Marketing activities: activity intensity decision

For big promotions, the intensity of the activity is an important factor affecting the final effect. However, making decisions on the intensity of an activity is somewhat difficult, as many factors will affect the final decision. Next, the author of this article analyzes how decisions on activity intensity are generally made from the perspective of the platform by citing specific cases.

The intensity of promotion activities is an important factor affecting the effectiveness of the promotion.

However, decision-making is somewhat difficult. If the force is too small, the triggering ability will be insufficient, and consumers will lack the motivation to buy. They may lose to competitors in the big promotion competition and lose good opportunities for customer acquisition and sales. But if the force is too large, the internal investment pressure of the enterprise will be high, and the pressure on external suppliers will also be high.

Next, let’s take a look at how decisions are generally made on activity intensity from the platform’s perspective.

1. Factors affecting activity intensity

The intensity of the activity determines the upper limit of the promotional discount and the overall situation during the promotion. It is generally affected by many factors, the following are the main factors.

1. Activity Level

The higher the activity level, the bigger the discount. Generally, we will benchmark against the same level activities of last year to set an initial baseline for the intensity of the activity. For example, last year the average discount for the category was 30%, and this year we will use this as a starting point for further considerations.

2. Gross profit requirement

Before the big sale, the business line will work with the finance department to determine the category gross profit standards for the sale, and the overall gross profit during the event must meet the standards. There are several specific situations:

• Hot products (traffic products) are generally discounted by suppliers, and the company generally does not make special gross profit requirements for such products. During the preparation stage for a big promotion, the person in charge of the business line will be very concerned about the hot products negotiated from suppliers. The quantity and quality of the products will greatly affect the performance of the big promotion, and suppliers will often cooperate to give the lowest price on the entire network (suppliers may provide differentiated hot products for different platforms).
• For products that carry a large amount of sales (dynamic sales items), since the core indicator of the big promotion is GMV, the gross profit can be appropriately lowered, and there will be a lower gross profit margin during the promotion period than usual. However, it is difficult to strike a balance between sales volume and gross profit during a big promotion, so ROI is usually an important indicator to measure the effectiveness of an event.

• For new products, the core goal is to gain exposure rather than sales volume, so the gross profit will be relatively higher.
• For a few selected profit items, the core goal is to make a profit. Therefore, by driving the profit items through strong sales during big promotions and realizing profits through such products, the gross profit will be appropriately higher.

3. Category sales demand

Based on the sales results of last year’s promotional activities and this year’s sales data and trends, we can estimate what kind of sales results can be achieved based on the intensity of the activities. Based on this, we can determine the intensity of the discounts that should be offered to achieve the promotional sales goals or growth targets.

4. Benchmarking with competitors

This is a very critical influencing factor.

Therefore, before big promotions such as Double 11 and 618, we use various channels to understand the dynamics of competitors and the approximate discounts of their competitors, so as to conduct benchmarking and price matching. This also includes real-time benchmarking and price matching and adjustment based on sales during big promotions.

In actual implementation, you can also set up a tiered promotion intensity, combined with threshold promotions (Y off for purchases over X, M off for N items, etc.) and large-value coupons to increase the average order price and promote cross-category purchases.

2. Discount Implementation Method

After determining the discount amount for the promotion, you need to consider how to implement the discount plan.

Many people may think that the reason why products on sale are cheap is because the platform provides subsidies. In fact, merchant subsidies are the main source of discounts. The platform's investment is mainly used in marketing, traffic procurement, large-scale promotions and special support.

Generally speaking, big promotion discounts are achieved through the following methods:

1. Merchant resource investment

The essence of a big promotion is that merchants invest resources, the platform provides traffic, and large-scale transactions are completed during the promotion.

There are three common ways for merchants to invest resources: providing price discounts/gifts, providing market resources such as advertising resources, celebrity resources, etc.; and directly paying fees. The platform is responsible for providing various marketing columns, core resource positions, multiple traffic exposure channels, various forms of interaction, etc., to achieve different goals such as selling goods, increasing store fans, and improving penetration.

