Big promotion secrets: category strategy and product matrix

This article continues to talk about big sales. The ideas and practices of refined operations mentioned in the article, such as the calculation of the new customer acquisition efficiency index, observation of the health of big sales promotions, cross-category penetration rate and its meaning, category priority strategy, and product matrix ideas, are also suitable for daily operations, category growth and other aspects. I hope it can provide a reference for everyone.

The effect of a big promotion is guaranteed by the systematic sales of goods. In order to achieve good sales results, it is necessary to carefully consider the category strategy and product matrix in the big promotion, and use a combination of clear strategies and goods to achieve the desired effect.

Category strategy is to solve the problems of how to select core categories and how to determine auxiliary categories, and provide an important basis for the allocation of marketing resources for big promotions; while the product matrix is ​​to determine which products play what roles in the big promotion, such as who is responsible for attracting traffic, who is responsible for sales, who is responsible for making profits, and who is responsible for brand image.

Let’s discuss these two aspects of thinking.

1. Category Strategy

Big promotions of all levels are held on various e-commerce platforms throughout the year, and each time there is a theme (for event scheduling, please refer to the previous article "Big Promotion Revealed: Event Calendar and Big Promotion Planning"). The category strategy and promotional theme of the event are directly related. Festival nodes with clear user labels, such as Mother's Day, Goddess Day, and Children's Day, must undoubtedly be centered on the preferred categories of the corresponding groups of people.

For all-category carnivals, such as 618 and Double 11, the number of events should be strictly controlled throughout the year (no more than three events are recommended). In this way, each category can have a chance to take turns throughout the year to avoid exacerbating promotion fatigue.

Taking the March 8th Women's Day as an example, its core scenario is the festival of the female user group, or the gift-giving scenario of relevant groups (boyfriends, husbands). The core categories are products preferred by female users, such as beauty, women's clothing, women's shoes, and luggage. Auxiliary categories can be maternal and child products, kitchen and bathroom cleaning, food, etc. that are more relevant to female users. Other categories such as books, home appliances, and office stationery are not highly relevant, except for some SKUs designed for women.

The selection of auxiliary categories requires weighing, although many categories can be "related" to the current event (I suddenly remembered that when planning the resources for the Goddess Day event, the person in charge of the book line suggested that because girls will have half a day off on Goddess Day and have nothing to do, they should read, so books should also participate in the Goddess Day event).

When it is difficult to choose auxiliary categories, you can combine historical data to analyze the sales of categories in past promotions and determine category selection based on the explosion coefficient of each category.

Explosion coefficient = sales on the first day of the promotion (or average daily sales) / average daily sales this year

After calculating the explosion coefficient of each category, sort them, take the top few categories, and decisively cut off the middle and tail (it is not that you cannot do activities, you can allow category lines to take advantage of it, but they are only exposed through personalized recommendation columns, and are not considered when the promotion team allocates activity resources).

If it is a full-category carnival such as Double 11 or 618, the following points should be considered in the design of category strategy:

1. Corporate Strategy

Is the company's current strategic goal to increase sales, generate profits, or attract new customers? The company's strategic goals should undoubtedly be taken up by the big promotion (for details on the design of big promotion goals, please see "The Secrets of Big Promotion: Big Promotion Goals").

• If you are looking at sales, it is easy to think that you should fully consider the categories with the largest sales amounts, such as home appliances and digital products, household daily necessities, and personal care and cleaning.
• If you want to make a profit, you should give priority to categories with high gross profit margins among categories with larger sales volumes, such as clothing and footwear, maternal and child toys, and furniture and daily necessities.
• If you want to attract new customers, it will be relatively complicated. You need to focus on the category preferences of the target new customers and use products to attract people. For example, at present, comprehensive e-commerce companies are vigorously competing for the sinking market and the new generation of consumers. Correspondingly, they should position strategic categories and products based on the consumption preferences of the sinking market and student groups. Vertical platforms and stores should explore the preferences of their potential target customers and, through data analysis, find the categories that have been most efficient in attracting new customers in the past year and use them as the focus of their activities.

