The cannabis industry is one of the fastest-growing and most competitive markets, with brands and dispensaries constantly fighting for customer attention. Since cannabis products can often times be undifferentiated in the eyes of consumers, promotions have become a key strategy for driving sales, increasing brand loyalty, and acquiring new customers.
However, running promotions without measuring their impact is like driving blindfolded—you might be moving, but you don’t know if you’re going in the right direction. Without clear measurement, businesses risk wasting money on ineffective discounts, eroding margins, and failing to optimize their promotional spend.
In this blog, we’ll discuss why promo measurement is critical in cannabis retail and explore different ways to measure effectiveness. Promotions are essential in the cannabis industry, but without the right measurement, they can become a race to the bottom.
Why Measuring Promotions in Cannabis is Essential
1. Promo-Driven Industry with Price-Sensitive Consumers
Many cannabis consumers are highly price-sensitive, often making purchasing decisions based on discounts and promotions. With frequent sales, BOGO (buy one, get one) deals, and bundle offers, businesses must ensure they aren’t just training customers to wait for deals but are actually increasing customer lifetime value.
2. Margin Protection in a Highly Regulated Market
Cannabis businesses operate under strict regulations that limit traditional advertising and increase operational costs. Discounts eat into already thin margins, so measuring promo effectiveness ensures that each dollar spent leads to incremental revenue rather than just discounting existing sales.
3. Competitive Differentiation and Brand Loyalty
With a flood of new brands and dispensaries entering the market, promotions can help build customer loyalty and distinguish a brand. However, understanding what types of promotions attract first-time buyers versus what keeps them coming back is crucial for long-term success.
4. Optimizing Inventory and Demand Planning
Overuse of promotions can cause inventory imbalances—leading to stockouts on popular items or excess stock of slow-moving products. Promo measurement helps businesses align promotions with inventory strategies to maximize profitability.
How to Measure Promotion Effectiveness
Measuring the success of promotions involves more than just tracking sales spikes. Below are key metrics and methods cannabis businesses can use to assess the real impact of their promotions.
1. Incrementality Testing (A/B Testing)
- What It Is: Compare sales in a test group (receiving the promotion) to a control group (not receiving the promotion) to determine how much of the lift in sales is truly driven by the promo.
- Why It Matters: This method helps businesses avoid giving unnecessary discounts to customers who would have purchased anyway.
- Example: A dispensary offers a 20% discount on a new strain to one group of customers and keeps another group at regular pricing to measure the true impact.
2. Promo Lift Analysis
- What It Is: Compare sales during the promotional period to sales before and after the promo.
- Why It Matters: This helps assess whether the promotion drove a temporary spike or led to sustained sales growth.
- Example: A brand sees a 50% increase in sales during a BOGO promo, but if sales drop below pre-promo levels afterward, it indicates that the discount may have just shifted demand rather than driven true growth.
3. Customer Acquisition vs. Retention Impact
- What It Is: Measure how many new vs. repeat customers purchased during the promo.
- Why It Matters: A promo that only attracts deal hunters but doesn’t convert them into repeat buyers may not be worth running long-term.
- Example: If 80% of a promo’s buyers are first-time customers, but only 10% return, the deal may not be effective for retention.
4. Average Order Value (AOV) and Basket Size Analysis
- What It Is: Analyze whether the promo led to larger purchases or just discounted existing spending.
- Why It Matters: If customers spend the same amount but at a lower margin, the promo may not be financially beneficial.
- Example: A “Spend $100, Get 10% Off” deal that increases AOV from $80 to $120 might be more profitable than a flat 20% discount.
5. Cannibalization vs. Category Growth
- What It Is: Determine if a promo drove overall category sales or just shifted sales from one product to another.
- Why It Matters: If customers switch from a higher-margin product to a discounted item, the promo may hurt profitability.
- Example: A discount on pre-rolls might increase their sales but reduce purchases of flower, leading to no net gain in revenue.
6. Discount-to-Sales Elasticity
- What It Is: Measure how sensitive customers are to discounts by analyzing the percentage change in sales relative to the percentage change in price.
- Why It Matters: Understanding price elasticity helps optimize discount levels to maximize revenue and profitability.
- Example: A 10% discount leading to a 5% sales increase may not be worth it, while a 15% discount leading to a 30% sales increase might be.
7. Loyalty and Long-Term Value Impact
- What It Is: Track how promo participants behave over time compared to non-participants.
- Why It Matters: A well-structured promo should increase lifetime value (LTV), not just drive one-time sales.
- Example: A brand offering a “Buy 2, Get 1 Free” deal tracks whether those buyers return within three months for a full-price purchase.
Final Thoughts: Smarter Promo Strategies for Sustainable Growth
Do let necessary promotions force you into a race to the bottom. By using incrementality testing, promo lift analysis, customer retention metrics, and discount elasticity studies, cannabis brands and dispensaries can ensure their promotions drive sustainable growth rather than eroding margins.
The key takeaway? Don’t just discount—measure, optimize, and refine your promo strategies to gain a true competitive edge in the cannabis market.
Interested in Taking Your Promo Strategy to the Next Level with Solvenna
At Solvenna, we have extensive experience helping brands and retailers in the cannabis industry and across other sectors. We help our clients refine their promotional strategies to maximize growth while protecting margins. Our expertise in data-driven marketing and advanced analytics ensures that your promotions don’t just boost short-term sales but drive long-term profitability and customer loyalty.
Whether you’re looking to measure promo effectiveness, optimize pricing strategies, or enhance customer retention, our team of experienced consultants can help. Let’s discuss how we can tailor a smarter promotional strategy for your business. Reach out to Solvenna today!
