Target promotions: How to

measure and improve promotional

effectiveness through individual
customer information
Received (in revised form): 20th October, 2005

Cristina Ziliani
is a senior research associate in retailing and a lecturer in direct, database and internet marketing at the Università degli
Studi di Parma, Italy.

Abstract This paper proposes a new approach to measuring the effectiveness of

consumer promotions, enabled by individual customer information collected via loyalty
cards. The paper begins by discussing the complexity associated with measuring
promotional effectiveness and the limits of current methodologies, then sets out to
demonstrate that a customer-focused approach to promotion measurement — as
opposed to the current product-focused perspective — can expand the measurability of
promotional effects in three dimensions:

• objectives — in that not only sales volume and market share effects can be tracked,
but also customer-specific and assortment-wide effects;
• time — in that promotional effects can be monitored for longer periods of time and
the fulfilment of long-term goals can be measured;
• space — thanks to geo-marketing analysis, sense can be made of the variability of
promotional response in different retail markets, channels and outlets.

This allows for better promotion planning and marketing effectiveness, with
consequences that extend beyond economic benefits for the retail company itself and
reverberate on relationships with suppliers and cooperative promotion decisions.

RELEVANCE OF PROMOTIONS from 15 per cent in 1978. In Italy,

Promotions are used extensively in promotional spending increased by 10
marketing, and promotional expenditure per cent in 2003 and even further in
has been slowly but steadily increasing 2004 and 2005, following a dramatic
Cristina Ziliani
Università degli Studi di worldwide over the past 20 years.1 slump in consumption (–2.4 per cent)
Parma Highly competitive market places compel and retailers’ efforts to sustain sales.
Facoltà di Economia
Via J. F. Kennedy 6, 43100 marketers to increase promotional The increased economic relevance of
Parma, Italy spending: in the USA, fast moving promotions is not necessarily
Tel: ⫹39 (0)521 902012; consumer goods (FMCG) manufacturers accompanied by results: according to
Fax: +39 (0)521 032393
e-mail:
invest 25 per cent of their marketing Information Resources, in Italy, despite a
cristina.ziliani@unipr.it budget in consumer promotions,2 up ⫹1.6 per cent increase in promotional

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Ziliani

Table 1: More pressure does not mean more sales (Italy 2004)

Change over Change over

Hypermarket previous year (%) Supermarket previous year (%)

Promotional pressure (%) 30.8 ⫹1.5 21.1 ⫹1.6

Markdown (%) 24.3 ⫹0.5 24.5 ⫹0.8
Effectiveness 59 ⫺0.1 53 ⫺0.3

Source: Information Resources

pressure, and ⫹0.8 per cent increase in measurement, demonstrating that it can
markdown, in the supermarket industry, overcome the limits of current
the result in terms of sales has been a ‘sales-based’ methods, and expand the
disappointing ⫹0.3 per cent (Table 1). number of measurable objectives.
Despite their diminishing returns, Finally, the paper will suggest
promotions cannot be disposed of, as implications that the adoption of a
they are permanent competitive customer-focused approach to
‘weapons’ for retailers. Indeed, retailers promotions might have for retailers,
and manufacturers are likely to increase suppliers and vertical relationships; these
promotional spending in the future. implications provide stimuli for further
Moreover, promotional strategies are research.
evolving, due to the diffusion of a To address these goals, the following
loyalty/retention culture among retailers. research methods were combined:
The new focus on retention shifts
promotions from outside the point of • theoretical discussion of the complexity
sale to the inside, from mass media to intrinsic to promotion measurement,
direct media, from one-size-fits-all to based on an extensive literature review;
cluster marketing, from traffic building to • interviews (from June to October
share-of-wallet building efforts.3,4 2004) with eight major Italian FMCG
Promotional plans grow in complexity, as retailers and manufacturers, and with
massive adoption of loyalty schemes four market information multinationals
makes it necessary to integrate continuity — ACNielsen, Information Resources,
promotions with short-term price Catalina Marketing Inc. and
promotion. DunnHumby — to identify limitations
Discussion on how to make this of current methodologies employed for
investment more effective is therefore the measurement of promotional
necessary, and this paper aims to effectiveness;
stimulate it. • development and testing of new
The first goal of this exploratory customer-focused measures on a real
research is to discuss the complexity of marketing database, provided by a
measuring promotional effectiveness and major Italian retailer, and design of the
analyse the ‘defects’ of methodologies blueprint for a decision support system
currently in use in the industry, such as aimed at assisting retailers in their
those developed by ACNielsen and choice of category and brand for
Information Resources Inc. promotional purposes;
The second and main objective of the • discussion of preliminary results with a
research is to propose a new selected group of five Italian retail
customer-focused approach to promotion managers.

