Bringing It All Together
We have covered a lot of ground in the last several posts, bringing you full circle through a cycle of data collection, planning, and execution. This final post will serve as a handy summary of trade promotion best practices. If you stumble across a concept here that isn’t clear, then please feel free to look at any of the posts here.
In the past several posts, we’ve framed trade promotion best practices throughout a six-part cycle:
- Correct Metrics
- Correct Measurement
- Correct Data Harmonization
Probably the single biggest key to accurate metric collection is to measure exclusively in consumer units. All the most useful metrics in assessing your trade promotion optimization (TPO), such as revenue, incremental factor, and spend ratio, all flow downstream from this.
Once you’ve got accurate metrics, it’s time to compute an accurate baseline. Syndicated data often has base sales spikes that can't be explained without promotion. TABS AccuBase is a tool that takes those promotion-related fluctuations into account when computing your baseline, for a more accurate result.
Next, we need to address data harmonization, which is absolutely essential for accurate reporting. In fact, it likely represents the single largest barrier to accurate promotional planning and optimization.
You need a system in place that can harmonize brand sizes, currency, units of measurement, and a million other variables that can differ between retailers and geographic regions.
While having dedicated TPI software in place isn’t absolutely essential, at least in the beginning, the need for a dedicated system grows as your organization grows. The larger you become and the more accurate you wish to be, the less that TPI software for harmonization becomes optional.
Once we’ve got accurate and harmonized metrics and measurements, it’s time to put our heads down and think trade promotion tactics. The following are some good rules of thumb for conducting your promotions.
- Bonus Packs and Consumer Premium Offers very rarely work.
- Loyalty programs can be a valuable weapon in your arsenal, as long as you understand that “loyalty members” tend to be the most fickle, price-conscious, and decidedly disloyal of all your buyers.
- The three most effective promotion types are, in order, Percentage Off (provided you go big), Buy-One-Get-One-Free, and Net Price After FSI.
- Finally, keep in mind that fewer, deeper deals nearly always reap better results than do frequent, moderate deals.
Of course, all such rules have their exceptions, so it’s always critical to test your promotions and make adjustments based on the results.
After running some promotions, it’ll then be time to do a bit of planning, and generate an optimization model to help ensure efficiency. Here are two tips for better planning:
- Use a prior year accrual model instead of live accrual. Prior year accrual gives you a realistic budget, is less messy, and avoids end-of-year surprises.
- Don’t forget the role of incremental distribution on your lift. Lifts don’t actually change, regardless of baseline. Plan your promotions accordingly.
As a final step, let’s address the actual execution of promotions, including our ongoing relationships with retailers. The following are some good rules of thumb:
- The manufacturer must subsidize the retailer discount in direct proportion to their profit in the overall value chain. The promotion needs to be worthwhile for both parties.
- Trade spending is not inherently bad, and can in fact drive profit in a lot of instances.
- Displays are a useful tool, but they’re not a panacea. Often, a simple coupon-based promotion can be more effective.
- Finally, the liberty at which you can take risks with your promotional dollar differs greatly depending on the size of your operation.
Naturally, the above rules target manufacturers specifically. Here are a few simple rules aimed at retailers:
- Again, adjust your margin requirements. Both sides have to be flexible.
- Automatic deductions, while desirable, might not make sense if the promotion isn’t for a large, responsive brand.
- It’s valuable to consider incremental ad block dollars, not just total dollars. So, consider promoting smaller brands separately for a targeted response instead of lumping all brands into one ad block.
- Loyalty cards need to be part of an overall strategic approach, not the entire strategy in and of itself. Don’t make all promotions contingent on the shopper having a card.
We hope you’ve found this trade promotion best practices series valuable. Keep in mind that TABS Group offers solutions for helping with all aspects of your trade promotion, from collecting, measuring, and harmonizing your metrics, to spotting trends in the actual execution of your promotions. Feel free to download the TPO white paper below to learn more about our capabilities.