Discounts and promotions are at an all-time high, often comprising the single-biggest cost within many retailers’ P&Ls. Yet despite these high stakes, and the growing adoption of sophisticated analytics, many retailers continue to take a broad-brush approach to running promotions that results in missed sales and profits.
The most common explanation for this lack of precision is that retailers tend to evaluate promotions at a high level, without drilling down to understand the impact of individual tactics within each promotion. By this, we mean they compare the overall event to last year’s promotion in aggregate without understanding how different parts of the promotion might be more or less successful; getting the mix right is the key to creating more impact on sales and profits.
The good news is that many large retail organizations already have the tools and data they need to craft more effective promotions. What they lack, more often than not, is a logical way to structure their promotional effectiveness analysis. The solution can be found by asking a series of strategic questions, then carefully parsing the data for the answers.
When are discounts most likely to stimulate a sufficient sales response?
Promotions vary in effectiveness depending on the time of the year, key holidays, and even the day of the week. Retailers who have a firm grasp of how their customers shop during different periods can use this information to formulate more precise promotional strategies. For example, during certain holidays — Christmas, Valentine’s Day, Mother’s Day, etc. — consumers tend to be in active shopping mode, and retailers should structure their promotions accordingly. Recent analysis for a leading apparel retailer showed elasticity of customer response to promotional discounts was up to three times higher during holiday periods than during non-holiday periods and two times higher during weekends than on weekdays. Given this, you’re almost certainly throwing away sales and margin dollars by not tailoring your promotions to time periods.
Furthermore, retailers should use this insight to educate themselves on when aggressive promotions are a waste of effort and valuable margin dollars. If your typical customers have traditional work weeks, it’s very difficult to entice them into the store for an unplanned purchase during the week, regardless of the type of promotion. Therefore, rather than trying to use steep promotions to drive traffic on weekdays, use more strategic promotions to encourage consumers who are actually in the store during the week to fill their baskets.
Does the promotion work best in-store or online?
It’s important to structure promotions based on what works best for a particular channel. Our recent work in women’s fashion suggests more complicated promotional structures aimed at basket-building — such as buy one item and get a second at a discount — work far better in-store. Simpler promotional structures — such as an off-the-top 20% discount — tend to yield better results online.
What products are most likely to garner more response when promoted?
Not all items a retailer sells are created equal. Some have higher elasticities or stronger pricing power. Certain items that are on promotion will be especially effective in driving traffic, while others are better used as basket or margin-builders. For example, our analysis in the men’s apparel category shows that, compared with everyday basics, promotions for in-season fashion items bring significantly more people into stores. The same is true for lower-ticket sub-brands and product lines at aggressive price points.
At the same time, retailers need to be aware of the signals they send to consumers when deciding which items to promote and how often. Understanding which are your strongest or marquee items, brands, and product lines is essential, because you could easily erode their value by over-promoting them. Promoting too frequently may cause consumers to equate your brand with low prices, which is probably not the profile you want to communicate unless you’re a low-cost retailer.
How does response vary across tactics (discount depths and promotion structure)?
Promotions comprise a rich set of tools, and it’s no longer enough to just pull out a hammer every time there’s something that needs doing. Instead, match the tool to the job, making sure your promotional structure is aligned to your desired outcome and the manner in which your customers shop. For instance, if you’re trying to build basket size, more complex, tiered promotions — such as giving increasing discounts for each subsequent item purchased — may be a better way to go. Co-promoting the right items across the store, and knowing which promotional levels are too deep or not deep enough, will further help drive sales and improve profits.
Who is most likely to respond (e.g., new versus existing customer groups)?
Most retailers have a vision that a customized promotions strategy — one that optimizes promotions for every consumer — is the future. But for major marketed promotions, that’s not always achievable or practical. Nevertheless, you need to make sure that your efforts target your most important customers who can ‘move the needle’ — either those who drive the most sales or the ones who are the most profitable. Companies now have the data and analytic power to create specific customer profiles at relevant group levels — for example, loyalty members or top customers, or those who tend to purchase on certain occasions or within certain categories — and craft promotional offers tailored specifically to these groups.