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 Promotional effectiveness through individual customer information

Table 2: An overview of promotional objectives

Short term Long term

Sales-related objectives Increase sales and turnover Expand market share

Sustain volumes Consolidate market share
Regain lost market share Expand brand's customer base
React to competitor's move Increase exclusive use of brand
Get rid of excess inventory Create entry/mobility barriers
Customer-related objectives Stimulate first trial of product Build loyalty
Stimulate repurchase Permanently lift consumed quantity
per customer
Increase quantity usually purchased Increase exclusivity of use
Increase frequency of purchase Suggest new uses for product
Focus customers' attention on brand Modify brand positioning
Up-sell to larger size of product Support brand image
Increase stock in home Expand share of wallet
Stimulate impulse buying –
Collect information about consumers –
Trade-related objectives Increase trade inventory of brand Increase number of stores carrying
brand
Push product listing by retailers Increase category share
Increase visibility in store –

Source: Adapted from Busacca and Mauri (1994)

LIMITS OF CURRENT advertising and trade promotions, are

MEASURES OF PROMOTIONAL taking place; increasingly, several types
EFFECTIVENESS of promotions (continuity, price and
According to Busacca and Mauri,5 targeted ones) are run at the same
promotional effectiveness is defined as time, and respective effects are difficult
‘the degree of fulfilment of the goals to isolate;
pursued by the company by means of a • effectiveness is a ‘jigsaw’, in that it
specific promotional action over a given results from the combination of the
period of time’. effects of diverse promotional elements:
Measuring the degree of fulfilment is promoted category/brand, target,
difficult for the following reasons: promotional tool, type of incentive,
depth of discount, redemption effort,
• there can be more than one goal to a timing, media, message, testing and so
promotion (Table 2), and goals may go on.
beyond a simple sales lift on the
promoted item; Given such complexity, the problem of
• such goals are seldom clearly stated, measuring promotional effects has usually
due to the tactical nature of been solved by limiting the analysis to
promotions; the most immediate and measurable
• promotional effects before (lead) and aspect of the phenomenon: the so called
after (lag/stock up) the actual ‘sales effect’ — that is the increase in
promotional period can pass unnoticed; sales volumes (and values) generated by
• promotions display intrabrand, the promotion.
interbrand, intracategory, intercategory Three common methodologies are
and store switching effects that escape used — alone or combined — to
conventional measures; measure the ‘sales lift’:
• consumer promotions are run while
other marketing activities, such as • incremental sales;

