Washington D.C. – For decades, grocers have relied on a weekly ad to attract shoppers to their stores and build long-term customer loyalty. Yet in today’s digital world, many believe that weekly ads are gradually becoming irrelevant. Case in point: newspaper advertising rose steadily for three hundred years until 2001, when spend in the US peaked at $48 billion. Since then, it has begun to decline. Now that decline is accelerating, growing from 9.4% in 2001 to 17.7% in 2008. As web advertising is expanding and more newspapers are closing, this trend is expected to continue. As a result, several prominent grocers have reduced or eliminated physical distribution of their weekly ads.
While the world has raced forward, the weekly / monthly flyer that most grocers place in their stores and distribute to the customers in store’s trade area, has not changed much over the last 50 years. Analyzing two sample ads, one from the 1960s and the other a modern one, there are some clear differences: we can now digitize product images and print in color, most retailers place their ads online and some retailers are even allowing weekly ad customization (for example, Target has recently introduced the My TargetWeekly customizable ad online) and of course prices are higher due to inflation. But many things stayed the same: today’s ad still tries to highlight “hot deals,” it is crammed with products, and the goal is still to attract customers to come to the store in hope that shoppers will buy other things, in the process offsetting margin loss on promoted products.
|Weekly Ad: 50 years of (non)evolution
|Grocery ad circa 1960
||Grocery ad circa 2010
The lack of evolution over the last several decades is in large part due to the fact that marketing executives lacked tools to quantify the effectiveness of their ads. Paradoxically, one of the most important marketing vehicles got very little attention because grocers were content with the status quo. However, recent advances in gathering and processing large volumes of POS data, evolution of powerful analytical tools and ability to run in-market tests are all allowing grocers to answer business questions that lead to actionable ways to improve the good old weekly ads.
Ways to improve
There are several categories of questions marketers and merchandisers responsible for the weekly / monthly ad should be able to answer if they want their ad dollars to drive immediate sales lift and long-term customer loyalty.
#1: Quantify the impact
How much sales lift does your circular drive? Is sales lift mostly driven by incremental customers coming into the store because they saw the ad or is sales lift being driven by increased basket size of the shoppers who come in? What is the margin erosion caused by the special deals you are advertising in the flyer? These questions seem simple and straightforward, yet most grocery executives do not have clear answers to these questions.
John Wanamaker, the father of modern advertising, once acknowledged this by famously proclaiming Half the money I spend on advertising is wasted; the trouble is I don’t know which half. Today, 100 years later, retailers have several advantages over John Wanamaker. The two very important ones:
- vast amounts of data coupled with modern computational power, and
- ability to run in-market tests.
Data and processing power allow companies to track and measure changes in performance across a variety of metrics such as sales, customer count, basket size, gross margin, etc. Ability to run in-market tests means that retailers can actually measure the true, incremental impact of the print ads by holding out groups of stores / markets, and using them as control (akin to the medical trial) to correct for seasonality, economic conditions, weather, competitive actions, etc.
Quantifying the impact allows to understand how much do you get for every $1 you spend on developing, printing and delivering the weekly ads. Marketers can begin to benchmark the performance of the weekly ad against other media vehicles.
#2: Target by store / market
Quantifying the incremental impact of the weekly ads is only the first step. To maximize ROI, companies should be deploying weekly ads more aggressively to stores / markets where they drive higher lift, and reduce or even eliminate promotions where circulars do not drive sales lift (to save on printing and distribution costs) or sales lift is not large enough to offset the margin loss. Segmentation on store-level drivers should span a broad set of store / market characteristics, including:
- demographics (e.g. are weekly ads more effective in lower or higher income areas?, are weekly ads more effective in more rural or more urban areas?)
- competition (e.g. are weekly ads more affective in areas with less or more competition?)
- market penetration
In today’s retail world, marketers that lack proper analytical tools to dive beyond averages and understand drivers of performance, often resort to a familiar excuse: we would like to support all our stores uniformly and prefer to have a consistent corporate message. This is a poor excuse because it negatively affects company’s profitability and reduces marketing ROI. Yet, companies resort to it over and over again, neglecting to tailor their marketing by store / market.
#3: Figure out the right products
Retailers use promotions to achieve different objectives, and increasing the number and size of baskets is an important one for many. Weekly ad is no different. When choosing which product to promote in the weekly ad, one factor is how the product’s own sales will respond to being on promotion. However, an even more important factor is how promoting that product increases the sales and profit coming from other products (e.g. by driving more or larger baskets). Without this additional information the merchant could promote the “wrong” item and miss an opportunity to increase sales and profits. When creating promotions designed to lead to more and larger baskets, retailers require the ability to answer two key questions:
- What is the impact on total basket sales when an item is promoted?
- What is the impact on total number of baskets when an item is promoted?
The complexity of basket-level analysis has long prevented retailers from fully utilizing it to evaluate and optimize their weekly ads. But as technology develops, new solutions are enabling retailers to analyze large volumes of transaction- and customer-level sales data both rapidly and accurately, ultimately putting basket-level insights at the fingertips of decision-makers.
#4: Choose the best distribution vehicle
While the Internet is by far the cheapest distribution vehicle (no printing costs and negligible distribution costs), grocers continue to distribute the ads by mail. There are multiple traditional vehicles used for ad distribution: marriage mail (usually the cheapest, but it has a disadvantage of including your ad with ads from other companies, so potential shoppers frequently just toss the entire packet away), newspaper insert (somewhat limited because it cannot be targeted), solo mail (usually the most expensive option, which on the flip side allows for best targeting). The question remains which is the most effective way to drive the best bang-for-the-buck for your company. Many retailers do not know the answer to this question. They employ rules of thumb (“we use marriage mail because it is the cheapest”), and risk missing great returns by not measuring the differential lift / cost trade-offs that different vehicles offer.
#5: Optimize frequency and distribution depth
How often should we run the circular so as to stay relevant in the minds of the customers and drive them to the store? How many circulars should we mail to the customers in the store’s trade area?
The right answers to these questions can make or break your weekly ad’s profitability. Mail too often, and you are risking giving away more deals than necessary, in the process diluting your margins, and spending marketing budget on printing and distribution without getting much in return. Mail too little, and you are risking losing the customer to a competitor.
Similarly, mailing to only a few customers means that achieved lift is smaller than potential, while mailing too many customers who are too far away from your store wastes printing and distributions costs.
Grocers have multiple levers they can pull to optimize their weekly ads. To win with circulars, marketers should be utilizing the power of data and employing the right analytical tools to analyze it in order to learn what is working, what is not working, and what could work if tweaked. Targeting stores / markets and products is crucial to tailor the right amount of advertising to the right situations. Choosing the best distribution vehicle, optimizing mailing frequency and distribution can further improve marketing ROI. If your company is not able to confidently answer these basic questions about the weekly ads you are running, it is time to roll up your sleeves and potentially seek outside help.
If retailers can do a better job with their weekly ads and get a better ROI out of their marketing investments in this media vehicle, perhaps the decline of print advertising can slow down?
Learn how APT’s Test & LearnTM software platform helps grocers optimize their weekly ads and circulars, and promotional strategies more generally, by reading our white paper on the topic.