Six Trade Promotion Tips to Enhance Performance
By David Kellen and Kurt Kaiser
Trade promotions are the 800-pound gorilla of marketing spending, representing 60% of the marketing budget and accounting for more than $100 billion per year. Getting the right mix of pricing and promotion for each channel can be like playing five-dimensional chess, with all the parts moving at once: price elasticity, price gap elasticity, promotion type, frequency and discount level. What consumers buy, where and when can be influenced with the right game plan.
Speaking of game plans, ever wish your favorite team could know in advance if a critical play would work? Unfortunately, not possible. How would you like to run your next trade promotion in advance to determine the right temporary price reduction and duration? Fortunately, very possible, thanks to predictive analytics that enable marketers and sales teams to simulate consumer sales and project the impact on manufacturer and retailer financials before committing dollars in the real world.
Displays and Deals
All promotions are not created equal. Nor do they have equal impact. Consider the effect of a display on the following four categories: beer, toilet paper, toothpaste and yogurt. Will the same size and located display generate the same lift? No – not by a long shot. Toilet tissue wipes up the competition with an 82% display-driven lift, with yogurt a distant second at 28%, beer at 15% and toothbrushes at 14%. Further analysis reveals that display-sensitive categories tend to be “must have” products or “easy-to-eat” meals that are stockable and traditionally demonstrate above average sensitivity to promoted price changes.
Tip #1: Characteristics of Categories with High Display Response
- 14 of top 15 display categories are either “Must Have” products or “Easy to Eat” meals
- Tend to have above average sensitivity to promoted price changes
Tip #2: Characteristics of Categories with High Feature Response
- Many utility products that are frequently purchased in Mass channel
- Consumed on a frequent basis, often for lunch or quick dinner
- Have above average response to promoted price and displays
Another factor influencing the ability of displays to drive sales is unit price. Consumer shopping patterns expose the fact that shoppers are less likely to purchase expensive items on display or with a temporary price reduction (TPR). Products typically less than $5 per unit enjoy significantly more lift from both promotional options.
Tip #3: How to Promote Expensive Items
- Shift display space from high- to low-price items unless they are impulse driven or have reasonable discount
- Large discounts needed to drive volume with TPRs
Multiple Effects
Offering multiples is a popular promotional technique, but one with a distinct success profile. Multiples work for items with expandable consumption, that are easily stored, where the multiple number makes sense (for example, a five-pack lunch item that corresponds to a five-day work week). The total price should come in under $10 with a unit price no greater than $1.00, such as a 10 for $10 offer.
Tip #4: What Works When Pricing Multiples
- Heavily promoted categories
- Total price at or below $10
- Price per unit of $1.00, such as 10 for $10
Channeling Value
Channel differences can dictate promotional success. On the pricing front, food shoppers like deals and are highly responsive to promotions. Drug channel consumers, on the other hand, value convenience over price and mass merchandiser patrons expect lower regular prices, rendering TPRs less valuable for these segments.
Tip #5: Price Responsiveness Varies by Channel
- Food – highly responsive to regular and promoted price changes
- Drug – people look for convenience before price
- Mass – lower regular prices means consumers value TPRs less than in Food
On the display front, food shoppers prove to be high impulse/unplanned utility item buyers. Drug channel consumers plan their purchases and look for features, but are less responsive to displays, and mass merchandiser patrons exhibit an average response to displays, seeking overall value from the channel on the regular price.
Tip #6: Promotion Responsiveness Varies by Channel
- Food – High impulse and unplanned utility item purchases drive display lifts
- Drug – Planned purchases make features impactful and displays less relevant
- Mass – Average response to promotions, shoppers looking for overall value with regular price
Consumer Views
When considering the promotional mix, factor in some salient shopper facts:
- Consumers demonstrate lower price sensitivity for products with high brand loyalty that are infrequently purchased or niche offerings with few competitive options.
- Display-based promotions work for stockable, must-have and easy-to-eat products.
- When placed on feature, utility products like paper goods and detergents can draw shoppers to the store.
- Food store shoppers tend to be impulse-driven, drug store shoppers come with a purpose and mass merchandiser patrons seek everyday value.
Case in Point
Manufacturer X noted a decline in base volume for its premium product, while private label value brand sales continued to grow. Assessing promotional options, the company articulated four objectives:
1. Maintain or grow category sales
2. Build base sales for its premium product line
3. Maintain or grow retail profit
4. Maintain or decrease trade spending
Historically, TPRs were the most common promotion type in the category, usually featuring a 20% discount. The standard category TPR ran for three weeks, and at the 20% discount level, generated about the same lift as a one week feature at a 30% discount. Manufacturer X typically opted for eight weeks of TPRs each year and four weeks of feature advertising.
Assessing Options
To stir things up in the category and drive sales to its premium offering, manufacturer X considered three alternative promotional schedules. Option 1—eliminate two weeks of feature activity and replace them with two TPR periods of three weeks each. Option 2—increase the private label base price and raise promo prices by $0.10. Option 3—increase the private label base price, but hold promoted prices at current levels.