Some readers may ask, how to analyze the efficiency of attracting new customers? This topic itself can be written into a long article. I will find time to write about it in detail later. Here I will give a case study of my team's efficiency analysis of attracting new customers as a reference. The data are all examples.

1) First step

We collected statistics on orders from the eight core categories of the first-level business lines, including books, digital products, and beauty products, over the past year.

For example, there are 10,000 orders in total, and they are further divided into two categories: new customer orders and old customer orders. New customer orders refer to orders made by customers for the first time on this site. The statistical results show that there are 2,000 new customer orders and 8,000 orders from old customers on the entire site. In this way, the annual site-wide new customer order index = 2000/10000 = 0.2.

2) Step 2

For each category, statistics are kept on the number of new and old customer orders each month.

For example, the book category received a total of 218 orders in April, of which 55 were from new customers. Therefore, the new customer order index for the book category in April = 55/218 = 0.252. Divide this value by the site-wide new customer order index of 0.2 obtained in the previous step, 0.252/0.2=1.26, and the book category new customer acquisition efficiency index for April is 1.26.

3) Step 3

Using the method in the second step, calculate the new customer acquisition efficiency index of all categories every month in the past year and fill in the table.

4) Step 4

Mark those with a high new customer acquisition efficiency index in bright red, those with a relatively high one in light red, those with a moderate one in white, those with a poor one in light blue, and those with a particularly poor one in dark blue. At this point, we get new customer acquisition efficiency data similar to the table below. The table clearly shows which category will be the "sword" for converting new customers at what time.

New customer acquisition efficiency index

(Note: Due to differences in product categories, customer characteristics, focus on attracting new customers, investment and methods, the new customer acquisition index of each company may be significantly different from the above table. The data in the above figure is only an example.)

5) Step 5

With the above table, we can make refined operational actions related to new customers based on it. For example, when planning the allocation of resources to attract new customers, we can determine when and on what categories to allocate resources based on the efficiency of attracting new customers.

Compared with the relatively extensive "big pot" approach in the industry where new customer coupons are distributed across all categories and at all times, the efficiency of resource utilization will be significantly improved, especially for companies with tight budgets for attracting new customers. It is of great significance to use limited resources effectively.

Similarly, during the promotion phase, if attracting new customers is the main goal, then the above methods can effectively guide us in deciding key categories. We can even consider designing special theme promotion activities for categories and time periods that are effective in attracting new customers.

Even for a single-category vertical e-commerce company or store, you can extend downward from the core category to the secondary or even tertiary category, and use the same method to decide on the strategic category leading the activity.

2. Hot-selling categories in previous promotions

Different categories have different degrees of relevance to promotions:

Some categories will experience an explosion in sales during the big promotion phase and sell particularly well, for example, categories that can offer deep discounts, such as clothing; or high-priced categories that users are willing to wait for discounts, such as home appliances and home furnishings; or categories that can be stockpiled, such as cleaning and care products; and for some categories, sales during the big promotion phase do not increase significantly compared to normal times, such as goods that cannot be stockpiled and need to be purchased daily, such as fresh food.

The core categories of big promotions must take promotional relevance into consideration, and categories with relatively higher relevance to big promotions should be selected. The calculation of hot-selling categories during big promotions can also use the explosion coefficient mentioned above. By comparing big promotion data with daily data, the category correlation of big promotions can be discovered.

3. Category sales trends

An important consideration for strategic categories is category trends, which include:

1) Macro development trends

For example, in recent years, influenced by consumption upgrades and changes in lifestyle, categories such as cosmetics, toiletries, health foods, and pet supplies have continued to grow rapidly. In addition, due to the impact of the epidemic in 2020, categories such as protective supplies, home office, toys, and small kitchen appliances have grown rapidly. Under the macro trend, these categories should undoubtedly be given a higher priority, because big promotions are also a critical moment to attract new customers.

Market size of China's cosmetics industry:

Data source: iiMedia Data Center

Data source: public information

2) Seasonal category fluctuation trends

For example, Double 11 is the transition period from autumn to winter. Undoubtedly, winter shoes and clothing, heating appliances and other categories will be hot-selling, and Double 11 should undoubtedly focus on such categories. Following the same idea, 618 is early summer and close to summer vacation. Cool shoes and clothing, air conditioners, books, beverages, etc. will become hot-selling categories and should be the key categories of 618.

