like the Top Products report and the Product Treemap let you sort products and stores by store coverage levels. Thus, if you see a particular family or store that has more coverage than others, you might choose these.
Demand forecast: Increase the efficiency of your sales promotion
Nextail calculates a demand forecast for every single SKU-store combination across your network, and accounts for demand changes around recurring events (“seasonality”) and one-off events such as promotions.
This helps you increase sell-through and avoid stockouts by ensuring enough stock is available and being replenished across channels during a defined period of time – something that’s especially important for promotions.
As for bigger sales events, the demand forecast also helps increase efficiency because it calculates the likelihood of selling each product in each channel. Therefore, it can provide guidance when deciding where to send them (or not).
For example, you might learn that certain products aren’t selling well in physical stores but are doing great on the web. This type of insight helps you forgo the traditional approach of putting all products/families on sale and spending money sending them to stores, because you know you can hang on to them for web sales. This has the additional benefit of not overstocking stores by sending them products they’re unlikely to sell.
“Promotions”: Create events & estimate their impact
As soon as your team has defined promotions internally, you can quickly program them in Nextail, applying a promotion type (e.g. direct discount, event, markdown), determining the product and store categories affected, and defining a start and end date.
Based on how much you expect demand to increase during the sales period, you can enter a “promotional coefficient” which Nextail will use to inform algorithms of how much stock each channel will need in order to prepare for the event. The greater the expected impact is, the higher the coefficient should be, triggering more products to be replenished.
Since Nextail preserves information on your past promotions, you can select a similar past promotion for Nextail to use as a reference to apply a similar promotional coefficient to the new promotion. More on that, later.
2. Prepare for increased activity, demand & flexibility requirements
Gearing up for the sales event, you’ll have to be ready on multiple fronts: the pick-up in demand across your channels, the flexibility your customers will expect from you, and the increase in team workload.
Parameters for fine-tuning product availability
Once your promotion is set up, you can prepare in advance by running replenishment simulations, or “scenarios”, before the sales event even begins.
While Nextail algorithms will automatically calculate replenishment quantities for every point in your network based on forecasted demand and the promotional coefficient, other useful parameters can fine tune decisions even further.
Sales threshold parameter
This parameter helps you determine whether it is worth it or not to replenish or redistribute products by automating a cost-benefit analysis based on how in-demand an item is and how likely it is to sell in any particular point within the network. the cost of sending an item and the likelihood of selling it at specific locations.
Generally speaking, this threshold, when set high, helps to “protect” stock from being sent where demand for it isn’t high enough.
During a sales event, however, especially when taking place at the end of a product’s lifecycle, Nextail customers will often lower thresholds so that products are sent more liberally, ensuring that replenishments are moving, rather than protecting, stock.
These “rules” must be met in order for a product to be sent from the warehouse to a particular store. They also help maintain stable size curves in these stores and reduce broken size sets, whereas other systems will often suggest more simplified replenishments (e.g. only sending best-selling size to a particular store). This approach often results in size surpluses and broken size sets once the sale ends.
During a sales event, you can use withdrawal conditions within Nextail Store Transfers to redistribute stock from stores that have leftovers to those with a better chance of meeting these conditions. By setting higher (more aggressive) withdrawal conditions, Nextail will execute the transfers with one of the goals being the consolidation of size sets in the stores with the highest likelihood of selling each product.
Toward the end of the season when there are certain products you may no longer want available in certain stores, Nextail allows for “blocks” to prevent specific products or sizes from being shipped to them.
During a sales event, particularly for end of season sales, some Nextail customers set blocks on all markdown products so that everything left in the warehouse can be sold on the web, where the majority of their demand comes from during sales. That way, stores can sell off the items they still have without constantly receiving replenishments of them – which would now be part of the previous/old season. BEST PRACTICE ALERT: This helps stores free up space for the new collection.
