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Analysis of Customer Response to Simple and Complex Promotions

Customer Response To Simple And Complex Promotions

The value you convey to your customers is a key input into the success of achieving your promotion objectives.


As the Harvard Business Review states, “How customers perceive the price is as important as the price itself.”


For merchants, it is important to incorporate customer perception into promotion decisions to achieve plan objectives.


For example, your promotion objective may be to:

  • Increase volume, revenue, or margin.
  • Shift customer preference to profitable brands.
  • Project value to customers while maintaining modest inventory levels.

To achieve these objectives you may ask yourself:

  • How do I align promotion decisions with my objectives?
  • Do I offer simple single-item markdowns or more complex multi-item buy-get and spend-get derivatives?
  • Which one do I choose and how deep should I discount?

Discover how to align promotion decisions with objectives using insight from our research team.

Table of Contents

Customer Response to Various Promotions

Our data scientists analyzed customer response to single-item and multi-item promotions across an entire grocery retail chain.

Relationship of discount to lift based on promotion type

Relationship of discount to lift based on promotion type
Relationship of discount to lift based on promotion type

Key observations from the lift analysis

Single-item

Multi-item

Consistently higher lift than multi-item promotions types.

Consistently lower lift than single-item promotion types.

Unit lift exponentially increases with discount.

Unit lift linearly increases with discount.

Revenue lift is always positive.
Greatest lift potential at low and high discounts.
Lowest lift potential at 30% discount.

Revenue lift is positive only for low discounts.
Greatest lift potential at the lowest discounts.
Negative lift beyond 15% discount.

Achieving Promotion Objectives

Based on the customer response insights, here are strategies to achieve promotion objectives:

Objective

Strategies

  • Increase Volume
  • Use single-item promotions to maximize unit lift.
  • Use multi-item promotions for predictably modest unit lift.
  • Increase Revenue
  • Use single-item promotions with low or high discounts to maximize revenue lift.
  • Use multi-item promotions only at low discounts.
  • Increase Margin
  • Use anticipated lift to negotiate appropriate promotion funding.
  • Shift Customer Preference
  • Use anticipated conversion rates to guide discount depth.
  • For high conversion, use single-item promotions to encourage customer testing.
  • For low conversion, consider pairing items in multi-item promotions that amplify an experience (e.g. same brand across multiple categories) or exploit existing halo effects.
  • Provide Customer Choice
  • Use low discounts for single-item or multi-item promotions.

Objective

  • Increase Volume

Strategies

  • Use single-item promotions to maximize unit lift.
  • Use multi-item promotions for predictably modest unit lift.

Objective

  • Increase Revenue

Strategies

  • Use single-item promotions with low or high discounts to maximize revenue lift.
  • Use multi-item promotions only at low discounts.

Objective

  • Increase Margin

Strategies

  • Use anticipated lift to negotiate appropriate promotion funding.

Objective

  • Shift Customer Preference

Strategies

  • Use anticipated conversion rates to guide discount depth.
  • For high conversion, use single-item promotions to encourage customer testing.
  • For low conversion, consider pairing items in multi-item promotions that amplify an experience (e.g. same brand across multiple categories) or exploit existing halo effects.

Objective

  • Provide Customer Choice

Strategies

  • Use low discounts for single-item or multi-item promotions.

Final Thoughts on Achieving Promotion Objectives

This low-resolution analysis generalizes customer response across diverse categories and specific promotion decisions. Even so, we can derive useful principles:

Sales Promotion Objectives
  1. Customers respond to simplicity. Single-item promotions are the dominant strategy.
  2. Objectives must shape analysis. Unit and revenue lift behave very differently.
  3. Decisions improve with insight. Constraints and alternatives are necessary and useful.

At Cognira, our promotion management solution pairs objective-based planning with artificial intelligence. Our aim is to shift end-user decision-making from “What do you want to do?” to “What do you want to accomplish?”.

Our research team is dedicated to applying artificial intelligence to inform strategic objectives and automate operations. We are pleased to share this summary of our research and hope it provides value to your organization.

Let’s Connect

Have a question about our AI promotion solution or how we leverage AI in retail? Send us a message to chat with Cognira experts.

Meet DJ!

dj oneil

DJ O’Neil is the Vice President of Product Management at Cognira. DJ is passionate about transforming retail decision making with objective-based planning using artificial intelligence. He has over 15 years delivering analytics solutions to retailers in product management and consulting roles.

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About Cognira

About Cognira

Cognira is the leading artificial intelligence solutions provider for retailers. Cognira is passionate about helping retailers unlock valuable, transformative business insights from their data.

We know retail. We love data.

To learn more, check out our website at cognira.com or contact us today to get started. 

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