4. Cross-category penetration

Here is a strategic category consideration, which is cross-category penetration.

For example:

• In the book category, out of 10,000 customers in 2019, 230 purchased products from other categories on this site in 2020;
• In the maternal and child products category, out of 5,000 customers in 2019, 1,450 purchased products from other categories on this site in 2020.

In this example, the cross-category penetration rate of books = 230/10000 = 0.023, and the cross-category penetration rate of maternal and child products = 1450/5000 = 0.29. In other words, people who buy books basically only buy books, while customers who buy maternal and child products are likely to buy many other different categories of goods.

According to my actual statistics, products with high cross-category penetration rates will make far greater marketing contributions to the entire site than products with low cross-category penetration rates. In terms of user retention rate, the former is also much higher than the latter.

In other words, if we only look at the present, the average price of product A with high cross-category penetration is 80 yuan, and the average price of product B with low cross-category penetration is 100 yuan. It seems that selling one B is more helpful to revenue than selling one A. But if we look at it over a year, the average annual value contribution of customers of product A may reach 2,000 yuan, while that of B may be only 300 yuan.

Customer long-term value is affected by multiple factors. My data statistics show that cross-category penetration ability is a factor that has a particularly great impact on long-term value. Therefore, categories with high cross-category penetration often have a much greater long-term impact on a company's business than categories with low cross-category penetration. Naturally, they should also become the main categories promoted in big promotions.

5. Inventory reconciliation

The big sale itself is also an excellent opportunity to adjust the inventory age structure, optimize inventory distribution, and adjust the inventory-to-sales ratio of goods. Through big discounts and promotions, and by leveraging everyone’s strong desire to buy, we can effectively increase sales rates, clear out inventory, and handle products with long inventory cycles. Therefore, some companies will consider inventory adjustment as an important factor in big sales promotions.

When the above aspects conflict, we should first consider it from the perspective of long-term development and select strategic categories that are most helpful to the health of the business and categories that are highly relevant to the promotion as the core categories of the promotion. Inventory age adjustment can be used as an auxiliary goal and play a role in big promotions.

After the category strategy is determined, we can go into deeper details, carefully consider at the product level, and further select different products to serve as the "vanguard, blasters, commandos and main attack forces" of the promotion. This is the product matrix.

2. Product Matrix

If we collect statistics on sales during big promotions (with products or categories as the horizontal axis and GMV as the vertical axis), we will generally see a normal distribution curve. An important symbol of the health of a promotion is whether the sales of goods are overly concentrated on a few top goods and whether a strong Matthew effect is reflected.

For example, in the figure below, when there are many active SKUs, if a very small number of top products account for a very large proportion of sales (such as more than 90%), even if the total GMV of the promotion is good, this pattern is very unhealthy.

Sales distribution is overly concentrated on the top

A healthy sales curve should have a relatively smooth distribution, cover a wide range of products, have hot-selling products in the middle, and a large number of long-tail products on both sides participating in sales contributions. The middle and long-tail products account for a considerable proportion of sales, similar to the figure below.

Only in this way can the big promotion reach a wider customer base, activate the existing customer base on a larger scale through diversified categories, and have better customer acquisition capabilities for different customer groups.

Long-term healthy category sales distribution

Since a good business model should rely on many products and categories to complete, how can we make a reasonable combination so that each product can play a different role and achieve better promotion results?

The big promotion product matrix is ​​aimed at this problem. It considers the reasonable layout of product combinations, selects different roles and positioning for products, assigns different functions and missions, and carries out systematic matching, so that products can work together in big promotions or daily sales.

There are many different ways to classify the product matrix.

1. In terms of product characteristics, they can be divided into hot products, new products, and special products

1) Hot Products

Hot-selling products are sometimes also called super products, and are the soul of the big promotion product matrix. Its responsibility is to ignite sales, which can not only bring in traffic and sales, but also build an image.