1) Resource investment method 1

Merchants (stores or self-operated suppliers) provide low-priced products, free products, and gifts based on the platform’s basic price requirements for big promotions. In exchange, the platform provides merchants with on-site and off-site resource columns for various promotions. This method is the main source of promotional discounts.

Large-scale direct price reductions on popular products are usually obtained through direct negotiations between business lines and suppliers. For example, products that meet certain requirements are offered at a discount of at least 50% or less, and inventory of more than 10,000 items is guaranteed in exchange for a certain promotion resource position.

The platform often packages the top event resources, such as the opening screen, event venue location, carousel, and flash sales, for commercialization in exchange for more market resources and fees from merchants based on basic price requirements.

2) Resource investment method 2

Merchants provide their own market resources to support platform promotions, such as directly recharging the platform, or opening up their own off-site advertising resources, online and offline event resources, and celebrity resources to create momentum and traffic for platform promotions in exchange for the platform's promotional resources.

For platforms, how much celebrity benefits can be leveraged through a big promotion is often an evaluation indicator; for brands, they will also pay extra attention to the sales effect after investing resources.

For popular marketing activities , there are often conflicts in the scheduling needs of brands, so PK is needed to comprehensively evaluate the feasibility of marketing expense plans, estimate GMV, ROI, and comprehensive brand resources, etc.

We often see waves of celebrities rushing to the buildings of Alibaba and JD.com during big sales to participate in various activities and live broadcasts. These are celebrity resources provided by the brands, and the platforms generally do not charge any fees.

For example: In the offline joint marketing in previous years, JD Home Appliances' business line, after many rounds of negotiations and communication, finally achieved free exposure of JD Home Appliances' brand image at Yu Quan's concert and won a large number of tickets and prizes; during the Home Decoration Festival, it negotiated cooperation with jewelry brands to achieve a win-win situation, successfully won a free promotional booth for JD Home Appliances at the Beijing Wedding Expo, led the booth arrangement, publicity, and new customer acquisition plans, and attracted a large number of users' attention at the venue.

These brand-linked activities have effectively increased attention and traffic for the promotion.

Wu Zun participated in a big promotional marketing event on JD.com

3) Resource investment method three

Merchants sign up to participate in the platform's design of various promotional event columns, and provide discounted products and inventory based on the registration threshold of each activity. Generally, the stronger the channel, the greater the traffic and the better the exposure position during the promotion. The registration threshold requirements may be higher, and there may even be additional commercialization requirements.

Merchants estimate their ROI on their own. If it is appropriate, they sign up to participate and provide products, gain exposure in the corresponding column, and direct traffic to their own store page.

2. Platform special funds

Each platform will have different strategic demands at different times, such as:

• Attract new customers;
• Strive for the lower-tier markets;
• Penetrate specific groups, such as high-end customers in first-tier cities;
• Support strategic categories, such as fresh food and women's clothing;
• Support a new form of shopping guide, such as group buying and live streaming in recent years;

Big sales are an excellent opportunity to advance these strategic demands (see the previous article "Big Sales Goals" for details). Therefore, the platform will often allocate special funds to support the corresponding goals.

For example: In order to respond to Pinduoduo's "10 billion subsidies" to attract high-end users in high-tier cities, we saw JD.com and Taobao also raised the banner of "10 billion subsidies" during last year's Double 11 and this year's 618 promotions: on the one hand, they defended to prevent customers from being taken away by Pinduoduo's 10 billion subsidies; on the other hand, they attacked Pinduoduo's backyard - the sinking market, focusing on subsidizing products that correspond to consumers' preferences.

In addition, the growth department will also invest special funds to subsidize new customer acquisition activities to improve growth effects. The company will sometimes also focus on investing in traffic or fees to support certain specific business modules based on strategic demands, such as group buying and live streaming fees, etc.

The use of fees is to further subsidize and increase the discount on the basis of the highest discount that can be obtained during the promotion, so as to accurately hit the target users behind specific products (such as new users, strategic category customers, sinking market customers, etc.), or guide users to choose a specific shopping guide method to complete an order (such as live streaming, group buying) through interest stimulation.

The purpose of this type of expenses is clear, and they are generally invested in areas with strong strategic demands rather than for large-scale promotions.

