Strategies such as Market Segmentation and Promotion Management can lift Holiday spirits and sales.
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Meeting with Consumer Products and Retail executives in Seattle at the UPSIDE Commerce event, I learned a few things about the challenges with Trade Promotion Management (TPM). And with the holiday shopping season upon us, the pace of promotions and other incentives to get customers into your store will be intense.
Firstly, it is just one competitive environment out there! The squeeze is on: whether it’s increased competition for shelf space, SKU rationalization, or retailers demanding more concessions to capture that micro real-estate—the shelf space—the brand companies are spending more money to get consumer access.
Trade Promotion - Conflicting Value
Various data have emerged from ChainLink and many other research efforts on the cost and return on TPM.
Promotions account for about a 10% to 20% lift in sales. Yet the cost of creating them is increasing with up to 50% of marketing expense from the manufacturer. Somewhere in those stats is your company. Are you one of the companies with low marketing expense and high lift, or are you the one with the 50% marketing expense and small lift? Our research showed that in tier one companies 25% of all promotions fail to achieve their goals. And in SMBs the statistics grow to 84%.
But we also learned that most companies actually don’t know if these TPM investments even work, since they have no real systems to track them. In addition, the attitude of many manufacturers is that retailers extract these fees for no subsequent service, such as the actual execution of the promotion (advertising, displays, etc.)
Trade Promotions - Growing in Practice
In spite of these issues the practice of trade promotions will increase. So we might as well learn to do it well! Companies that are clever about the management of promotions are seeing a return on their investments in terms of increases in market and margin—sales, customer loyalty, and price (that’s right, increase in prices). Precision in practices can assure that marketing programs are targeted to the right audiences to achieve growth.
Make It a Process
So what are the activities to focus on to assure trade promotional success?
Create market segmentation information—most companies have few or outdated segmentation definitions of their customers.
Target promotions to the most profitable and active segments. The goal of a promotion is to create business—a mark down is not a promotion!
Design the promotion to encourage consumer opt-in, and then design your website to assure continuing interest and value for the consumer.
Use this direct consumer engagement to enhance your segmentation information, your product and promotion design, and maybe even identify which channels you do business with.
Create tailored programs for special channels and Retailers. These not only prevent cannibalization across your channels but can fend off potential private label brands from encroaching on your ‘real-estate’ at that retailer.
Create a cross-functional Pricing team, from manufacturing through the promotional settlement people. What is the right and sustainable market price?
Integrate pricing, market segmentation and promotional activities to assure that all these activities are holistic and support the unified goal—increased sales, increased profit.
Evaluate the success of each and every promotion—what did we learn? How can we do better?
The scale of these activities is just too broad and too deep—detailed—to manage it without a system. And spreadsheets, though useful, don’t connect the community from the manufacturer thru the channel to monitor the process. Settlement is a huge value ‘eroder’ and with no real system to look to, huge concessions are given back to the retailer. Spreadsheets can’t tell you about the end customers, either.
So much information falls through the cracks that companies are mostly guessing on what is working—and we include profit, not just lift, as a mark of success.
It seems that with so much money at stake, investing in solutions and process improvements would be a small investment with some truly important returns.
Without some way to manage all the data and evaluate results you are merely guessing about the success of your sales and customer programs. Is that a way to run your business?