Incremental sales

From CEOpedia | Management online

Incremental sales are additional sales activities resulting from an effectively conducted marketing campaign. The incremental character of these activities is closely related to promotional campaign. Advertisers identify sales as incremental when a marketing action is assigned to increasing sales in a given period of time[1].

Incremental sales KPI

One of the key performance indicators (KPI) is incremental sales measuring the share of marketing activities in the increase in sales revenue. The incremental sales ratio shows the influence between marketing and sales, as well as the benefits of this relationship for the company[2]. The main task of marketing is raising the interest of potential customers with a product or a service. Then, sales activation helps transform clients into actual buyers. This key indicator allows link revenue to a specific promotional campaign, which gives the opportunity to measure the return on investment (ROI) incurred for marketing activities[3].

Incremental sales measurement

Determining the value of incremental sales is crucial for designating the financial return. Two variables are useful for estimating this sum: actual sales and basic sales. The second one refers to sales without marketing activities. The following ways to calculate incremental sales are three of the most popular methods:

  • Econometric modeling

Using this mathematical technique, it is possible to define sales determinants.

  • Test and control

A control group, consisting of products or persons, is not subject to marketing activities. The revenues from the sale of advertised and non-advertised products are compared.

  • Extrapolating from a trend

This method uses one of the techniques called extrapolation from the trend. Estimating incremental sales in this way can be helpful in a situation when sales are maintained in a trend or at a constant level[4].

Examples of Incremental sales

  • Introducing a new product line: Introducing a new product line is one of the best ways to gain incremental sales. By introducing a new product line, companies can target new audiences, expand their customer base and attract more customers with unique offerings.
  • Offering discounts: Offering discounts on existing products or services can also be an effective way to gain incremental sales. By offering discounts, companies can attract customers who may not have been interested in their products or services before, and can drive sales over a certain period of time.
  • Running promotional campaigns: Running promotional campaigns is another great way to gain incremental sales. By running promotional campaigns, companies can reach new audiences with their offerings, create customer loyalty and drive sales over a certain period of time.
  • Offering free shipping: Offering free shipping on certain products can also be an effective way to gain incremental sales. By offering free shipping, companies can attract more customers who may not have been interested in their products or services before, and can drive sales over a certain period of time.
  • Utilizing email marketing: Email marketing is also an effective way to gain incremental sales. By utilizing email marketing, companies can reach new audiences with their offerings, create customer loyalty and drive sales over a certain period of time.

Advantages of Incremental sales

Incremental sales can be a great way to increase revenues and profits for businesses. It allows companies to target specific customers, maximize their return on investment, and create brand awareness. The following are a few advantages of incremental sales:

  • Incremental sales allow businesses to focus on a specific segment of the market that may be more likely to purchase their product or service. By targeting this segment, businesses can create a more personalized marketing approach that is more likely to lead to higher sales.
  • Incremental sales can help maximize return on investment (ROI) for businesses. By focusing on a certain segment, businesses can create campaigns focused on the needs of that segment, which can lead to higher ROI.
  • Incremental sales can create brand awareness. By targeting a specific segment, businesses can create campaigns that will increase the visibility of their product or service, leading to higher brand recognition.
  • Incremental sales can help businesses gain insights into their target market. By targeting a certain segment, businesses can gain valuable insights into their customers’ needs, preferences, and purchasing habits. This can help businesses create more targeted campaigns and better understand their customers.

Limitations of Incremental sales

Incremental sales are an effective tool to track the effectiveness of marketing campaigns, however, there are several limitations associated with this approach. These include:

  • Not accounting for external factors: Incremental sales fail to take into account external factors like the state of the economy, competitive landscape, and consumer behaviour, which can significantly affect sales outcomes.
  • Inaccurate measurement: Incremental sales are based on estimates of what marketers believe the campaign can generate, rather than actual sales. This can lead to inaccurate and misleading results.
  • Limited focus: Incremental sales focus primarily on sales and not other aspects of the marketing campaign, such as customer engagement or brand awareness.
  • Difficulty in tracking: Tracking incremental sales becomes increasingly difficult as marketing campaigns become more complex and involve multiple channels.
  • Limited perspective: Incremental sales are limited to a single period of time, which can make it difficult to gain a full view of the overall impact of a marketing campaign.

Other approaches related to Incremental sales

Incremental sales can also be achieved through other approaches, such as:

  • Improving customer service and customer relationships - Ensuring customers have a positive experience with your product or service can help to increase loyalty, trust and overall satisfaction, thus leading to increased sales.
  • Pricing strategies - Different pricing strategies, such as discounts and promotions, can help to increase sales.
  • Leveraging existing customer data - Analyzing and leveraging existing customer data can help to identify potential customers, target and segment customers, and create personalized offers that increase sales.
  • Investing in marketing channels - Investing in various marketing channels, such as social media, email, and search engine marketing, can help to increase brand awareness, reach more potential customers, and drive sales.

In summary, there are a variety of approaches to increasing incremental sales, such as improving customer service, leveraging pricing strategies, leveraging existing customer data, and investing in marketing channels.

Footnotes

  1. ↑ Gonsalvez D.J.A., Inman R.R. (2016), Supply chain shared risk self-financing for incremental sales, "The Engineering Economist", Vol. 61
  2. ↑ Leach J.Ch., Melicher R.W. (2016), Entrepreneurial Finance, Cengage Learning, p. 329-332
  3. ↑ Lautman M.R., Pauwels K. (2009), What is important? Identyfing Metrics that Matter
  4. ↑ Binet L., Puri G., Deboo M. (2008), Measuring Marketing Payback. A best practice guide


Incremental sales — recommended articles
Market segmentation process — Areas of marketing — Selection of target markets — Analysis of customer — Brand equity measure — Market metrics — Brand value chain — Differentiated marketing strategy — B2B social media marketing

References

Author: Patryk Schmidt

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