“Max stock” parameter
This parameter refers to the maximum number of units that a store can carry at any given time. For example, you might determine that a store in your network is only ever able to hold 2,000 units at a time due to logistical constraints.
During a sales event, this is important because it helps you to be mindful of logistical constraints, especially at times of increased demand. For example, some stores may receive very high sales as reflected in the forecast. However, it’s important to account for these constraints to avoid overwhelming stores and staff with more stock than they can handle. Therefore, whatever stock these stores are able to receive, whether it’s 1,590 or 15 units, they will always be the best products with the highest likelihood of being sold in that location.
Work with more flexibility for stronger unified commerce
Retailers working with Nextail have better visibility of stock performance in real time and across channels and can more intelligently move products across their networks.
Here are some of the ways that Nextail helps retailers meet new purchasing behaviors and offer more flexible options for customers during times of increased demand such as during sales and promotional events:
- Retailers are better prepared to use stores as micro-fulfillment centers to fulfill online orders (BOPIS) and even manage returns from online orders (ROPIS), because Nextail can recognize in-store ecommerce returns and consider them in demand forecasts and allocation decisions.
- Centralized product and store performance monitoring empowers store staff to make quick cross-network commercial decisions such as quickly viewing which items are selling particularly well or poorly, checking on product availability in other locations if they are not available in-store, and requesting products from the warehouse directly if needed.
- Retailers can more intelligently redistribute stock across all of their channels to achieve full-price sales for as long as possible with Store Transfers, especially at the end of a product’s lifecycle.
- The “Store to web” functionality to reassign stock to the online warehouse if online demand for particular products rapidly increases.
- Consolidate size sets, moving them to stores with a high likelihood of sale, in advance of the promotion or throughout.
Get a sense of upcoming scope & workload to prepare teams
You can anticipate how the promotional event might affect your distribution centers. In the case of larger events, such as Black Friday, running a replenishment simulation allows you to understand how much stock will need to go out each day and the implications this will have in terms of workload and staffing.
For example, this will also help you determine whether or not product movements will take place in one or multiple waves as opposed to all at once, and prepare teams (especially operations) in advance.
3. Measure success and use insights for future promotions
Once your promotion ends, you access it in Nextail to measure its performance and impact and apply learnings to future promotions.
Assess actual change in demand to understand impact
Nextail helps you understand how the degree to which sales were impacted by the promotion. You can see what the estimated sales would have been had you not carried out the promotion as well as an estimation of what they were with the promotional coefficient that was applied.
On the other hand, Nextail also calculates the “actual coefficient” which is the actual degree to which demand changed during the promotion. You can use it to measure the alignment with the originally estimated sales increase.
The actual coefficient also plays an important role, because it is taken into account when adjusting the post-promotional replenishment demand forecast so that channels won’t be overstocked once the sales event ends.
In the future, you can assign the actual coefficient to similar upcoming promotions, or use it as a reference for ongoing promotions to see if they are performing as expected.
Challenge preconceived notions for intelligent feedback loops
Being able to learn from the past and apply lessons can unshackle you from having to rely on assumptions and allows you to enter into intelligent feedback loops that can impact your whole merchandising strategy.
For example, imagine that every year you buy extra units of a product or family of products so that you will have extra for when Black Friday comes around. By studying your past promotions over time, however, you may find that the product/family you were betting on doesn’t actually sell well in promotions.
Or perhaps during Valentine’s Day, your sales only increase by 5% instead of the 10% you’d always assumed. Would you continue investing the same quantities in the future or would you consider reducing your buy?
Data-driven insights like this help you to challenge your preconceived notions and help you to apply more efficient decision-making for more successful sales events.
In the “Ask Nextail” blog series, we’ve compiled the most frequently asked questions we receive. Team members from various teams across Nextail help to answer these questions, bringing expertise from their work helping retailers understand, implement, and be successful managing the radical change that comes with digital transformation in retail.
If you’re interested in learning more about how Nextail can help you set your next sales event up for success, get in touch!