A Guide to Measuring & Improving Trade Promotion Effectiveness

[email protected] +44 (0)1753 299600 www.acuvate.com/compass/ Contents

01 The importance of effective trade promotions 02 Key metrics to consider while measuring trade promotion effectiveness 03 Trade promotion tactics and best practices 04 Key challenges faced during trade promotion analysis and optimization 05 The role of technology in improving trade promotion effectiveness 06 About Acuvate 07 About Compass

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Despite the fact that trade promotion activities account for the largest expense head after raw The importance materials, there is very little ROI derived from this endeavour. Manufacturers and retailers of effective trade have often faced the most trouble here. promotions As per an Economic Times Retail feature, even a 15% improvement of trade promotions ROI can enhance the top line by 10% and operating profits Consumer Packaged Goods is a highly by a good 3 to 5%. All of these findings point to competitive market despite its large opportunity the obvious solution of optimising trade size - slated to become a USD 14 trillion market promotions to improve ROI and thereby improve by the year 2025. This increased competition is profitability and gain market share. However, due to several factors –key factors being the low most businesses still struggle to run better barriers of entry into the industry, the promotions due to some common challenges like ever-changing customer preferences, the inability to measure the effectiveness of trade movement of market trends, and the rapid promotion activities, inability to harness all of the emergence of local players. data collated, sole reliance on trade promotion management and ERP systems, These factors make it critical for CPG among others. businesses to constantly innovate and strive to be relevant in such a competitive market. Trade With this eBook, we intend to discuss how we promotion ineffectiveness is one major cause can tackle some of these challenges and tap into hindering the growth of several global CPG the potential value of effective trade promotions. companies. Trade promotions are the second We have elaborated on aspects such as, the key largest cost item on a manufacturer’s P&L metrics for measuring trade Promotion statement. However most of the trade spend effectiveness, trade promotion tactics and best doesn’t yield the desired ROI, affecting margins practices, understanding how technology can and profitability. help in successful measuring and improving of Trade Promotion Effectiveness. As per a Nielsen Holdings report, over 40% of CPG trade promotions are ineffective and do not deliver the desired or targeted results and over 59% of trade promotions carried out globally do not break even. It is also stated in a Booz Allen Hamilton report that a majority of the manufacturers lose about one-third of the amount they invest in carrying out trade promotions.

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Key Metrics to Incremental Sales

Consider while Incremental sales refer to the sales lift caused by promotional activities. This may be over and above the basic sales that the business may Measuring anyway achieve. Incremental sales may be calculated as the incremental revenue or trade promotion increase in revenue recorded divided by total revenue. This helps in understanding the share of incremental sales due to a specific effectiveness promotional activity. This is a crucial metric Quality trade promotion analysis is next to required to understand the obvious effect of impossible without using the correct metrics. promotions carried out on the sales of your If you happen to start by measuring the wrong or company. incomplete things, all analysis falls apart.

POS Growth ROI

The increase or decrease in sales of different ROI can never be ignored. Just like channel ROI product categories at a single POS and at all and optimization, trade promotions can also be established POS’s communicate how differ- checked for the initial ROI that is being achieved. ent trade promotions performed. Use of promo Once positive ROIs are achieved and identified, codes and coupons can track the campaigns it leads to further scope for optimization. ROI that resulted in sales. helps in predicting future sales and optimizing existing trade promotions. Consumer Units Incremental Ratio Purchased

The total no.of units sold to customers by each Incremental Revenue divided by the total product category and type is one of the most revenue or Incremental Units divided by Total common and easiest metrics to track the Units are some of the ways to calculate the performance of trade promotions. incremental ratio. It helps in understanding the A consumer-driven business measures percentage of business that will stop occurring the same way their buyer purchases. in the absence of any of the trade promotions that are running.

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Spend Ratio Primary vs Secondary vs Tertiary Sales

Incremental Revenue divided by total spend tells Fluctuations and difference in secondary and the spending ratio. This helps in managing to tertiary sales will help you identify the most cost against each trade promotion. successful trade promotions.