Running the simulation, manufacturer X discovered a clear winner. Only Option 1 delivered against every objective: growing unit and category sales by 0.9%, increasing CPG profit margins by 2.4%, boosting retailer profits by 0.8% and decreasing trade spending by 3.1%.
Predictable Success
Price and promotion simulations succeed because they begin with the consumer behavior needed to shape an outcome. Knowing that consumers shop products and channels very differently, simulations should be preceded by an analysis of sales tendencies by product and retailer. This will enable the composition of a plan that leverages product strengths and minimizes weaknesses in different retail environments.
While tactical, event-by-event simulation and planning is a requirement, take the time to simulate entire planning periods with different combinations of price and promotion activities to decide the approach that best fits your objectives. The definition of a truly successful promotion plan is one that delivers results for retailers and manufacturers alike. By looking at sales from a consumer perspective, you’ll be able to do just that.
David Kellen is Director, Price & Promotion Practice, and Kurt Kaiser is Senior Manager, Product Leadership at The Nielsen Company.
AUGUST 2010
Transforming Trade Promotion Calls for Shopper-Centric Approach
By Rose Anthony
The landscape for trade promotion merchandising and spending is changing, but its prime importance for leading manufacturers and retailers remains the same.
“Intense focus on trade promotion efficiency causes many to lose sight of the fact that trade programs are the single most important tool available to influence shopper behavior in pursuit of overall marketing objectives. Leading manufacturers are those who truly understand the role trade can play along the shoppers’ Path to Purchase and harness the power of trade promotion to influence shopper behavior to drive the business for the category and the brand,” said Todd Bortel, Principal at Kantar Retail, a global retail insights and consulting firm.
But trade promotion has long been considered a “necessary evil” in the world of consumer packaged goods, according to the consultancy which has just released a study, Transforming Trade Promotion/Shopper-Centric Approach. Optimization has been the key goal of trade practice since 2000 as CPG manufacturers have worked to make their spending as efficient as possible. Today, many industry leaders believe that optimized trade promotion is synonymous with successful trade promotion.
Trade promotion among consumer packaged goods companies is a $176 billion dollar business. Spending has risen more than 60% since 1997, and the percentage of manufacturers’ marketing budgets devoted to trade has reached an all time high of 56%.
Kantar Retail’s report reveals that as trade continues to evolve, manufactures and retailers who focus exclusively on optimization will fall behind. Efficiency is a sine qua non of modern trade, but the real frontier lies with the shopper.
The report explains that CPG companies must consider how they can reach shoppers along the Path to Purchase. Industry leaders will be able to influence shoppers as they choose the outlet, shop the store and ultimately select which products to buy. The new challenge in trade promotion will be learning how best to steer one’s organization along this shopper path.
“The leading performers in the CPG industry this decade will be those that can look around the next corner and react earlier than their competitors to the challenges and opportunities that lie ahead,” said Mike Urness, Managing Director at Kantar Retail.
“This is most true in the area of trade promotion. Transforming trade promotion into a shopper-driven marketing investment designed to influence behavior along the shoppers’ Path to Purchase will become the common language that aligns successful trading partner relationships in the next decade. In this environment, transforming trade promotion should be the number one issue to improve for both manufacturers and retailers,” he said.
As shopper-centric trade evolves, CPG companies will confront a host of new issues. Shoppers are reacting to economic conditions by making fewer trips and cutting costs. Traditional trade promotion has become less relevant as retailers focus increasingly on price.
To address these new challenges, Kantar Retail has provided specific recommendations and best-in-class case studies to guide the way to successful trade promotion practice. The study identifies four strategic pillars that underpin Path to Purchase marketing:
- Possession of unique consumer insights will enable manufacturers to initiate appropriate planning conversations with their trading partners.
- Manufacturers must collaborate with retailers to broaden their frame of reference beyond the category; a broader view will make the manufacturer more valuable to the retailer and will result in wins for both parties.
- Marketing capabilities are fundamental to shopper-driven trade; manufacturers must stay abreast of the latest technology to woo consumers.
- Funding reallocation must occur so that price dollars and shopper marketing dollars are each used as effectively as possible.
The study ranks the top performers in the industry and highlights the factors that have helped them to excel. This year's leading performers in trade promotion in order of rank, include Kraft, Procter & Gamble, General Mills, Pepsico and Unilever. According to Kantar Retail, these manufacturers have distinguished themselves through their solid execution, clear promotion strategies, and well-trained workforces.
Transforming Trade Promotion/Shopper-Centric Approach is the thirteenth industry report on trade promotion spending and merchandising, produced by Kantar Retail. It is designed to establish a definitive position on the key issues surrounding trade spending from both a manufacturer and a retailer perspective. The report examines differences between industry leaders and other players with an eye toward future growth opportunities.
The study is based on more than 250 responses from a variety of retailers and manufacturers. Manufacturer respondents span the food, HBC and general merchandise categories, while retailer respondents come from grocery, mass, drug and value backgrounds. Manufacturer and retailer respondents ranked each other on trade strategy and fundamentals. The study is based on a quantitative analysis of these responses as well as qualitative survey and interview.
