BACKGROUND

Leaflet was engaged by a retail company in Northern California that operates two brick and mortar locations and offers online ordering for delivery as well as in-store pickup. They sell more than a thousand (1,000) distinct products, serve more than 10,000 unique customers per month, and are the clear leader in their local market.

THE CHALLENGE

They engaged Leaflet to help drive a digital transformation in the way they approached promotional pricing. Previously they had taken two approaches to promotional pricing, each of which had fatal defects.

DAILY DEALS - Their earlier approach was to have a deal running for each day of the week, and each of the deals applied to an entire category of products. This category-wide approach made the program easy to administer. However, they ultimately realized that applying a markdown to an entire category of products creates a dynamic where people who want to purchase from that category reserve their shopping activity for the day that the desired category is on sale. As a result, they observed that nearly all purchases within every category were soon being made at the promotional price rather than at full price. And since the promotional prices were determined on the assumption that only 1/7th of purchases would be made at the promotional price, this became an unsustainable approach.

TARGETED DEALS - Their second approach was designed to eliminate the flaw of the first approach. Thus, rather than offering promotional pricing on an entire category of products, they began to select one or two products from each category and apply promotional pricing only to those products. At the same time, they introduced a system to target their deals to specific segments of their customers. This was definitely an improvement, but three big problems remained.

  1. First, by offering promotional pricing to so many customers on so few products, they created unintended surges of demand. This led to stock outs, and stock outs led to unhappy customers.

  2. Second, the process required their marketing manager to decide which products to promote and how much margin to sacrifice and how long to run each promotion and which customers should have access to each promotion. This process took too much of the marketing manager’s time and relied on guesswork, which left them feeling less than confident.

  3. Third, the only metric available to them for evaluating the impact of their promotions was the average cart size of customers who redeemed. As a result, they had no way of knowing whether or not any given redemption was truly incremental revenue or whether the customer in question would have bought the product anyway had it been selling at full price.

THE SOLUTION

By partnering with Leaflet, they have been able to improve the effectiveness and measurability of their promotional pricing while reducing time spent on tedious work.

They integrated Leaflet into their digital menus, which gave them the ability to price dynamically and intelligently. Now each customer is exposed to the promotional pricing that is perfectly optimal for them based on their preferences and shopping patterns. The guesswork has been replaced by mathematical equations that run in the background. The fear of stockouts has been replaced with an automated process and a sense of confidence.