Trade promotion tactics and best practices

Winning in a crowded CPG market can be If trade promotions are planned and executed tricky, however, a well thought out trade well, they can add increase the bottom line by promotion and market strategy can help your 10-15%, as per a PwC research report. We have brand go a long way. enlisted some trade promotion tactics and best practices to help you maximize profitability.

Proprietary information - Do not copy or duplicate without written authorization from the author. UK | USA | Netherlands | India 04 Focus on the Offer deals and in-store display discounts

About 65% of consumers are visual learners. Most of your online consumers are price In fact, visuals are what also increase a brand’s sensitive. How much a product or service costs, stickiness by 42%. That’s why what, where and has a big impact on the purchase decision made how your customers see your products at a by the shoppers. For instance, not everyone is retail outlet, matters. going to be convinced by a 10% discount on a product pricing that is otherwise ‘premium’. For instance, it is usually a given that the products placed at the centre of the shelves, Your trade promotion strategy should include on the same level as that of a consumer, are temporary price reductions to appeal to this hot-selling. Those that are placed on shelves segment of the shoppers. It works for both your further down tend to give the feeling of old stock existing customers to make more purchases, or faulty pieces that the store doesn’t want the and to attract new ones. But even these consumer to really look at. need to be timed well!

Some of the things that your trade promotion For instance, the holiday season. We all know strategy should cover for in-store displays how everyone wants to be able to buy the best include: Christmas gifts for their friends and family, but at • Signs, banners and posters the same time, we’re also looking for good deals • Special display racks to the bag. Ideally, a manufacturer should nudge • Life size standees the retailers to start promoting the offers at least • Floor stickers a month prior to appeal to the planners. • Product demonstrations In this case, leaving discount promotions for the end could lead to your campaign getting lost in the volume of brands trying to get attention to boost their last-minute sales.

Proprietary information - Do not copy or duplicate without written authorization from the author. UK | USA | Netherlands | India 05 Appoint in-store Offer product demonstrators sampling

Imagine walking into a store that has similar According to a study conducted by Arbitron and products from different brands on offer. Now you Edison Media Research, 35% of consumers who might like to go for a brand that you have are offered a sample of the product, will buy the previously purchased. But there is also a chance product in the same shopping trip. The study also that you want to go for a product that seems suggests that about 24% of consumers better from a newer brand. As a consumer, you actually end up buying a sampled product in tend to get overwhelmed and confused with place of the one they had planned to buy. regards to which brand you should be going for. This strategy always works because you’re In such cases, having an in-store letting your customers experience your product demonstrator or a salesperson can assist the before nudging them to purchase it. This instils customer in making a more informed purchase. the feeling of trust and removes all apprehension They can even use the opportunity to strike a regarding the purchase. It is also a great way to conversation, convince and convert them on the introduce new aspects of an existing product or brand they are presenting. new products that have just been launched.

Pretty much similar to how you walk up to a Leverage makeup brand and test the products before making a purchase. co-promotions

Just when the festive season kicks in, the newspaper ads start to show deals on different products. But what they also additionally provided in the advertisement, is a list of retailers that you could avail the offer at. The co-promotion here helps increase the reach of your retailers and drive in more sales.

To make this trade promotions strategy even more effective, localize your efforts. Going region wise will help you drive more sales at all the retailers you’re aligned within an area and also be able to show how accessible your products are.

Proprietary information - Do not copy or duplicate without written authorization from the author. UK | USA | Netherlands | India 06 Use gamification to Attend trade shows encourage retailers and exhibitions

Competitions are a widely used tactic at To give your sales a much-needed boost, arrange automobile dealerships. The concept of this for trade shows or ask your retailers to competition is fairly simple – the one that gets participate actively in exhibitions in the target the most number of sales during a season, get market you’re aiming at. These events give you acknowledged with an award of a benefit that an opportunity to reach out to a mass audience, motivates them to continue their efforts till introduce your product, get feedback and at the the next season. same time, acquire new customers.