Getting promotions right
Savvy retailers now have the tools to build their promotional calendars from the bottom up, eliminating wasted promotional dollars and moving from scattershot decision-making to effective actions tied to strategic objectives (e.g., driving traffic, building basket, driving sales and profit). Our experience suggests that retailers can find roughly 400 to 700 basis points of incremental margin dollars by deconstructing and deploying promotions that are strategically designed, targeted, and timed.
Of course, the most effective promotional strategy will differ for each retailer, and must account for many things, including the intended value proposition, competitive position and pricing power, and the specific consumer segments served. But through data science and a careful, strategic approach, retailers can solve the promotional Rubik’s Cube and unlock substantial value.
While on an investor tour in Europe, I ended a busy day by joining my boss at a nice restaurant. After he said something funny, I responded in my typical style — throwing back my head and letting out hearty, unabashed laughter. People were taken aback. They turned to stare at me.
I asked my red-faced boss whether my laughter had embarrassed him. “It is pretty loud,” he muttered under his breath.
Later that evening, I castigated myself. I lay awake, wondering how many other times my laugh might have caused discomfort in professional situations. Should I try to mute it? Should I give up my executive position and transfer back to sales, which had a more jovial atmosphere? Should I find a new job?
By sunrise, I made a decision: I loved to laugh. I’d keep it and my job. I’d stay true to my authentic self.
It worked out. Now that I was conscious of my laugh, I looked out for what impact it had. I discovered that it did not impede my advancements. In fact, it became part of my signature. When I returned from vacations, colleagues told me they’d missed it.
Our offices had needed a good dose of laughter. And my decision not to rein it in helped. It was something people looked forward to each day.
It turns out that a series of studies shows the positive impact humor can have in the office. “According to research from institutions as serious as Wharton, MIT, and London Business School, every chuckle or guffaw brings with it a host of business benefits,” writes Alison Beard in the HBR article, “Leading with Humor.” “Laughter relieves stress and boredom, boosts engagement and well-being, and spurs not only creativity and collaboration but also analytic precision and productivity.” Harvard Business School professor Alison Wood Brooks has also found that cracking jokes at work can make people seem more competent.
What about being on the receiving end of a joke, and laughing heartily? That too can bring a world of benefits to your employees. “When you start to laugh, it doesn’t just lighten your load mentally, it actually induces physical changes in your body,” the Mayo Clinic explains. It enhances your intake of “oxygen-rich air,” increasing your brain’s release of endorphins. It “can also stimulate circulation and aid muscle relaxation, both of which can help reduce some of the physical symptoms of stress.”
The Mayo Clinic even praises a howl like mine. “A rollicking laugh fires up and then cools down your stress response, and it can increase your heart rate and blood pressure. The result? A good, relaxed feeling.”
Given all the research showing that lower stress benefits employees and reduces absenteeism, the freedom to laugh seems not just good, but necessary at work. A group of researchers even found that after watching a comedy clip, employees were 10% more productive than their counterparts.
Of course, there can be downsides to too much humor — or too much laughter. For example, leaders who tease staff members or tell dirty jokes can pave the way for other employees to behave badly. And Harvard Business School professor Rosabeth Moss Kanter notes that numerical minorities in professional situations, such as a woman with a group of men, may feel pressured to laugh at jokes that demean the minority. “The price of that kind of acceptance is decreased respect for everyone in” the minority category, she says.
But within the bounds of decency, laughter on the whole is a good thing, and the benefits far outweigh the risks.
My advice: Let your laugh fly free. Not all day, every day of course. It’s always good to be conscious of the volume within your environment, and to avoid distracting colleagues. But as Harvard Medical School professor Carl Marci notes, “Laughter is a social signal among humans. It’s like a punctuation mark.”
Sometimes in the midst of a stressful day, it’s helpful to be the exclamation point.
Why do kickbacks continue? According to my own research into dozens of bribery cases and five years of reporting on four continents, it’s because executives believe that their competitors are using bribery as a tool to get ahead, so they must, too. “[Bribes] are like steroids,” one oil consultant told me. “Everybody’s doing it, and if you don’t do it, you fall behind.”