3. Promotion of universal benefits

The universal promotions during big sales generally also come from platform investment, which can create a big sales atmosphere throughout the entire process and, on the other hand, increase the overall average order value.

This is usually achieved through store-wide discount coupons or virtual gold for all categories (red envelope rain, gold coin return, etc.). Because the average order value varies greatly among different categories, they are divided into different tiers. For example, home appliances will be one tier (such as a 100 yuan discount on purchases over 1,000 yuan), and consumer goods will be another tier (such as a 20 yuan discount on purchases over 100 yuan).

Because it is a store-wide coupon for non-specific merchants, the cost source is often solved through platform subsidies, or the platform/category and the merchant bear the cost in a certain ratio (such as 1:1).

Compared with the special subsidies mentioned above, universal subsidies generally have no specific purpose or customer group, similar to sunshine that shines everywhere.

4. Company marketing expenses

The marketing department's annual marketing expense budget generally also includes promotional marketing expenses. Place advertisements during big sales, cooperate with media and KOLs, purchase traffic, etc.

In addition to the platform's own marketing expenditures during big sales, it will also leverage the market resources of suppliers to further amplify the effects of the event. Subsequent articles will further discuss the ideas behind promotional efforts.

Among the above-mentioned methods, merchant subsidies generally account for the absolute majority.

3. Decision-making Case

To sum up, you can refer to the following cases to decide on the big sale pricing strategy and promotion plan.

A new purchasing and sales director, Lao Zhang, came to one of the company's business lines and began to prepare for the Double 11 promotion. Based on the sales of 900 million yuan achieved during last year's Double 11, he set a sales target of 30% to 1.2 billion yuan for this year's Double 11 in accordance with the company's guiding principles.

Mr. Zhang first looked at last year’s overall discounts, and the average discount rate for the business line was around 30%. Looking at the sales trends over the next few years, the category customers grew by 17%, and the sales trend remained stable.

According to experience, it is necessary to increase promotion efforts appropriately to achieve the targets. Therefore, he initially considered offering a 35% discount this year, and based on this, he set a preliminary tiered discount level for multiple sub-categories.

Later, Lao Zhang learned from the supplier that JD.com’s own category was about 40% off during this Double 11, which was important information. He felt that if he offered a 35% discount, customers might go to JD.com to shop, and there would be risk in achieving sales of 1.2 billion.

In order to ensure competitiveness, he benchmarked against JD.com and also considered reducing the overall discount to 40%. Among them, the discount requirements for some supported categories are appropriately relaxed, but all categories that carry the majority of the market must comply with this discount requirement.

Through calculations, Lao Zhang knew that in order to meet the gross profit requirements, suppliers needed to supply goods at a 50% to 70% discount, and the platform's gross profit was also adjusted down accordingly, finally reaching 60% off.

So Lao Zhang began to communicate with the main suppliers to see if the suppliers could cooperate in achieving this discount while ensuring product selection and inventory. Some suppliers agreed readily, while others were hesitant. So he proposed to give them prime locations in some category venues in exchange. In the end, most suppliers agreed, and only the supplier of brand A insisted that 40% off was the bottom line.

As a special case, Mr. Zhang decided not to add gross profit to the products of Brand A.

In the following days, Lao Zhang's buyers and salesmen went out to negotiate with suppliers for batches of hot-selling products. This was also Lao Zhang's key focus area in the preparation stage for the big promotion. At the same time, Lao Zhang also regularly reviews the preparations for the big promotion with Lao Tan, the company's senior vice president in charge of the business group.

Lao Tan is mainly concerned about two points:

1. Product collection of hot-selling products
2. Big promotion marketing gimmicks

At the same time, Lao Zhang still had some funds, so he created a parallel coupon for a discount of 50 yuan on purchases over 500 yuan for all categories, which can be used in conjunction with other promotions. In this way, the insurance coefficient for achieving the sales target of 1.2 billion is further increased.

Finally, Lao Zhang also participated in the company's full-category promotion of 199-30 to attract the attention of the entire nation. This area can take advantage of the company's momentum. In this way, Lao Zhang's department made preparations for the big promotion.

Author: Xu Xiaopeng

Source: Product meets operation