The morning had not even started when the director of revenue management walked into his office with the phone ringing. Without shedding his coat, he picked up the receiver and heard a harsh delivery, almost yelling “What are you trying to do to me?” The caller was the head buyer for the salty snack category of one of the top five retail accounts. After an innocent reply, the buyer continued, “Our ‘Buy Three for $1.88 each’ promotion was torpedoed by your own company!”
Eyes wide open, the DRM asked what this was all about, and his buyer directed him to his email with a scan of a coupon attached. The director sat down, began scrolling through his emails while the buyer continued ranting until he found the email. Opening the attachment, his heart sunk. There was a mobile coupon, issued the same week as the promotion, generated by his own marketing team, and showing a discounted price of $1.49 for only TWO bags of product purchased.
Savvy consumers are walking the aisles of their supermarkets, mobile phone in-hand and know how to leverage this technology to get the best product at the best price.
The trade promotion, which cost almost $50,000 failed to produce enough sales to justify the expense, and his buyer was now looking at a significant surplus of stock and demanding another $50,000 to sell the excess inventory. Who wants to spend $100,000 on a $50,000 promotion?
This is not an uncommon occurrence and a risk and expense most companies, even large tier-one CPG giants face every day.
We continually hear that the most common reasons why trade promotions fail to produce positive ROI are poor planning, failed compliance at retail, and of course, out-of-stock conditions during the promotion. Those are all excellent examples of why promotions fail; but there is another reason that has loomed larger day by day – the impact of the consumer shopping online. E-commerce, fueled by an intense social media advertising push, mobile coupons, and online discounts has taken a collective toll on retail, hence trade promotion.
The traditional objective of trade promotion has been to push volume into the channel. Ask any key account manager or sales rep, and that is what you will hear. That’s how sales reps have been compensated, after all. But, this practice is changing to accommodate the critical need to ensure that promotions are created with a top goal of point-of-sale movement by adding in POS results to the metrics for sales compensation. Not only does the key account manager or sales rep now concerned with the sell-in, but more than ever, with the sell-OUT as well.
As a result, promotion optimization tools that help leverage past historical trade promotion performance and downstream data to generate more accurate predictive analytics that drive decisions on product, timing, tactics, and geographical markets of future trade promotions are becoming mainstream. In fact, a recent Capgemini-sponsored Consumer Goods Technology trade promotion survey revealed that 81% of today’s CPG companies have some form of trade promotion optimization tool with almost half having a TPO that has advanced data science capability.
All that information is great, but for all the technology in place today, the trade promotion planner has nothing compared to the marketing organization in the way of intelligence about the consumer, demand signals, and profiles. They also have no knowledge of or access to powerful analytics tools and reports showing the response to coupons, advertising, and online shopping. As a result, they lack any real ability to generate enough insights about the consumer to effectively plan a promotion capable of achieving a true consumer engagement objective. Likewise, however, the marketing organization has relatively zero access to the retail trade promotion performance results. They have no idea which stores support promotions, which are regularly out of stock, which fail to comply to corporate mandates for displays and instore merchandising, and aside from the POS data included in syndicated data providers’ reports, very little knowledge of what crossed the scanners.
Think about our example at the beginning of this post. If the director of revenue management and his counterpart in the marketing organization had access to the entire combined data pool and were able to link and align the mobile coupon deal to the trade promotion deal, they would have immediately increased the number of bags of product sold by one-third!
It goes both ways. Peter Breen, executive editor of Consumer Goods Technology magazine, says it best. “Over the years, we’ve seen countless consumer promotions blindsided by concurrent trade deals that scuttled the value proposition and confused shoppers with conflicting messages. In a highly competitive, ominichannel marketplace, there is far too much at stake to let this continue, and consumer goods organizations can no longer blame it on a lack of tools – the technology is now there.”
In the 2018 survey on trade promotion mentioned above, 82% of the respondents said that alignment of trade promotion and consumer marketing (e.g., ecommerce, advertising, mobile coupons, etc.) would increase ROI, with more almost a third saying that it would dramatically increase ROI. Over the years, we’ve asked that question of the same universe and have had the opposite response. So, what we are seeing now is an understanding and acceptance of the critical importance of alignment between sales and marketing promotion planning and execution.
At one of the recent events held by EnsembleIQ, the publisher of CGT Magazine, the presence of CMOs and marketing directors said it all – this is a major issue and one that needs to be addressed in the CPG industry today. The recognition of the high cost of failure is sinking in, and nobody needs to remind both the CMO and the CSO that the consumer is the mutually agreed focus of everything they do. They also must be the key stakeholders that drive their respective organizations’ personnel to work together and collaborate. This includes working with IT to ensure that the right data is in place, the right systems are implemented, and that the appropriate metrics and analytical tools are there to measure and report performance openly to each group.
The good news is that, in CPG, we are seeing the momentum shift toward breaking down these barriers to cross-departmental collaboration with more interest and activity movement toward true collaboration. The value proposition to align trade promotion with consumer marketing and ecommerce has never been higher and more critical.