Promotions and ROI
Posted by Natalie Douvos on November 13th, 2007Everyone likes a good promotion. Wineries like them because they increase sales and consumer exposure. Customers, well, need I explain why customers like them? But, what is less clear is how wineries should make decisions about promotions: when should they run them? in which channels? using what promotion tactics (i.e., price cuts vs. shipping discounts vs. group discounts vs. general wine blasts, etc.)?
Well, like any other sound business decision, choices about promotions should be made based on the return on your investment, or “ROI†as we like to say in the biz. Meaning, the key to a successful promotion is getting the most bang for your buck—or, in marketing lingo, the most lift for your promotion costs.
And what is lift, you may ask? Well, “lift†is the incremental volume you achieve from running a promotion above the volume you would have sold without running the promotion, or “above your baselineâ€. Next, what are the promotion costs? Those are all the opportunity costs of the promotion: the cost of sending out a mailing or generating an email campaign; the cost of taking a per-bottle revenue hit when you offer a price discount, etc. Importantly, these costs generally apply to every bottle of wine you sell (i.e., baseline volume and lift volume), not just the lift volume.
So why is this ROI or “lift per cost†perspective so powerful? Because the key to promotions is that they generally do have big opportunity costs. In the case of a traditional sale, you have to sell all your wine at the lower cost, even that baseline volume of wine that customers would have purchased even without the sale price. So, the lift the promotion gains better be large enough to outweigh that opportunity cost, or you will lose money on the promotion. The ROI metric captures just that.
After you begin to measure ROI, you can use it to evaluate the performance of all your different promotions– across all your different channels and promotion tactics. Then you can run only the types of promotions that have the highest ROI. And that is the simple way to get the most bang for your buck.