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Ziliani

• variation of market share; the short term, typically over three- or

• redemption. six-week periods: Such time spans are
standardised and are often shorter than
The incremental sales method is the the real repurchase cycle for the item,
commonest: ACNielsen and Information therefore distorting estimates of lead
Resources established long ago their own and stock-up effects and failing to
methodologies to calculate the ‘baseline’ capture medium- and long-term effects
(ie sales that would occur anyway, not of promotions. This is a ‘short-sighted
attributable to specific marketing mistake’ made by data users
activities) and hence determine (manufacturers and retailers looking at
promotional lift. Following interviews the data), rather than a pitfall of the
with Italian companies employing those methodologies. Market information
methodologies, and with ACNielsen and companies, if requested, can supply
Information Resources, who developed customers with longer time series for
them, such methods were found to suffer analysis;
from several defects, as listed below. • Intrabrand, interbrand, category and store
switching effects almost entirely escape
• Assumptions regarding the actual presence of measurement: This is the most notable
a promotion: Based on the detection of defect of sales-based methods, and the
price variations over a four-week most relevant for retailers, whose goal
period, analysts assume that a with promotions is to sell an
promotion is being run when a 10 per assortment, rather than single stock
cent difference (for ACNielsen, 5 per keeping units, brands or categories.
cent for Information Resources) in Switching effects can only be tracked
price level per item is spotted. The and understood when there is a
two thresholds suggest that the two customer perspective to promotional
companies account for a different analysis, by looking at shopping baskets
number of promotions, resulting in over time.
different ‘universes’. Moreover,
promotions are not monitored in all The ‘variation of market share’ method,
stores belonging to ACNielsen and building on the incremental sales
Information Resources panels, hence method, displays the same pitfalls and
limiting the extensibility of the results will not therefore be discussed here.
to the market (market share method). The ‘redemption’ method, typically
• Absence of ‘promotion-free’ weeks for certain used for coupons, is similarly faulty, in
categories: The baseline calculation that the mere amount of redeemed
requires sales data from coupons is no evidence of effectiveness
‘promotion-free’ weeks. However, per se. For example, a redemption rate of
some categories where promotional 40 per cent would, at first glance, lead to
pressure is very high never experience the assertion that the promotion was a
a promotion-free week during the success. But what happens when a closer
year, forcing analysts (when calculating look at the purchase records of those
the baseline at category level) to make customers who took advantage of the
up a ‘mock’ promotion-free week by promotion reveals that it was mainly
adding sales data from different customers loyal to the promoted brand
promotion-free weeks for each item (those who would have purchased
belonging to the category. anyway) who redeemed the coupon,
• Post-promotion effects are only monitored in while no new customer was attracted to

252 Journal of Targeting, Measurement and Analysis for Marketing Vol. 14, 3, 249–259 䉷 Palgrave Macmillan Ltd 1479-1862/06 $30.00
 Promotional effectiveness through individual customer information

the brand and no light consumers were discussion with a group of five retail
persuaded to speed up their repurchase marketing managers.
cycle and buy more? Is the promotion
still regarded as effective? The
importance of setting explicit Overcoming the limits of
promotional goals beforehand, and ‘sales-based methods’
expressing them in terms of customer We mentioned earlier that in addition to
behaviour, not simply in terms of sales-related objectives, a wide range of
sales/volumes/number of coupons customer-related and trade-related
becomes evident. objectives can also be envisaged for
promotions. As far as customer-specific
objectives are concerned (Table 2),
A NEW CUSTOMER-FOCUSED loyalty data allow for a substantial
APPROACH TO PROMOTION advancement in measurability. Not only
MEASUREMENT is the sample significant (the database
When they were first introduced, often contains more than one year of
scanners produced a major breakthrough purchase behaviour data for thousands of
in marketing and sales measurement. customers), but data reflect actual
Before scanners, less reliable, patchy ex behaviour and are timely — a relevant
fabrica data were used. Almost 30 years fact, especially for promotion planning, if
later, it is not surprising that the one considers that in FMCG preferences
dominating approach to promotional change quickly.
measures is sales driven; nonetheless, a Most notable is the fact that, by
new era for marketing measurement is identifying customers who took
coming, ushered in by a different advantage of a promotion, it is possible
technology: the customer database. to quantify fulfilment of specific
The third goal of this paper is to objectives, such as the extent to which
illustrate how individual demographic the promotion resulted in first trial,
and behavioural customer information, repurchase, sales subtraction from other
such as that collected by loyalty cards, brands/categories/stores and so on, as
can be used in conjunction with scanner shown in Figure 1. Here, the
(sell-out) data to: information provided by the incremental
sales method (the ‘lift’) is compared with
• overcome the limits of current that provided by the decomposition of
sales-based methods; the lift according to the customer
• measure the degree of fulfilment of segments who took advantage of the
customer-specific, long-term and promotion (see pie chart in Figure 1).
assortment-wide promotional The generic increase in sales can be
objectives; attributed to new customers (1 per cent),
• create a knowledge repository which, if switchers (48 per cent), customers loyal
leveraged, can help to design better to promoted brand (35 per cent), light
promotions. consumers who were persuaded to buy
more (10 per cent) etc, providing the
The following discussion is based on retailer and the manufacturer with a
analysis of the customer database of an more satisfactory understanding of the
Italian retail chain, and on the promotion’s effects. It is worth noting
outcome of interviews. The findings that retailers can keep such additional
were validated by means of a insight to themselves, or share it with

