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Practice Prize Report—Quantifying and Improving Promotion Effectiveness at CVS

Author

Listed:
  • Kusum L. Ailawadi

    (Tuck School at Dartmouth College, 100 Tuck Hall, Hanover, New Hampshire 03755)

  • Bari A. Harlam

    (CVS Corporation, One CVS Drive, Woonsocket, Rhode Island 02895)

  • Jacques César

    (Mercer Management Consulting, 1 Grosvenor Place, London SW1X 7HJ, UK)

  • David Trounce

    (Mercer Management Consulting, 1 California Street, 16th Floor, San Francisco, California 94111-5421)

Abstract

We quantified the net unit and profit impact of each promotion offered in 2003 by CVS, a leading U.S. drug retail chain, and analyzed the key drivers of variation in this net impact. We used this analysis to identify the least effective promotions and conducted a controlled field test to demonstrate the impact of eliminating them before chainwide implementation. Our key findings are as follows. First, approximately 45% of the gross lift from promotions is incremental for CVS. Further, for every unit of gross lift, 0.16 unit of some other product is purchased elsewhere in the store. Still, more than 50% of promotions are not profitable because the lower promotional margin is not sufficiently offset by incremental units. Second, there is substantial variation in net profit impact across categories. Our field test shows that eliminating promotions chainwide in 15 of the worst performing categories will decrease sales by about $7.8 million but will improve profit by approximately $52.6 million. This is very impressive given that CVS front store sales in 2003 were approximately $9 billion while the net profit impact of promotions was -$25.3 million.

Suggested Citation

  • Kusum L. Ailawadi & Bari A. Harlam & Jacques César & David Trounce, 2007. "Practice Prize Report—Quantifying and Improving Promotion Effectiveness at CVS," Marketing Science, INFORMS, vol. 26(4), pages 566-575, 07-08.
    • Handle: RePEc:inm:ormksc:v:26:y:2007:i:4:p:566-575
    DOI: 10.1287/mksc.1060.0245
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    References listed on IDEAS

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    Cited by:

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    4. Frank Germann & Gary L. Lilien & Christine Moorman & Lars Fiedler & Till Groβmaβ, 2021. "Driving Customer Analytics From the Top," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 7(3), pages 43-61, October.
    5. Gary L. Lilien & John H. Roberts & Venkatesh Shankar, 2013. "Effective Marketing Science Applications: Insights from the ISMS-MSI Practice Prize Finalist Papers and Projects," Marketing Science, INFORMS, vol. 32(2), pages 229-245, March.
    6. van Lin, Arjen & Gijsbrechts, Els, 2016. "The battle for health and beauty: What drives supermarket and drugstore category-promotion lifts?," International Journal of Research in Marketing, Elsevier, vol. 33(3), pages 557-577.
    7. Ma, Shaohui & Fildes, Robert, 2017. "A retail store SKU promotions optimization model for category multi-period profit maximization," European Journal of Operational Research, Elsevier, vol. 260(2), pages 680-692.
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    10. Evgeny A. Antipov & Elena B. Pokryshevskaya, 2020. "Interpretable machine learning for demand modeling with high-dimensional data using Gradient Boosting Machines and Shapley values," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 19(5), pages 355-364, October.

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