Save-a-buck grocery: increasing its sales through a raffle.

Williams, Robert J. ; Reddy, Allan C. ; Holland, Phyllis G. 等

CASE DESCRIPTION

The primary subject matter of this case concerns a promotion, specifically a raffle, that can be used by any size business to increase its sales. Secondary issues examined include the specifics as to how a raffle might be conducted, and a demonstration of the proper statistical technique needed to assess the effectiveness of the raffle in increasing a firm's sales. The case has a difficulty level of three, appropriate for junior level students. The case is designed to be taught in two class hours, and is expected to require two to three hours of outside preparation by students.

CASE SYNOPSIS

Firms are constantly seeking ways to increase their sales. A raffle involving a cash prize may be an excellent technique for accomplishing this objective. A raffle might be a way to "pay" customers to buy more, and is usually appropriate for any size firm. This case shows how a simple raffle technique can be used to increase sales, and also demonstrates the type of data and the statistical technique needed to examine the effectiveness of a raffle. Students will learn the type of data needed to evaluate the raffle and how the data can be collected and tested. Further, students will be exposed to the types of questions they must ask themselves in order to properly conclude whether a raffle has been cost effective in stimulating firm sales and profits. This case is an excellent teaching tool that is appropriate for an introductory statistics course, an introductory marketing course, a promotions course, a course in marketing strategy, and business policy.

INSTRUCTORS' NOTES

CASE OVERVIEW

Save-a-Buck Grocery launched a promotional campaign to increase its sales. For each $10 spent, customers were given a ticket for a cash drawing to be held at the end of the month. Analysis of the results showed that the contest did significantly increase minimum per basket sales, and monthly sales in total. The owners are now considering further modifications to the promotion. Students are asked to use the data provided to determine what the next step should be.

LEARNING OBJECTIVES

The twin learning objectives of this case are:

1. Demonstrate ways to promote sales through a raffle method.

Students should question the appropriateness of using a raffle type contest, and explore other methods, such as coupons, to stimulate sales.

2. Demonstrate the use of ANOVA to make a marketing promotion decision.

Students should examine the results for themselves, and determine if the results support the authors' contention that the contest helped to increase the average basket.

If so, students should become familiar with the interpretation of the ANOVA results, and consider ways to alter the ANOVA technique to accommodate further increases in the cash prize.

QUESTIONS

1. What are the benefits of a raffle over other types of promotion available to Save-A-Buck?

After reviewing various types of promotion, students should conclude that the raffle is cost-effective, targeted, and exciting to customers.

2. Assume that an estimated 1000 customers per month are eligible to participate in the contest and that 2/3 of the increase in the basket size is due to the contest. Also, assume Save-A-Buck's gross profit margin is 33% of sales. Is John right, has Save-A-Buck made money by giving away money?

John estimates that 2/3 of the increase in the basket size is due to the contest. Thus, the basket has increased by about $.80 by having the contest. Since the $.80 increase is averaged over 1,000 customers per month, total sales have increased by $800 per month. Given a 33% profit margin, gross profit has increased by approximately $264. Overall, Save-A-Buck has increased its profit by $164 after paying the contest winner the $100 prize. Also, in the event the customer is unable to locate the winning ticket, the prize money is not awarded. This was observed to have happened about one-fourth of the time.

3. What can you say the effect was on the basket size between offering a $25 prize and offering no prize, i.e., is there statistical evidence that the $25 prize actually increased the basket?

There was no statistically significant evidence that a $25 prize increased sales.

4. If John had increased the store's advertising during the contest period, what impact might this have had on interpretation of the results?

An increase in advertising would have introduced an additional variable, not considered in the analysis, making it impossible to attribute the larger basket purchase to the contest alone.

5. Are there any other factors that are not controlled for in this experiment? Any alternate explanation for the increase? Does John take these into account?

Seasonal changes in buying patterns would have an impact. Another possibility would be "sales" or special pricing that might encourage shoppers to buy extra at an attractive price. By using a "conservative" estimate of 2/3 of basket increase accounted for by the contest, John is acknowledging that there may be other factors at work.

6. In Table 1, what does the minimum basket number of $10.17 during the $100 prize period suggest about customer behavior?

It suggests that the average customer is purchasing at least the $10 minimum basket in order to obtain at least one ticket.

7. Did John use the correct statistical technique to test the effectiveness of the contest?

In comparing three or more means--baskets or monthly sales, ANOVA is the appropriate technique.

8. In tables 3 and 4, what is meant by the expression "Comparisons between means are significant at the .05 level?"

While there are mean differences present, such differences might be due to chance or sampling bias. Comparison of means is significant at the .05 level suggests that the chances that the means are different due to chance or sampling bias is less than 5%. Thus, we can be fairly confident that some main effect (the raffle) is causing the means to vary across different levels of the contest.

9. At the end of the case, John is planning to give away more money. Mary and Myra object. Whom do you support and why?

This goes beyond statistical analysis to require judgment. Perhaps, two $100 prizes might be preferable, since this gives two customers per month a chance to win the prize. This might serve to increase the excitement among customers about the contest, and help to spread the word about the contest. Students may share Mary and Myra's conservative bias and argue that the law of diminishing returns will kick in eventually.

Students may suggest various ways to improve judgment, but this is a good opportunity to recognize that there are limits to research's ability to answer questions in a cost effective manner.

EPILOGUE

After conducting the contest for 64 weeks with a prize of $100, John is convinced that the raffle has increased sales. Mary Mason, though still uncertain, does concede that customers do seem to be buying more in order to win the cash prize. John wants to study the data further, but is leaning toward offering two $100 prizes in order to give more customers an opportunity to win. John realizes that this action will be costly, but the data can be easily obtained to see if offering the second prize of $100 has the desired effect of further stimulating sales. Nevertheless, John has not made a final decision at this time.

REFERENCES

Inman, J. S. & L. McAlister (1993). A retailer promotion policy model considering promotion signal sensitivity. Marketing Science, 12(4), 339-356.

Kumar, V., V. Madan & S. S. Srinivasan (2004). Price discounts or coupon promotions: Does it matter? Journal of Business Research, 57(9), 933-941.

Kumar, V. & A. Pereira (1997). Assessing the competitive impact of type, timing, frequency, and magnitude of retail promotions. Journal of Business Research, 40(1), 1-13.

Leone, R. P. & S. S. Srinivasan (1996). Coupon face value: its impact on brand sales, coupon redemptions, and brand profitability. Journal of Retailing, 72(3), 273-290.

Neslin, S. A. & R. W. Shoemaker (1983). A model for evaluating the profitability of coupon promotions. Marketing Science, 2(4), 361-380.

Robert J. Williams, Valdosta State University

Allan C. Reddy, Valdosta State University

Phyllis G. Holland, Valdosta State University