Not all products that have strong promotions, attractive prices and can achieve high sales can be called hot products. Hot products generally require the following requirements:

• It has a good reputation, can occupy the minds of consumers, and reflect the core competitiveness of the brand or store.
• The market is large, the demand is broad, and it has the ability to detonate the market. Therefore, niche products are not suitable as hot-selling products.
• It has good cost-effectiveness and good profitability.

Typical examples include Estee Lauder's Little Brown Bottle and Perfect Diary's Christmas limited edition. When selecting hot-selling products, it is necessary to set high thresholds for the following data of the products in the previous stage:

• Positive rate
• Product sales
• Page conversion rate (number of orders sold/number of page views for a single product)
• Month-on-month sales trend (whether it is growing rapidly)

In terms of product characteristics, we need to consider:

• In line with consumption trends
• There is a good cognitive base and a huge consumer base (so niche products may not be suitable)
• In the mainstream price range
• Reflect the brand image of the platform or store

These data can be considered in light of the overall situation of the industry and do not necessarily have to be limited to one's own platform or store.

Merchants also often have a strategy called "following the explosion", which means seeing that the products promoted by the leading merchants are expected to become popular, they follow suit and sell them. This strategy requires trade-offs. For example, you may not be able to get the discounts that top merchants can get; top merchants have an advantage in exposure and search rankings, and your products are ranked behind them. If you don’t have a price advantage, how much chance do you have of selling them? You have to consider this carefully.

Hot-selling products are not just phenomenal products. Among your own products, you can pick out relatively good products through the above data and positioning, and try your best to give ideal promotional discounts.

2) New products

The role of new products in promotions is to attract attention, innovate supply, and drive traffic to the store. At the same time, big promotions can also effectively incubate new products and accelerate business.

New products are not like hot products. They usually don’t have much data yet, so it’s impossible to accurately determine whether they can become a hit.

The advantage of new products is that big sales are a battle for traffic. Products that are familiar to everyone can basically only win by price, but new products can often arouse the interest and attention of more users, who will come to the store with a sense of freshness and curiosity to learn about the details, thereby driving sales of more products.

Therefore, if new products are equipped with attractive header images and impactful copywriting, the limited exposure slot will achieve good traffic-generating effects. At the same time, during big sales, people have a strong desire to buy and a strong impulse to consume, which is also a good opportunity to incubate new products and accelerate growth.

It is not advisable to cold-start new products during the promotion period. Instead, you should actively prepare data during the water storage period, achieve certain sales and positive reviews, carefully complete the product questions and answers on the details page, and at the same time cultivate good click and conversion data. Repeatedly adjust based on feedback and AB testing, promote through precise advertising, and quickly increase product sales and weight.

New products are more suitable to be promoted through short videos, live broadcasts and other forms with strong visual impact, and samples and coupons should be actively distributed to guide attention and add-to-cart, so as to prepare for the sprint during the explosive period.

Finally, when conducting new product insights, researching and developing, and selecting new products to promote for big sales, you can fully refer to industry data and try to find areas with high search volume but relatively few products.

3) Specialty products

Specialty products play a role in achieving differentiation, capturing target customers, increasing product richness, and attracting traffic during big sales. The main difference from new products is that featured products are often exclusive products, such as co-branded products, customized products, IP products, gift box products, etc.

For large platforms that operate their own businesses, I personally feel that specialty products have limited effects, and the main purpose is to highlight the atmosphere. But for merchants, specialty products can play a very good role in competing for rankings, crowds and scenarios, especially in niche areas such as beauty and IP, where demand is highly differentiated and specialty products can achieve a good position in the track.

When choosing special products, we can borrow a word from Professor Wu Xiaobo about the consumption trend in 2021, "beautiful little girl":

• Beauty: must be good-looking and eye-catching;
• Good: excellent quality, high cost performance, represents the store image;
• Small: precisely tailored to the niche market;
• Female: Capture female users. After all, most consumers are women, and boys are willing to buy new and unique things for girls;
• Sheng: It is in line with the trend of consumption upgrading. Of course, the demands of student groups can also be considered. Students not only represent tomorrow's consumers, but are also typical impulse consumers and the target group for special products.