Of course, copying what your competitors do—especially when it is illegal and inefficient – is the opposite of innovative. How can companies kick this habit? After surveying corruption experts and business executives (including one who went to jail for bribery) I identified four strategies:
Have a resistance plan for bribe demands. Managers on the ground should be prepared with the following line: “I can’t give you a bribe, but I can do this, this and this, for you,” says Kent Kedl, the senior partner for Greater China and North Asia at Control Risks. The key is to better understand what motivates the official seeking the backhander. More often than not, Kedl explains, the bribe is not about money; it’s about that person wanting to feel respected. “We tell companies, ‘What’s another way to give them some respect, to have them be a key opinion leader for you?’” One way is to offer the person or his or her staff members a chance to participate in high-level discussions about the company’s commitment to the local community and to give that office a greater voice in shaping those decisions. Another is to offer to create more jobs or provide more training or technical service than your competitors are offering. You can highlight the lasting legacy you want to help the official create and promise to publicly highlight his or her involvement.
Build the cost of avoiding bribery into your business projections. Bribing government officials has costs. But saying no can be expensive too: from delays in delivery (the customs official refuses to release goods at the border until he gets a kickback) to failing to win a contract outright (the minister who expects his 10% cut of a procurement contract). Firms should calculate these costs into their business plan, says Frederick Davidson, the CEO of Energold Drilling. He provides an example: “What we normally run into is in customs. A lot of these countries pile rule upon rule upon rule. If you’re one of the locals, you have to pay somebody off and you skip all the rules. We don’t anticipate doing that. So, we build into any bid additional brokerage costs, legal costs, etc. You can easily add 10 to 20 percent. Let’s say you’re talking a $300,000 contract. You would factor $30,000 to $60,000 in certain places just to address the bureaucracy that they put in place.”
Companies should also explain to investors that, rather than ratcheting up their quarterly forecasts, they are smoothing them out to account for delays in avoiding kickbacks, adds Richard Bistrong, who went to jail for paying bribes around the world and now heads an anti-bribery consulting firm. He offers an example of how to present this: “Our normal expected return in a particular region is 18-24 months, and we believe that is attainable, but we’re projecting 24-36 months to achieve those objectives in a way that is sustainable and ethical.”
Identify “moon markets” and walk away. Some markets—for example, several in China—are too rife with bribery to get around it, and no amount of innovation can change that reality. Kedl therefore advises companies to treat these markets are as if they were on the moon (that is, inaccessible) and reset their ambitions accordingly. This may mean a contraction in profits in the short-term, but in the long run it also means building a more resilient company, with consistent growth year after year. “And that’s what companies in challenging markets need to be thinking about,” he adds.
As a corollary to this, firms may need to invest in gathering the intelligence to identify moon markets, and other costs associated with avoiding bribery. Coca-Cola, for example, uses data from Transparency International to build a map of its bribery risks in various markets each year, and then determines where to focus its anti-corruption efforts.
Recalibrate performance-based targets and compensation relative to high risk. In markets with high corruption risk, front-line employees have little incentive to refuse a proposed kickback if it means failing to make their quota and risking a significant portion of their compensation. Salespeople shouldn’t receive “a financial haircut” for saying no to corruption, Bistrong says. One best practice he highlights? The creation of an annual bonus pool for these sorts of situations. “Let’s say a foreign official is demanding a bribe. When the front-line salesperson raises the possibility that the bribe demand may cause delays, management will actually pay any accrued bonus as if the sale had been completed, drawn from the bonus pool. At that point, everybody will lean in together to fix that problem in an ethical and compliant manner, even if it takes considerably longer,” Bistrong says. “That’s enlightened management.”
By 2016 , after Novartis and GlaxoSmithKline paid multi-million-dollar fines following investigations of their alleged bribery around the world, both companies shifted the way their sales teams operate. GlaxoSmithKline did away with sales targets, CNN reported, and now rewards reps based on their knowledge of the needs of patients and doctors. Novartis capped its performance-based compensation at 35% andreps are rated from 1 to 3 based on their values and behavior, not a quota; receiving a bonus requires scoring higher than a 1, according to Reuters.
In today’s world, a company that creates state-of-the-art products, and devises state-of-the-art strategies to sell them without bribes is not only innovative, but disruptive, helping to dismantle a centuries-old system that perpetuates poverty abroad and stifles creativity within.
