Case study: How CVS (US drogstore) found out that 50% of all their promotions were unprofitable

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CVS is a major US drug store chain and in 2004 they had over 4000 retail stores, revenues of ~9 billion USD and 200 product categories. 30% of the sales were on promotion.

The CVS managers were quite worried that some of their promotions were not profitable and therefore engaged a group of awesome marketing researchers to review their promotion profitability. Actually, at the time the researchers used some of the methods that we use today in Retail DecisionCloud.

The researchers found out that on average, about 50% of all CVS promotions had a negative profit impact when accounting for switching (46% of the promotion sales lift), stockpiling (10% of the lift), halo effects (15% of the lift) and vendor funding. However, these results varied significantly between categories and brands.

As a consequence CVS set up an experiment where they removed unprofitable promotions from the 15 poorest performing categories. The rest: only -7.8 MUSD in lower sales but a whopping +52,6 MUSD in profit (the equivalent of +250 MUSD in sales).
A good case for better promotions management.

Source: Ailawadi et al. 2007

Arvid Stenback Lund