Gamification keeps your retailers motivated and Striking a conversation with a consumer and on their toes, trying out new strategies to further giving them a physical view of your product, can improve the results of your trade promotions. be a huge driving factor for sales. You could apply the same strategy to your sales team, incentivizing their efforts to drive more Now while there are a number of ways to sales. implement the above strategies, it is important to equip yourself with the right tools.

Proprietary information - Do not copy or duplicate without written authorization from the author. UK | USA | Netherlands | India 07 Key challenges faced during trade promotion analysis and optimization

Unstructured post promotion analysis

A crucial problem that revenue management and sales executives face is the inability to measure the effectiveness and ROI of any trade promotion activity due to the lack of a powerful Post Promotion Analysis (PPA). Most companies still depend on spreadsheets for conducting PPA. Field sales executives have to manually compile promotion data and send it to decision-makers. This is a time consuming and error-prone process. Decision-makers won’t have the access to real-time data.

The use of spreadsheets also decreases the speed in decision-making. Decision-makers have to spend more time analyzing data and less time gaining insights from it.

Proprietary information - Do not copy or duplicate without written authorization from the author. UK | USA | Netherlands | India 08 Inability to leverage data to optimize trade promotion spend Today’s trade promotions and consumer behaviour are affected by numerous internal and external factors like weather, seasonal events, marketing campaigns, and social media influence. Running profitable promotions requires the capturing and harnessing of data from all these touch points. Most businesses depend solely on external data brokers such as Nielsen or IRI, and past promotion data for their data needs.

While capturing data from these sources is imperative, depending solely on these sources may limit the data accuracy and one may not produce a complete picture. Hence, capturing and harnessing data from multiple internal and external sources is essential to performing a holistic, 360-degree analysis

High dependence on skilled crew

Another infamous hurdle for accessing data and generating customized reports on a daily basis is the high dependence on IT Service, or the MIS team or reliance on Data scientist teams to suggest which promotions to run. Business users can’t customize dashboards or run the algorithms themselves and have to depend on these teams to get fresh recommendations and reports or update old ones.

Missing/difficult what-if analysis

A lot of trade promotion strategy setting involves forecasting and accurately predicting “what is the impact if X happens” or “What will be the impact of my ROI and sales uplift if I run BOGO promotion for a cash cow”. However several trade promotional tools and software miss this type of in-depth analysis or provide generic analysis that does not deliver real business value.

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Organizations are unable to measure the effectiveness of trade promotions due to lack of sufficient data, inefficient data harmonization, and predictive intelligence. As a result, there is a lack of data-backed optimization of upcoming trade promotions – either slight changes are made or nothing is done. Decision-makers resort to learnings from past experiences, instincts or partial intelligence.

Sole reliance on Trade Promotion Management and ERP systems “One does not need a TPO software if they already have a TPM software” – this is a common misconception. A Trade Promotion Management (TPM) system is a transactional tool and is merely used for operational and managerial activities of trade promotions, like managing deductions, and keeping a record of the spending done for trade promotions.

TPM tools do not possess the capability to gather, record, or analyse data and draw insights. A TPM tool cannot offer the ability to conduct prescriptive and predictive analytics to help marketers and revenue management personnel make better, informed decisions.

On the other hand Trade Promotion Optimization Softwares equipped with post promotion analytics are built for the purpose of measuring trade promotion effectiveness and help decision-makers optimize trade spend by giving data-backed recommendations.

All these challenges disable decision-makers to run informed trade promotions. Consequently, they take decisions based on past experiences, gut or partial intelligence – resulting in low-yield trade promotions and thereby affecting the overall revenue.

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The role of technology in improving trade promotion effectiveness

Streamlined processes and workflows

Better retailer-manufacturer Improved transparency collaboration and visibility into trade promotion performance

ADVANTAGES OF LEVERAGING TECHNOLOGY FOR RUNNING TRADE PROMOTIONS

Ability to leverage data Automation of mundane for trade spend tasks optimization

Insight-driven promotion analysis

Proprietary information - Do not copy or duplicate without written authorization from the author. UK | USA | Netherlands | India 11 Trade Promotion Trade Promotion Management (TPM) Optimization (TPO) Systems Systems