Most businesses understand that they must attract star performers — and compete fiercely for them — to thrive in the marketplace. What they struggle with is how to do it well. The perennial challenge of finding the right people and matching them with the right roles has become even more complex now that AI and robotics are rapidly changing jobs and in-demand technical skills are in short supply. While most organizations still rely on traditional hiring methods such as résumé screenings, job interviews, and psychometric tests, a new generation of assessment tools is quickly gaining traction and, we argue, making talent identification more precise and less biased.
Certain things have remained constant and are unlikely to change anytime soon. When sizing up candidates, managers try to predict job performance while assessing cultural fit and capacity to grow. Studies show that managers look for three basic traits: ability, which includes technical expertise and learning potential; likability, or people skills; and drive, which amounts to ambition and work ethic.1
What we need from talent identification tools and methods — old or new — has also stayed the same. To assess their effectiveness, we must look for a strong correlation between candidates’ scores and subsequent job performance. This may sound obvious, but we’ve found in our work with recruiters and hiring managers that many of them use tools based instead on ease and familiarity — and rarely correlate them to results.
Emerging assessment methods can be grouped into three broad categories: gamified assessments, digital interviews, and candidate data mining. What they have in common is their ability to detect new talent signals (that is, new indicators of performance potential).2 Here we’ll explain how each of these methods work and their strengths and limitations.
A new breed of psychometric tests for recruitment focuses on enhancing the candidate experience. These tools apply gamelike features, such as real-time feedback, interactive and immersive scenarios, and shorter modules, which make the test taking more enjoyable. The catch is that users’ choices and behaviors are mined by computer-generated algorithms to identify suitability for a given role.
For example, HireVue’s MindX employs gamified cognitive-ability tests by asking users to play sleek games — think Nintendo’s Brain Age — that predict IQ. Pymetrics has done something similar with classic psychological tests such as the Balloon Analogue Risk Task, which evaluates candidates’ impulsivity and risk-taking by examining how far they allow self-inflating balloons to expand before they burst (bigger balloons mean more rewards, but there are no rewards if they burst).
Arctic Shores, which is often used for evaluating college graduates, puts candidates through what feels like a series of 1990s arcade games and correlates their choices to standard personality traits and competencies. As these types of tools are used more widely in high-volume hiring environments, tool providers gather enough data to demonstrate significant links between candidates’ scores on the games and their job performance.3
In addition, many companies are designing their own gamified assessments, which they position at the interface between hiring and marketing. For instance, Red Bull’s Wingfinder is available to the general public and used to attract candidates through the drink company’s social media channels. Candidates are provided an extensive report on their strengths and weaknesses, regardless of whether they are formally considered for a position.
Despite the branding and marketing benefits of gamification, as well as the obvious appeal of providing a more enjoyable assessment experience — which can result in a larger number of candidates — this approach to talent identification has two disadvantages. First, there is a natural tension between fun and accuracy. The more interesting and enjoyable the assessment experience, the less predictive it tends to be, not least because getting a comprehensive picture of a candidate’s background requires longer testing time, and time is the enemy of fun. Second, to deliver a “cool” assessment experience, particularly if it is branded and comparable to some of the games people play purely for fun, the costs will increase significantly. It is one thing to design a standard Q&A type of self-report and another to create immersive gamelike experiences for candidates — and talent acquisition budgets are generally quite limited when it comes to assessment tools.
The second major development in talent identification is the widespread use of digital interviews. On the surface, these tools look like any other videoconferencing technology, but they provide a couple of added advantages.
For one thing, interviewers or hiring managers can post their questions on the platform to create a structured (consistent and repeatable) interview protocol for stakeholders to use in their conversations with candidates, which helps them make fair, accurate comparisons. For another, algorithms can be used to flag and interpret relevant talent signals (facial expressions,4 tone of voice, emotions5 such as anxiety and excitement, language, speed, focus, and so on), replacing human observations and intuitive inferences with data-driven sorting and ranking.
Research has long suggested that job interviews are most predictive when they are highly standardized — that is, when they put all interviewees through the same process and have a predefined scoring key to make sense of the answers. Given that insight, video interviews can increase the accuracy of the job interview findings while reducing costs and enabling hiring organizations to operate at scale (in our conversations with HR executives, we’ve learned that companies such as JP Morgan Chase and Walmart do thousands of video interviews each year).