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Ziliani

1%
35%
48%
6%

10%
300 Switchers
250 Light consumers
200 Loyals to other brand
Loyals to brand A
150 New customers
100
50
0 Regular sales Promotional sales
Figure 1 Measuring customer-specific objectives ‘hidden’ under the veil of promotional lift

the partner manufacturer, depending on manufacturers’ assumptions over purchase

the promotional agreement and the frequency for their products — typically
relationship. derived from market research — differ
Sales-based methods typically measure from actual behaviour. Moreover,
short-term promotional effects. With the frequency is a ‘learned behaviour’ and it
new approach, the group of customers can differ widely from store to store
who bought during the promotion can depending on the promotional activity
be monitored over a much longer period adopted (ie the promotional pattern in
of time. This enables companies to verify certain stores might have trained
the long-term effects of the promotion: customers to ‘wait for sales’).
did consumers only buy the promoted
good once, or did they repeat the
purchase after the promotion was over? Capturing switching effects
Have they become loyal to the As mentioned above, retailers are most
promoted item or did they go back to interested in understanding the
their favourite brand, and so on (see cross-elasticity of product demands, as
Figure 2). Here, the lines show how the they are continuously using promotions
promoted items performed over a to support sales of the whole assortment
three-month period after the promotion, of goods. By looking at shopping
compared with the category they belong baskets, it is possible to monitor the
to: the increase in category share ‘held’ impact of promotional actions not only
in the long term, in terms of volume, on the promoted items, but most notably
value and number of customers. on other brands, categories, customer
Individual customer purchase histories, segments and stores. It is possible to
moreover, enable the calculation of ‘real’ establish how closely one
product purchase cycles, which can be product/brand/category/store is a
used to determine the appropriate time substitute for another, with clear
span for measurements of effectiveness, implications for pricing, merchandising,
and better estimates of lead and lag store layout and future promotions.
effects. In fact, it is often found that Table 3 shows substitution dynamics in

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 Promotional effectiveness through individual customer information

Share of promoted items over time

May June July August September

19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39

Share (value) Share (volume) Share (customers)

Figure 2 Tracking longer term effects of promotions

Table 3: Measuring variation of intracategory brand share over one year

Category share
Category share Category share when Category share
when SMA when KRAFT SMA + KRAFT over year
Brand switching is promoted is promoted are promoted (mean)

SMA share 50.5 35.0 49.8 42.0

KRAFT share 20.0 44.3 26.0 31.0
CALVE share 29.5 20.7 23.7 27.0

Source: Catalina Marketing Inc.

the mayonnaise category over a one-year segments. For example, a retailer might
period. In the right-hand column it is want to explore how the ‘top’ segment
possible to read the average category of the customer base reacts to
share of each brand during the year. The promotions, or how the ‘deal conscious’
other columns show what happens to segment — that is, the group of
each brand’s share when one or more customers who are most interested in
brands are promoted — that is, which promotions — welcomes a specific
brands are more affected when others action.
become more attractive to customers. Geo-marketing analysis can help to
This intracategory switching analysis, track the behaviour of customers who
based on shopping baskets, can be switch stores within the same chain for
extended to include substitute categories promotional reasons, and, most notably,
and cross-tabulated with customer it can also help to put the word