TPM systems are used for streamlining the TPO softwares like Acuvate’s Compass help you internal execution and operational parts of trade measure the effectiveness of trade promotions, promotions. This can include planning new forecast sales, and harness key causal data with promotions, allocating budgets at various stages their analytics capabilities to provide for different departments, retail activity recommendations into optimizing your trade management, tracking promotion spending and spend. managing funds, authorizing payments etc. These tools automate and eliminate the time However, the optimization and analytical consuming, error-prone promotion data capabilities of TPM systems are extremely integration processes, and make measuring and limited. They can’t integrate and harmonize planning of campaigns more actionable. data from multiple internal and external sources. The software enables business users to plan As a result, you can’t measure the effectiveness various scenarios without having to rely on data of promotions, forecast sales, or leverage data to scientists or learn algorithms. It enables them to optimize promotion spend. track results in real-time and make adjustments accordingly to improve the sales reflections.

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How trade promotion optimization softwares like Compass help in measuring and improving trade promotion effectiveness

Post Promotion Analysis

• An in-depth analysis of your promotion performance and reduce dependency on spreadsheets • Automate Post Promotion/Event Analysis (PPA/PEA) • Track different metrics like ROI, sales uplift, growth, promotion investment, actual sales etc. • Get promotion analysis by brand, location, SKU and time (month/year)

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Data Integration and Harmonization

Integrate and harmonize key causal data that impacts your promotional outcome. Compass ticks all the 5Vs of Big Data.

• Integrate causal data from external sources like weather, events, social media, POS, etc. Syndicated data from Nielsen, Kantar, IRI etc. with internal data of past sales and promotions. • Eliminate data silos and get a unified view of data. • Capture real-time promotion data • Harness unstructured and structured data • Enrich your data quality and improve promotion accuracy

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Compass lets you predict promotion outcome before actually running the promotions. Experience the power of predictive analytics.

• Build what-if scenarios and forecast sales for different promotion combinations with predictive analytics • Compare actual sales with predicted sales • You will have the ability to define constraints like budget and time and set objective parameters such as maximize revenue, profit or volume.

Trade Promotion Optimization

Compass leverages machine learning to transform raw data into actionable insights and prescriptions. Spend less time analyzing data and more time gaining meaningful intelligence from it.

• Experience AI–powered analysis of data • Get actionable recommendations from data on running the right promotions and optimizing your trade spend. • Get real-time alerts, patterns and trends into your ongoing promotions’ performance. • Optimize trade spend with data-driven decisions

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Faster Business Adoption

Any trade promotion optimization software requires user adoption to be successful. Acuvate simplifies data consumption and interaction to enable faster adoption among business users.

AI Chatbots: Get promotion data right to your messaging app via a chat with a virtual assistant Mobile-friendly data visualizations: Visualize data in the format you want to see – whether it’s a pie chart or graphs or charts. Self-service analytics and reporting: Generate your own reports without any dependency on IT or MIS teams. The need for centralized intelligence

Companies should aim to integrate their TPM and ERP systems with TPO systems in order to get the maximum business value from their trade promotions. This integration enables decision-makers to plan, manage, measure, optimize and execute trade promotions with a single and unified interface. Integration of TPM with TPO also enables companies to have one centralized system of intelligence for the entire lifecycle of running trade promotions.

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About Acuvate

Acuvate is a Microsoft Gold Certified Partner with 13+ years experience in improving business efficiencies and revenue for numerous enterprises worldwide. We do this by building enterprise applications that help in intelligent analysis, collaboration and orchestration of information. Over the years, Acuvate has helped several Fortune 100 CPG organizations in deploying AI-Powered Trade Promotion Optimization softwares and services to increase revenues and overall profitability. Acuvate holds profound expertise and specialization in providing AI-powered Business Intelligence solutions for many top CPG companies.

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About Compass

Compass is Acuvate’s Trade Promotion Optimization software which leverages Artificial Intelligence, Big Data and Advanced Analytics. It is created on the primary motto of making data work to get maximum bang for the buck for your trade promotions. Measure, Forecast, Analyze, Optimize and Repeat.

Schedule a demo of Compass Schedule a trade promotion consultation

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