More promotions, higher marketing and return costs plague holiday 2016

Return fraud cost the retail industry $2.2 billion during the 2015 holiday season.

Retailers have been pushing promotional offers all year, up 34% versus 2015, and even more so during the holiday season, up 52%. Between Nov. 1 and Dec. 5, this reliance on promotions reduced profit margins by 19%, according to DynamicAction's Retail Index: Holiday 2016.

Although retailers increased marketing and customer acquisition costs 25% for the 2015 holiday season, retailers failed to get the number of shoppers they needed and customer acquisition ended up dropping 6% over the holidays.

Looking at early returns for the holiday seasons, retailers are headed into a negative position as the value of returns is up 26% already this holiday season. Retailers will also have to face return fraud, which ended up costing the industry $2.2 billion during the 2015 holiday season.

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“From BOGO offers to 40% off everything, Amazon began this process of training consumers to expect a sale, but nearly every major retailer has now joined in this costly race to the bottom,” said Sarah Engel, senior VP of global marketing for DynamicAction. “In order to cut through the clutter and answer shoppers’ emotional desire to get a good deal, promotions have become table stakes for the holiday season. However, customer-centric retailers, who will also drive profits, are those who understand their cross-organizational data and act on it quickly to provide excellent shopping experiences and promote wisely without destroying profit margin.”

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The importance of customer-centric marketing and shopping experiences should not be overlooked this holiday season, regardless of its cost or impact on profits. According to the MarketingSherpa Customer Satisfaction Research study of 2,400 consumers, nearly 60% of highly satisfied customers believe that the marketing of a company they were satisfied with "often or always" puts their needs ahead of its own business goals compared to 16.1% of highly unsatisfied customers.

That satisfaction can ultimately lead to sales, as 92% of the surveyed satisfied customers indicated they are likely or very likely to continue to purchase from brands they like versus 29.4% who are unsatisfied with a brand.