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Ziliani

‘effective’ into perspective. Indeed, the me-too decisions (let’s promote the same
‘degree of fulfilment’ of any promotional category as the competitors. . .) and at the
objective can be labelled as satisfactory same time serving the retailer’s own
(or not) only if it is compared with the objectives, not only the partner
promotion potential of the category and manufacturer’s.
brand — a concept well known to When a customer-focused approach to
retailers — but also the promotional promotions is adopted, new measures
potential of the area (the number, and indicators that help to refine
spending levels and preferences of decisions can be constructed. As an
customers in the target area affect example, a prototype of category/brand
promotional results). It emerged from the choice decision support system for
interviews that so far this geographical promotions was created (Figure 3); this
aspect of promotional potential has not reveals differences in potential
been taken into account for promotional effectiveness for categories that at first
decisions and evaluations. sight seemed equivalent. The value of
information such as the percentage of
‘gold’ customers who buy the category,
Creating more effective promotions the intensity of brand switching, the
by leveraging the promotional promotional proneness of customers
knowledge base shopping within the category is
This returns to the statement that self-evident. This information is all made
effectiveness results from the combination available by the new approach.
of diverse promotional elements: Effectiveness can be increased ex ante
promoted category/brand, target, also via segmentation and appropriate
promotional tool, type of incentive, targeting of the customer base:
depth of discount, redemption effort, segmentation criteria should be defined
timing, media, message, testing and so according to promotional objectives. If
on. In order to improve the design of the goal is to increase share of wallet
future promotions, it would therefore be or brand loyalty, for example, customers
very useful to keep track of past should be segmented and targeted
promotional decisions regarding each accordingly. One of the most
element, and their impact/result, by interesting applications, in this respect,
appending information to the database. is segmentation of customers according
This study found that, due to the tactical to promotional behaviour, an exercise
nature of promotions, their frequency that Tesco has been carrying out
and the sheer quantity of data that needs successfully on their customer database,
to be processed and set aside, as DunnHumby explained during the
promotional information other than sales interview. Needless to say, to exploit
volumes is seldom fed into marketing this segmentation to the full,
information systems. communicate directly with selected
Effectiveness, however, can be ‘built’ segments and target them with ad hoc
into promotions by learning from promotions, there needs to be a system
accumulated knowledge. Take, for in place. Loyalty card databases can
example, the decision regarding what help, if information such as address,
category to run the promotion in: the telephone number and e-mail address
customer database can serve as an of customers have been captured and
excellent information base to choose the updated over time. For a discussion of
appropriate category, avoiding the trap of European retailers’ adoption of targeted

256 Journal of Targeting, Measurement and Analysis for Marketing Vol. 14, 3, 249–259 䉷 Palgrave Macmillan Ltd 1479-1862/06 $30.00
 Promotional effectiveness through individual customer information

Is it st orable?
Mayonnaise
Mayonnaise
What is the pr omotional pressure on t he categor y in the market?
What is the category role for the retailer?
How many customers purchase the category?
What are t hese cust omers worth for the stor e?
Purchase frequency
Purchase value
Number of it ems purchased
Average cumulat ed value of purchases in the cat egory per cust omer over 1 yer a
Share of categor y leader
, brands’ shar es ( value and volume)
Number of loyal cust omers per br and
Proneness to brand swit ching
Penetr ation of cat egory among gold customers

Is it st orable?
Ret ailer’s own customer segment s: such as “gold”, “silver”, “tin”
Penetr ation of each brand in different cust omer segments ( gold, silver, tin)
Demographics of each brand’s customer base
Promotional responsiveness of each brand’s customer base

What is the pr omotional pressure on t he categor y in the market?

What is the category role for the retailer?
How many customers purchase the category?
What are t hese cust omers worth for the stor e?
Purchase frequency
Purchase value
Number of it ems purchased
Average cumulat ed value of purchases in the cat egory per cust omer over one year
Share of categor y leader
brands’ shar es ( value and volume)
Number of loyal cust omers per br and
Proneness to brand swit ching
Penetr ation of cat egory among gold customers
Ret ailer’s own customer segment s: such as ‘gold’, ‘silver’, ‘tin’
Penetr ation of each brand in different cust omer segments ( gold, silver, tin)
Demographics of each brand’s customer base
Promotional responsiveness of each brand’s customer base

Figure 3 A customer focused decision support system to assist choice of category and brand for
promotions

