A New "Currency" to Replace Today's Trade Promotion
For more than 30 years, trade promotions have been the "currency of the realm"; the way to get new items on shelves, to encourage retailers to advertise and display existing products and to fund price reductions. Over that same period, the industry has spent millions on improving the efficiency and effectiveness of these investments. While that remains important, we don’t see trade promotion optimization as the answer.
What we need is a new currency. One focused on consumer and shopper insights. A currency that encourages specific consumers — rather than retailers — to change their buying behavior. A currency that builds brand relevance and perceived value. A currency that puts "win-win-win" back on the table.
So why do we need this new currency? Today’s trade promotions deliver the same offer to every shopper entering a store without regard to trip mission, brand or store loyalty. As a result, the "optimal" promotion in terms of ROI may well drive pantry load among super loyals on a stock-up trip while, at the same time, driving price buyers to choose the promoted brand. The "optimization" of a promotion is based on average consumer response in a market/banner or store level. Optimization does not reflect insights regarding which consumers responded to an offer, their store or brand loyalty, nor their reason to be in the store. All we know is we sold more with a 15 percent TPR, 60 percent ACV feature and display than we would have with a display with Temporary Price Reduction.
That currency is becoming available today. In our view, insights that drive targeted consumer promotions will redefine — and eventually replace — today’s trade promotion model. In fact, it already is: A 2012 study by Kantar Retail found that traditional trade promotion spend (measured as a percent of gross sales) had decreased to its lowest levels in a decade (44 percent) with manufacturers shifting funds to other consumer and shopper focused actions. (Source: http://kantarretail.com/TradePromotion/KantarRetail_TradeStudy_ExecutiveSummary.pdf)
In fact, research from GMA estimates annual industry spending on shopper marketing at more than $50 billion and growing. (Source: http://blogs.hbr.org/cs/2012/09/will_big_data_kill_all_but_the.html)
Establishing a new currency requires two imperatives: (1) Better understand the consumer-level impact of promotions on consumer buying behavior; and
(2) building digital marketing capabilities that can re-establish relevant brand relationships with consumers. With these imperatives come challenges.
The first promotion impact challenge is to understand the true impact of your current trade spending on customer buying behavior. A source of volume analysis often shows that most "incremental" revenue is in fact a combination of consumer pantry load, own and competitive brand cannibalization. This insight provides insight into the incremental sales required to replace today’s TPM spending.
The second promotion impact challenge is to understand how specific consumers (or segments) are responding to which promotions within trip types. T-log data will support insights regarding promotion usage within trip types. However, shopper card data will enable manufacturers to gain insights into how specific consumer types are using promotions across trip types. These insights will provide the basis for tailoring specific promotions to named consumers.
In parallel, manufacturers need to leverage digital marketing to build 1:1 relationships with consumers. As these relationships deepen and more is learned about the attributes of consumers — e.g., brand loyalty, family size, interests — allow for more precise promotion targeting to drive changes in consumer behavior. These changes may include increased loyalty, brand/flavor penetration, increased purchase frequency, larger units per purchase, etc.
In our view, addressable consumer promotions, designed to drive strategic changes in consumer buying behavior with retailers that are open to collaboration, will over time intersect TPM and, ultimately, replace trade promotion as we know it. We can only hope.
What we need is a new currency. One focused on consumer and shopper insights. A currency that encourages specific consumers — rather than retailers — to change their buying behavior. A currency that builds brand relevance and perceived value. A currency that puts "win-win-win" back on the table.
So why do we need this new currency? Today’s trade promotions deliver the same offer to every shopper entering a store without regard to trip mission, brand or store loyalty. As a result, the "optimal" promotion in terms of ROI may well drive pantry load among super loyals on a stock-up trip while, at the same time, driving price buyers to choose the promoted brand. The "optimization" of a promotion is based on average consumer response in a market/banner or store level. Optimization does not reflect insights regarding which consumers responded to an offer, their store or brand loyalty, nor their reason to be in the store. All we know is we sold more with a 15 percent TPR, 60 percent ACV feature and display than we would have with a display with Temporary Price Reduction.
That currency is becoming available today. In our view, insights that drive targeted consumer promotions will redefine — and eventually replace — today’s trade promotion model. In fact, it already is: A 2012 study by Kantar Retail found that traditional trade promotion spend (measured as a percent of gross sales) had decreased to its lowest levels in a decade (44 percent) with manufacturers shifting funds to other consumer and shopper focused actions. (Source: http://kantarretail.com/TradePromotion/KantarRetail_TradeStudy_ExecutiveSummary.pdf)
In fact, research from GMA estimates annual industry spending on shopper marketing at more than $50 billion and growing. (Source: http://blogs.hbr.org/cs/2012/09/will_big_data_kill_all_but_the.html)
Establishing a new currency requires two imperatives: (1) Better understand the consumer-level impact of promotions on consumer buying behavior; and
(2) building digital marketing capabilities that can re-establish relevant brand relationships with consumers. With these imperatives come challenges.
The first promotion impact challenge is to understand the true impact of your current trade spending on customer buying behavior. A source of volume analysis often shows that most "incremental" revenue is in fact a combination of consumer pantry load, own and competitive brand cannibalization. This insight provides insight into the incremental sales required to replace today’s TPM spending.
The second promotion impact challenge is to understand how specific consumers (or segments) are responding to which promotions within trip types. T-log data will support insights regarding promotion usage within trip types. However, shopper card data will enable manufacturers to gain insights into how specific consumer types are using promotions across trip types. These insights will provide the basis for tailoring specific promotions to named consumers.
In parallel, manufacturers need to leverage digital marketing to build 1:1 relationships with consumers. As these relationships deepen and more is learned about the attributes of consumers — e.g., brand loyalty, family size, interests — allow for more precise promotion targeting to drive changes in consumer behavior. These changes may include increased loyalty, brand/flavor penetration, increased purchase frequency, larger units per purchase, etc.
In our view, addressable consumer promotions, designed to drive strategic changes in consumer buying behavior with retailers that are open to collaboration, will over time intersect TPM and, ultimately, replace trade promotion as we know it. We can only hope.