RFID Meets Promotion Management
Real-time Promotion Execution (RPE) is an RFIDcentric business process that can help consumer packaged goods (CPG) manufacturers and retailers dramatically increase promotion effectiveness. RPE may result in increased promotional sales, decreased execution costs and elevated shopper satisfaction. It uses RFID-tagged displays and promotion product cases to measure in-store promotion execution by tracking where and when the displays and promotion inventory are in the store in near-real time. This information can then be integrated across many stores and manipulated with powerful analytic tools.
TARGETING PROMOTIONS
Promotion execution and tracking are critical in the manufacturer to retailer supply chain. However, despite the size of spending for promotion management, both empirical and anecdotal evidence suggests that it generates poor return on investment (ROI) within current models and practices. For example, trade promotion spending by CPG manufacturers is a huge budget item, representing 12 percent to 15 percent of sales for most companies. Unfortunately, historical analysis and day-to-day experiences of CPG manufacturers and retailers show that the return on trade promotions is unsatisfactory. Revenue generated by these promotions ranges from 30 percent to 45 percent. However, for a hypothetical CPG manufacturer with $3 billion in annual revenue, out of stocks (OOS) on a promotion can translate into $31 million in lost sales annually. Given that more than half of OOS take one to three days to correct, a single instance could cost a CPG manufacturer about $1 million per day in lost sales.
Promotion execution and tracking are critical in the manufacturer to retailer supply chain. However, despite the size of spending for promotion management, both empirical and anecdotal evidence suggests that it generates poor return on investment (ROI) within current models and practices. For example, trade promotion spending by CPG manufacturers is a huge budget item, representing 12 percent to 15 percent of sales for most companies. Unfortunately, historical analysis and day-to-day experiences of CPG manufacturers and retailers show that the return on trade promotions is unsatisfactory. Revenue generated by these promotions ranges from 30 percent to 45 percent. However, for a hypothetical CPG manufacturer with $3 billion in annual revenue, out of stocks (OOS) on a promotion can translate into $31 million in lost sales annually. Given that more than half of OOS take one to three days to correct, a single instance could cost a CPG manufacturer about $1 million per day in lost sales.
New product introductions are also essential to bottom-line health. However, historical analysis reveals that 70 percent of new products fail in the first year, most during their launch periods. Promotions, like new product introductions, need to be well executed and on time if they are to avoid OOS situations.
But there are some barriers. For example, products must be stocked at target levels by the time consumer and trade promotions are executed. Last minute efforts to correct distribution and product placement can be costly and pull resources away from other critical steps in the launch. Many new product failures stem from a lack of visibility into key milestones during the launch process.
The execution of new product introduction and key promotions is a widely-recognized inefficiency that is ripe for business process improvement. With the growing use of RFID in the retail/CPG supply chain and in-store environments, retailers and their supply chain partners are evaluating which mission critical applications can effectively leverage RFID technology and data. That opens the door to promotion management.
DARK SECRETS OF PROMOTION MANAGEMENT
As mentioned preciously, while trade promotions are a big and growing expense, CPG manufacturers do not have a good handle on how their spending drives new sales. The visibility provided by RFID is a powerful new asset that CPG manufacturers can leverage to gain insight into what is happening with their in-store promotions and to understand how to allocate these funds for the highest sales lift possible.
As mentioned preciously, while trade promotions are a big and growing expense, CPG manufacturers do not have a good handle on how their spending drives new sales. The visibility provided by RFID is a powerful new asset that CPG manufacturers can leverage to gain insight into what is happening with their in-store promotions and to understand how to allocate these funds for the highest sales lift possible.
Nonetheless, given the dollars and effort expended, the return yielded by promotions consistently remains below expectations. One key reason is a lack of retailer follow-through. The core problem is store-level resource constraints, including people and processes. These constraints limit the ability of retailers to move goods from the backroom onto promotional displays efficiently. Retailers also struggle to synchronize product availability with promotional campaign timing and feedback that helps suppliers to measure campaign effectiveness.
Perhaps the most challenging part of getting ROI from RPE will be integrating the new EPC data flows with CPG company legacy and proprietary systems, and retooling warehouse and shipping processes to be more in line with the real-time demands of RFID. For CPG manufacturers employing "slap-and-ship" strategies with no clear integration plans or actionable data analysis, RFID implementations will become islands of technology and information.
RPE ON DISPLAY
Many solutions providers, CPG manufacturers and retailers agree that RFID technology can contribute to better promotion effectiveness. In fact, Procter & Gamble (P&G) has been a strong and vocal proponent of RPE, incorporating it into a proprietary, tiered approach called EPC Advantaged Strategy used to determine what it tags. Improving display execution is a cornerstone of this strategy. In addition, Walgreens strongly endorsed the RPE concept late last year when it announced plans to roll out the RFID promotionstracking system from Goliath Solutions across its 5,000 locations.
Many solutions providers, CPG manufacturers and retailers agree that RFID technology can contribute to better promotion effectiveness. In fact, Procter & Gamble (P&G) has been a strong and vocal proponent of RPE, incorporating it into a proprietary, tiered approach called EPC Advantaged Strategy used to determine what it tags. Improving display execution is a cornerstone of this strategy. In addition, Walgreens strongly endorsed the RPE concept late last year when it announced plans to roll out the RFID promotionstracking system from Goliath Solutions across its 5,000 locations.
Through pilots, tests and trials, CPG companies are also discovering that they can use RFID data from their own facilities and retail outlets to uncover flaws in the implementation of promotions that were previously difficult to detect. Wal-Mart and two of its largest suppliers, P&G's Gillette unit and Kimberly- Clark Corporation, originally demonstrated the use of promotions as an RFID test bed. Gillette ran numerous promotions through Wal-Mart stores monitoring the movement of tagged promotional displays through the supply chain. During one of its RFID pilots, Gillette reportedly used RFID-retrieved EPC data to discover that 33 percent of the stores it supplied failed to move its Venus razor displays from the back room to the floors when the promotion started. Stores that moved the displays from the back room to the sales floor on time sold 19 percent more razors than stores that did not. A 19 percent sales increase in one-third of the retailer's stores would represent an overall sales improvement of 6.3 percent for any given promotion. Gillette also found that placing single tags on promotional display cardboard yielded a 97 percent or more read accuracy rate.
TRIPLE WIN
RFID-enabled promotional display execution is a 'win, win, win' for the retailer, the manufacturer and, most importantly, the shopper because it meets the expectation of having the right product in the right place at the right time.
RFID-enabled promotional display execution is a 'win, win, win' for the retailer, the manufacturer and, most importantly, the shopper because it meets the expectation of having the right product in the right place at the right time.
A standards-based approach to RPE will ensure that CPG companies and retailers deliver the right product solutions to the shopper at the right time, increasing the success of product promotions.
By Michael Liard, Research Director, RFID & Contactless, ABI Research