promotions and direct media see Ziliani hand, the new customer-focused
and Bellini (2004).6 approach introduces retailers to a
typically industrial way of reasoning —
Impact on vertical relationships customer-focused objectives — while the
With this information, and new measures appreciation of intrabrand, interbrand,
and tools, retailers can take a more intracategory and intercategory effects
mature and discerning approach to broadens the manufacturer’s view of the
promotional decisions, especially when it market, by definition narrower than that
comes to choosing between deals offered of the retailer. From this viewpoint,
by different manufacturers. Data about then, the two marketing visions might
the category/brand potential and past move closer. On the other hand,
promotional results can be quickly retailers’ objectives are different from
accessed (as shown in Figure 3) and those of manufacturers’ — consider the
negotiation influenced accordingly. It is motivation to sell a range, rather than
likely that, in the future, a retailer’s specific brands, to retain best customers,
evaluation of prospective partners will or to expand share of wallet; once
incorporate elements such as the ability retailers are better enabled to measure
to discuss and set customer-specific and such objectives, they will select
long-term objectives. promotions accordingly, refusing to run
It is uncertain, however, whether the and cooperate on promotional activities
availability of customer information and that hamper fulfilment of their own
measurability of customer-specific and goals. A clearer vision of promotional
long-term objectives will bring retailers results can shake long-established
and manufacturers any closer; on the one partnerships and conflict might become

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Ziliani

harsher. Research is therefore needed to • Promotions drain increasing amounts of

further explore the impact of improved financial resources and become more
promotional measurement on vertical complex, while their returns are
relationships. diminishing; retailers and manufacturers
will therefore strive for ways to
improve effectiveness and to obtain
CONCLUSIONS AND STIMULI additional resources by making loyalty
FOR FURTHER RESEARCH investments pay for themselves.
Research on retailers’ use of loyalty card • At the same time, the retention culture
information across Europe began several and the availability of individual
years ago. Today, evidence shows that, customer information bring
on the one hand, retailers declare that customer-specific promotional
customer information is vital for objectives to marketers’ attention,
competitive advantage; on the other urging them to rethink generic sales lift
hand, they hesitate to put data to any goals.
use.7,8 Retailers are seeking ways to make • The discovery of customer
loyalty investments pay for themselves: in heterogeneity and the ability to
the literature, at least, there seem to be carefully segment and target the
many attractive options. With the often customer base, coupled with efficient
cited exception of Tesco in the UK, direct media such as e-mail, SMS and
however, applications of individual electronic coupons, create conditions
customer information in retailing are to expand the variety of promotional
rather conservative, limited to improving tools and actions.
and running the loyalty scheme, direct • In this scenario, a customer-focused
communication and location analysis, as approach — as opposed to the current
found by the survey of the Italian market product-focused perspective —
in 2003 and confirmed on a European increases the possibility of measuring
scale.9 Several avenues are still to be promotional effectiveness in three
explored, where scope for value creation dimensions:
exists, such as segmentation based on — objectives, in that not only sales
shopping baskets, ranging stores volume and market share effects can
differently, new product/service be tracked, but also increasingly
development, cross-selling across important customer-specific ones
channels. (supplier viewpoint) and
In order to move from mass to assortment-wide ones (retail
information-intensive marketing, viewpoint);
however, retailers should not dissipate — time, in that promotional effects can
their efforts in many directions, but focus be traced for longer periods of time
on a few priority areas of intervention, and the fulfilment of long-term
depending on their marketing mix and goals can be measured;
competitive position. This paper suggests — space: thanks to geo-marketing
that one such area is the measurement of analysis, sense can be made of the
promotional effectiveness, and the variability of promotional response
consequent improvement of promotional in different retail markets, channels
decisions. and outlets.
The following points emerging from • One could argue that consumer panel
the research would benefit from further research such as Nielsen Home scan
exploration: can serve the same purpose but,

258 Journal of Targeting, Measurement and Analysis for Marketing Vol. 14, 3, 249–259 䉷 Palgrave Macmillan Ltd 1479-1862/06 $30.00
 Promotional effectiveness through individual customer information

generally speaking, such panels are • The expansion of promotional

designed to answer experimentation and variety, however,
manufacturer-specific questions is likely to be limited by cost factors,
regarding promotions, are based on complexity of promotional plan
statistical generalisation and, in markets management, shortage of marketing
such as Italy, where the retail market is analysis skills, cultural factors such as
highly fragmented, only a few retailers the long-established practice of
can find answers regarding their own entitling buyers, not the marketing
customer base in the panel. Most function (where knowledge about
banners go unrepresented. Finally, customers resides), to decide which
panel information cannot be used manufacturer’s promotional proposal to
directly for targeting one’s own accept.
customer base.
• Such expanded possibilities will have
an impact on vertical relationships: References
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