One question about such platforms is their tendency to replicate and reinforce biases that are inherent to any interviewing process. That’s certainly a limitation. If the people responsible for making hiring decisions are themselves biased, we should not expect AI to erase that problem. To complicate matters further, if those same people are then tasked with evaluating new hires’ performance, their biases will be masked. From a statistical standpoint, they may have correctly predicted future performance with their candidate selections — but to an extent, that prophecy is self-fulfilling.
Clearly, if you’re making biased decisions about which outcomes to measure to gauge performance, that won’t change with machine-learning models (though you will get faster results). One way to address this issue is by focusing less on individual traits, for instance, and more on group outcomes such as productivity numbers and revenues. For managers, 360-degree reviews can also be useful, because they crowdsource performance evaluations, mitigating individual biases. Another option is to “train” algorithms to ignore the signals that predict human bias but not job performance (such as gender, age, social class, and race). Tool providers like HireVue tell us they are doing this to eliminate the impact of skin color on hiring decisions, for example.
Candidate Data Mining
The third new approach, passively mining candidate data and analyzing people’s digital footprints, is fast growing as well. While it has mostly been used to serve up targeted consumer messages in marketing and advertising, it is equally applicable to talent identification in HR. Online behavior can reveal information about individuals’ interests, personalities, and abilities, which in turn predicts their suitability for particular jobs or careers. For example, many hiring managers now investigate candidates’ reputation, followership, and level of authority on networking websites such as LinkedIn and Facebook, and they use that information to rate and rank people. LinkedIn and Entelo provide tools that do this automatically for recruiters, by giving them a range of scores to help evaluate candidates. While there is a big difference between popularity metrics and actual potential, networking sites represent true peer feedback, so recruiters find them very predictive.
Passive data scraping has been extensively examined in studies highlighting consistent links between people’s social media activity and key job-related qualities.6 For example, a team of researchers showed reliable connections between the groups people like on Facebook and their broad character traits, such as whether they are more or less extroverted or agreeable.7 Given that these traits have been systematically associated with strong performance across different jobs, the findings suggest that Facebook data can provide useful information to employers about a person’s potential fit for a job or role. Furthermore, the very character traits extracted from Facebook behavior and other social media signals — such as the words people use on Twitter or in blogs or emails — are markers for abilities, likability, and drive.
There’s a dark side to this capability, though, because it exposes candidates’ personal lives to intense scrutiny (particularly those in the Generation Z cohort, many of whom have been using social media practically since birth). Organizations must think about how they’ll respect people’s privacy while getting the information they need to make smart hiring choices. Even if the boundaries between private and public life have eroded, it is ethical to ensure that people are aware of how their data is used.
The Ethics of Talent Identification
Of course, it is essential that any tools for talent assessment and recruitment meet ethical guidelines. Although legal regulations, such as the EU’s General Data Protection Regulation, are context — and especially market — dependent, two basic considerations are critical across the board.
Promoting consent and awareness: There is now quite a big difference between what candidates believe employers know about them and what employers really know — and hiring organizations have an ethical obligation to do what they can to close that gap. Do candidates opt in to all parts of the talent identification process? Do they understand what is being done with their data? Do they have opportunities to provide or withhold consent for the data being mined? If employers (and tool providers) aren’t transparent throughout the process, their brands could suffer tremendous harm.
Fostering fairness: It’s also important to consider the degree to which hiring tools may stack the deck against certain groups of candidates, particularly people of color, women, and individuals at a socioeconomic disadvantage. This has long represented a problem for talent identification, but scientifically defensible assessment tools (like thoroughly validated psychometric tests) go to great lengths to increase predictive accuracy while reducing the risks of discrimination.8 Newer tools and methods must be scrutinized with the same lens. For example, video or speech signals identified as markers of talent can also reflect social class and educational background; selecting people based on such signals may result in a more homogeneous workforce. Organizations should be aware it is possible to make meritocratic hiring decisions that undermine social fairness, because the best candidates on paper may also be the most privileged candidates — those who enjoyed an elite education and benefit from expansive networks.