In the coordinated operations of the big promotion, popular products are responsible for improving word of mouth and achieving sales performance; new products are responsible for innovative supply and achieving business acceleration; and specialty products are responsible for achieving differentiation and penetrating the target customer group. In addition to being able to attract traffic, all three also provide guidance and protection for the promotion performance from different angles.

2. From the product role, it can be divided into hot-selling products, traffic-generating products, profit-making products, image-oriented products, word-of-mouth products, event-oriented products, and dynamic sales products.

1) Hot sale

This is the hot-selling product mentioned above, sometimes also called the top-selling product, which brings traffic to the store. The profit of a hot-selling product can be appropriately lowered as long as there is no loss. Hot-selling products impact sales and rankings through high traffic, high exposure, and high sales, and strive for free recommended resource positions.

In the recommendation algorithm, products with high click-through rate, transaction volume, conversion rate, and praise rate will have a higher chance of appearing in the personalized product recommendation waterfall flow, such as the homepage recommendation column such as "You May Also Like", the bottom recommendation column of the channel page, the similar product recommendation column of the details page, the shopping cart, the order completion page, etc. At the same time, the products can get a higher position in the search sorting.

When a product gets the chance to be exposed to users, you can further guide them to your own activity page and store page through the activities and store links on the product page, thereby gaining more traffic.

2) Traffic generation

The function of this type of product is to attract customers, often at extremely low prices or even with high subsidies. This type of product is also called hook product, just like we sometimes see signs hanging at the door of some restaurants saying "Mapo Tofu 3 Yuan", "luring" customers into the store and making money as a whole by selling a table of dishes.

Of course, we also need to design mechanisms to prevent customers from taking advantage of the situation and only ordering the 3 yuan Mapo Tofu, such as through threshold coupons for a certain amount or "high postage + free postage threshold" to control the situation. For traffic-generating products, you can set limited inventory and balance input and output through limited-time and limited-quantity flash sales.

Let’s take JD.com’s recent “traffic king” Feitian Moutai as an example to talk about traffic-generating methods.

We all know that the 53° Feitian Moutai is now a hot spot, and the market transaction price often exceeds 2,000 yuan. When JD.com releases this standard pricing, everyone will undoubtedly be dazzled when they see it, and then start to scramble for it.

Therefore, JD.com set a threshold that only plus members can buy it. At this time, a considerable number of customers who want to buy Moutai will be converted into plus members, and the rights and interests of plus members will be strengthened. A considerable amount of long-term value beyond Moutai sales has been created here.

Subsequently, JD.com established a reservation mechanism, which means that you cannot buy directly, you have to make a reservation first. After making a reservation, you will find that the number of people who have made reservations has reached hundreds of thousands. Of course, you will still make a reservation and may even set an alarm to remind yourself to log in on time to grab the deal. At the designated time, open JD.com and try to “draw” for Moutai. Of course, the chance of failure is quite high. If you don’t buy it, you can only continue the cycle of reservation-“lottery”.

We can see that the reservation and purchase time of Moutai is high-frequency and long-term. Therefore, JD.com converted a large number of plus members by using Moutai, which has far fewer people than the number of reservations, and attracted a huge number of customers (of course, including scalpers), which continuously contributed traffic to the platform. These traffics not only increased the daily activity of the platform, but also drove the transactions of many other products.

The product Moutai is carefully selected and has a strong explosive quality (refer to the previous standards), and the attractive price of 1499 will undoubtedly have an excellent traffic-generating effect. However, due to inventory limitations, its positioning is no longer a blockbuster product with high sales volume, but a traffic-generating product, which is what we often call a hook product. Its mission is to capture people and then buy more other products.

During big sales, traffic-generating items can be low-priced goods, such as a ten-yuan item sold for one yuan (limited to one piece per person). This way, the cost of attracting traffic is limited, and sufficient inventory can be provided, allowing for long periods of time to attract traffic during all stages of the sales. Medium- and high-priced items can also be given big discounts, with sufficient advance exposure and social media dissemination, but only an appropriate amount of inventory is released during the outbreak period (such as midnight on Double 11 or certain hours) to control costs. It can also be used to encourage customers to follow the store, add items to favorites, or make it exclusive to members to provide long-term value.

