Topline retail trends are strong. According to Mastercard, online spending rose 6.3% over the 2023 holidays. The biggest days were even better, with a record Black Friday and the single best ecommerce day ever on Cyber Monday.
Retailers are certainly flush with revenue. But they are achieving record topline at the cost of bottom line results, and many retailers I speak to are concerned about this trend. Sacrificing margin for sales with high use of promotional incentives will not win the next holiday season.
Don’t take my word for it. Levi Strauss & Co. cited high promo costs as a reason for margin loss last year. Facing similar margin pressure, Macy’s announced it would cut back on promos. This challenge has become widespread in the apparel and footwear sectors, and according to my conversations, in many other sectors as well.
And yet it’s not possible to simply raise prices. By far the main deciding factor for holiday shoppers is pricing and promotions, according to new research.
It’s quite a puzzle. So what should retailers do?
They’re stuck between sitewide promotional strategies that dilute their brands and lower their margins, while also needing promotions to maintain revenue and market share. And retailers need to figure a way out before the 2024 holiday season, which promises to be even more competitive.
Tuning the Onsite Engine
The opportunity for solving this puzzle is significant. Retailers that can do it will capture margin-positive revenue and position themselves for years of profitable growth.
I found an answer by comparing the science of customer attraction, designed to draw visitors, with the current state of sitewide promotions that convert visitors into customers.
Think about the tools and techniques for attracting visitors. With the detailed analytics and well-established channels available to retailers, the science of drawing traffic is tuned to the penny. Every retailer today has a turbocharged traffic attraction engine.
By contrast, the science of sitewide promos is in the horse-and-buggy age. Retailers can’t A/B test their promos in real time, they can’t target them to different segments, and they can’t optimize the tactics that work. There’s clearly an opportunity to do better–as many retailers have said themselves.
This is a big opportunity for retailers. It’s time to build the onsite engine for incentives.
AI-enabled incentives
An onsite engine for incentives will be able to do more than show a discount to everyone on site. This engine can microtarget and optimize incentives, so that retailers can get more yield and more margin from every dollar invested.
This engine can target site visitors based on their behaviors, understanding whether or not they need a discount to buy, whether they are price-sensitive, whether they need help, whether they will return again, and more. Each visitor receives only the information–or promo–that gets them to check out.
This engine enables incentive optimization: the right promo delivered in real time to convert the visitor. In many cases the right promo is no promo, saving margin.
Building this engine is what drives me. With sophisticated AI, we have empowered brands to spend fewer dollars on incentives and increase conversion rates–both during the holidays and all year long.
