Оценка финансовой эффективности категорийных промо-акций (на примере ООО «Лента»)

Russian food retail market can be characterized as low consolidated and highly competitive. Russian retail develops rapidly every year, consumers nowadays are able to get unique shopping experience impossible to imagine even 10 years before. Russian food retail chains come through automatization, diversification and digitalization. It is common to implement self- scanning and self-checkout equipment, that potentially significantly accelerates services and improve stores traffic. All major Russian food retail chains invest in diversification by developing different store formats, such as convenient store, supermarket and hypermarket, working with different costumers’ segments and providing the most appropriate and beneficial services for them. Digitalization significantly affects Russian retail chains, lose positions in digital space means lose significant competitive advantage. In recent years retail chains in Russia significantly increased their digital presence from accounts in social networks to developing mobile applications. Digital presence enables companies to achieve many important objectives: to maintain and increase client base, to provide clear and noticeable communications about conditions and events, to manage loyalty programs and analyze consumer behavior.
Russian retail market changes not only in terms of new technologies and strategy, but also in terms of environment specifics. Global tendency in retail is dramatically growing share of sales obtained through promotion activities. According to PwC report, for European retailers promo share reached 30%, for Russian retailers this number is significantly higher. Based on the information from public disclosures of Russian retail chains, promo share has already reached 50%. It means that half of the revenue or even more is collected via promotional activities. First, it means that price promotions are no longer attractive instrument of retail managers to boost short- term KPIs, but necessary part of routine operations. Second, big promo share signs that there is high extent of price competition between market players.
Most of the promo share relates to classic promotion activities, such as catalogues, weekly offers, billboard and TV offers. The feature of this promotions is that they are usually compensated by suppliers and that they have lower but positive margins. The objective of such promotions is to use high demand elasticity to boost sales and increase profits. It means the higher sales of promoted goods the higher the promotion profitability. In a line with classic promotion activities there is relatively new type of promo called loss leader promotions that is widely used among Russian retailers. Loss leader promotions means selling the promoted items with price below the purchase price with negative margin in order to attract customers. In contrast to classic promotions, the
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objectives of loss leaders are generation of traffic and stimulation of complementary purchases. While the financial effect of classic promotions is relatively clear because it is represented by intervention period sales bump of promoted items, the overall effect of loss leader activities on other categories and overall companies remains uncertain. When promoted items are sold with negative margin, the more the sales the more the loss. As loss leader promotions are supposed to have indirect effect on sales and traffic, true effect on the overall store can me estimated only by building models of casual relationships between different variables.
While retailers believe and invest in loss leader promotions though their true effect remains uncertain, there is a practical gap in estimating the financial effect of loss leader promotions on the overall company for more efficient promo planning and management. The tangible effect of such estimation will appear directly with identifying of unprofitable promotions.
Previous researches on the topic of loss leader promotions suggest that there is positive correlation between such promotions and store traffic and sales. Nevertheless, while the relationship of loss leaders with sales is approved by data in the majority of researches, the evidence of impact on traffic is diverse. The existing literature suggest that loss leader promotions might have different effects on traffic depending on the category and the nature of the promotions. While there was an evidence of price promotions affecting complementary sales of merchandise with a regular price, there is weak evidence of loss leader promotions stimulating the purchase of regular price products. The main dependent variables in most of the researches, as it is expected, are overall store traffic, sales and profitability. The independent variables are very various, the use of categorical variables is very often. The baseline method to assess the impact on store traffic was suggested, the method stands for model to predict regular demand during the intervention period. The impact of promotion is calculated by subtracting the predicted demand from actual demand.
Lenta is the third largest retail chain in Russia and is the largest hypermarket chain. Loss leader promotions in Lenta is realized in form of “crazy discounts”, the fixed discount on selected product category with one day duration. The conventional intuition behind such promotions in Lenta is to boost store traffic and sales. Based on the insights, there is no complex approach to measure the financial effectiveness of such promotions in Lenta. Nevertheless, managerial intuition with respect to “crazy discounts” is strong and the amount of such promotions grows as they are treated as the main traffic builders.
Thus, the research goal is to build practical model to estimate the true financial effect of category loss leader promotions on example of Lenta retail chain.
To reach the research goal it is required to answer following questions:
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1. Do loss leader promotions in Lenta generate incremental store traffic?
2. What product categories are the most successful in generating additional store
traffic?
3. Are there any product categories promoted through crazy discounts with no
estimated additional traffic?
4. Does estimated average receipt for additional traffic differs between categories and
during crazy days discounts in Lenta?
5. What is the estimated post-promotional cannibalization effect for crazy discounts
promotions in Lenta?
6. Are loss leader promotions in Lenta financially effective?
7. What is required to implement new approach of loss leader promotions estimation
into current Lenta’s planning and managing processes?
The proposed model is designed for the use of financial controlling to enhance the process of budgeting and promotion planning. Financial controlling plays a key role in promotion planning by performing budgeting and execution control, also controlling provides the estimation of financial efficiency of different activities. Nevertheless, current approach for promotion planning and control of loss leader promotions does not give a view on their profitability. The reason for that is high promotion share and inability to find isolated effect. The previous existing attempts of financial controlling to estimate the indirect effect of loss leader promotions were abandoned and the new methodology is required.
As it is shown above, the research has practical gap to cover. The research has strong managerial application for Russian retail companies. As retail has developed category management, the existence of planning and budgeting is vital. While common plan-fact approach is fully applicable for classic promotions, it is not that effective for loss leader promotions because of their different objectives and nature. At the current moment, Russian retail practitioners are lack of understanding of true effect of loss leader promotions except from managerial intuition. The insights of real financial efficiency of loss leader promotions provide an opportunity: to build expectations and set up goals to managers in accordance with overall company strategy; to control the execution of these goals; to obtain better understanding of what promotions are most beneficial for company; to improve the overall promotion effectiveness.