3) Profit payment

There is no doubt that businesses must make money, and the mission of profit funds is to make profits, so they should account for the bulk of sales. After the hot-selling and traffic-generating items attract customers into the store, what should be coming next are a large number of profitable items.

There are many ways to select this type of product. For example, for niche style products such as clothing, shoes, toys, and IP products, or products with outstanding selling points such as wine, beverages, local specialties, and maternal and child products, if the demands of target consumers are accurately grasped, the price sensitivity will be greatly reduced, and an ideal profit margin will be obtained.

In addition, for standard products that can achieve large-scale sales, such as home appliances and digital products, it is not difficult to get good discounts from suppliers when the sales scale of big promotions is large. At a certain promotional price, you can still obtain a good gross profit margin and ultimately make a larger profit based on sales volume.

In addition, the main products with high unit prices are sold at low gross margins, and at the same time, related products and consumables with low unit prices and high gross margins are recommended. For example, mobile phones are supplemented with cases, films, and wires; printers are supplemented with ink cartridges and paper; electric toothbrushes are supplemented with toothbrush heads; clothing is supplemented with accessories, etc. Most customers are cautious when comparing prices for main products and find it easier to make a profit on related products.

If you filter profitable items through product data, you generally look for products with "three highs and one few", that is, high search popularity, high transaction index, high conversion rate, and few similar products in the same price range.

4) Image style

Image styles are generally used to highlight the corporate brand tone, occupy the minds of consumers, create a first impression or strengthen the existing image.

Such goods are often high-quality, high-profile, high-priced niche products. For example, some liquor stores use counters under spotlights to display limited edition famous liquors. Although this usually does not lead to sales, it will portray the store's image in the minds of consumers in a special way.

Although consumers may end up buying some ordinary goods placed nearby, the impression of the store that they remember in their minds may be given by these iconic products.

5) Word of mouth

Word of mouth is a concept in communication studies. In an era where social communication has become a key means of marketing, creating a strong word-of-mouth effect through a small number of products will greatly help the effectiveness of an event.

By creating a small number of products, you can get people discussing your topic, relate the story to certain products, spread the word through publicity methods in the early stages, and combine it with means of creating "scarcity" or even causing controversy. Once it causes heated discussion, it will undoubtedly lead to hot sales.

6) Activity Fund

The mission of this type of product can be to clear inventory or to increase sales. Although China is in the midst of a general trend of consumption upgrading, clearance sales and tail-end sales are always popular among consumers. After all, price is the best experience factor.

During a big sale, inventory clearance items can be offered at large discounts, and consumers come with the mentality that “things must be cheap”, and they place orders quickly because of the FOMO (fear of missing out), so the opportunity to clear inventory should undoubtedly not be missed.

Increasing sales volume is also an aspect of strong promotion capabilities. It is often an excellent opportunity to complete business line indicators, assess department KPIs, or meet platform sales requirements.

7) Sales promotion

Sometimes there is also a concept called dynamic sales products. The positioning of this type of products is to pick up bargains next to the main products and make cross-selling.

For example, if the main promoted item is a mobile phone, you can also put some mobile phone cases, films, and data cables on the mobile phone promotion page. Users may buy them together after buying the main promotional product mobile phone, and these promotional items can actually have a large gross profit margin.

After the main product matrix is ​​determined, you can think about the related demands comprehensively and fill in every corner for dynamic sales items. On the question of pre-sale or spot stock, pre-sale reservations generally require products with traffic-generating effects, such as traffic-generating products, hot-selling products, and word-of-mouth products. All other products are available in spot stock.

During the big sale, the above-mentioned items are carefully selected and coordinated with each other. In the warm-up period, new products and word-of-mouth items are used to spread the word and guide attention and purchase. In the explosive period, customers are attracted to the store page through drainage items and window image products. Sales are impacted by leading with hot items, profits are obtained by occupying the main SKUs, the tone is improved and the brand image is strengthened through image items, and clearance and target are achieved through event items. A sophisticated combination of punches is launched to achieve the ideal big sale effect.

Author: Xu Xiaopeng

Source: Product meets operation