Trade promotions in the Nordics
FMCG brands invest an enormous amount of money in in-store marketing activities to attract customers to buy their products. And why wouldn’t they, on average 25%, and based on our study, even up to 60% of the revenues are generated through trade promotions. In addition to sales, through trade promotions, you will most likely gain better visibility for your products and improve brand awareness.
But it’s not that straightforward, unfortunately the effectiveness of single trade promotion activity remains often unclear and 2/3 of the promotions fail to break even and end up causing loss for the company. This challenge is global and Nordics is not an exception.
How are the Nordic FMCG companies doing?
During the past year we interviewed 36 FMCG companies in the Nordics about trade promotions; how promotions are planned, analyzed and what are the challenges. We also wanted to learn more about their best practices. In the discussions the complexity of trade promotions was obvious, as up to 89% of the companies said they struggle with analyzing the effectiveness and profitability of trade promotions.
Depending on the market FMCG companies can run even over 1000 promotions per year and the SKUs per campaign vary a lot depending on the market. Therefore, it is not a surprise that analyzing the true impact of promotions, discovering the best performing tactics, and managing the overall process can be very laborious. In many companies the trade promotion process also involves several stakeholders, which adds complexity.
To be able to analyze the results you need to have the data in the same place but in most cases the data is scattered. Also, getting retailers convinced about something that differs from their opinion requires strong fact-based argumentation. Getting those needed proof points in place, requires a lot of work.
The struggle is real
It came very clear, that most of the FMCG companies share similar challenges. We grouped the most common pain points in three categories:
- Internal process related to managing trade promotions
- Planning and analyzing the performance of trade promotions
- Executing trade promotions in collaboration with a retailer
Next we’ll go deeper into these challenges and tell how an FMCG company can overcome them.
1. Internal process related to managing trade promotions
Managing the end-to-end trade promotion process seems to create friction especially in large FMCG companies. Planning a successful trade promotion requires teamwork between key account management, marketing, trade marketing, field sales, finance team and demand planning teams. And when you add hundreds of promotions into the system every year, this will become a real issue.
One of the most common challenges mentioned in the interviews was poor visibility to upcoming trade promotions. Most companies had already acted upon this challenge and created monthly cross-functional meetings, different excel templates and emailing practices. But without proper tools same friction often remains between the stakeholders.
Top three tips to overcome the challenges related to trade promotion process:
- Use same set of numbers across different functions.
- Increase visibility to future plans and keep them always updated with the latest information from different functions.
- Automated promotional demand forecasting smoothens the collaboration between key account managers and demand planners.
2. Planning and analyzing the performance of trade promotions
Planning and analyzing the performance of trade promotions was by far the category with the biggest and most burning challenges. Almost all the companies (89 %) had challenges related to analyzing the efficiency and profitability of different actions.
Majority of companies complained that they only have time for analyzing a fraction of the promotions. In addition, combining data from various sources takes too much time.
Finding the optimal products, price points and activation tactics that boost the sales are considered the most challenging part of planning future promotions. However, for some of the companies, the practice of repeating the actions from previous year was a sufficient approach.
Promotional demand forecasting is typically a labor-intensive process that involves both key account managers and demand planners. Accuracy of forecasts was a concern that 60% of the companies mentioned. And although some of the experts were satisfied with the accuracy of their manual forecasts, they still agreed that forecasting required a lot of work, which could be reduced with right tools.
Having a process for basic promotion planning and analysis made some of the companies recognize the need for further elaboration. It doesn’t make sense to analyze all the promotions with the same set of KPIs, instead the KPIs should be aligned with the targets of the promotion. For example, running a promotion for an established product requires a different set of metrics than a promotion that seeks trial users for a new brand.
Top three tips to overcome the challenges related to planning and analyzing trade promotions:
- Combine data from different sources to one trade promotion analysis and optimization solution.
- Utilize AI for baseline sales and campaign forecasts and focus your expertise in what matters most: exception cases and analysis.
- When analyzing performance, start from a brand-level overview and drill down to details and individual promotions when required.
3. Executing trade promotion in collaboration with a retailer
Doing perfect trade promotion plans is not enough, you also need to convince the retailers and stores on your approach. Two thirds of the FMCG companies struggled with getting retailers committed to their promotional plans. In most cases the issue was lack of time: creating convincing fact-based argumentation would have required too much manual work.
Even if the overall goal for FMCG companies and retailers is to sell products, the objectives of trade promotions are not always aligned. As a brand owner you might feel that your products are too often included in campaigns just to create traffic to the retailer’s stores. Or retailer is pushing for routine items only to get better prices. Sometimes the promoted price point might be too low and impact the price image of your product. With fact-based argumentation you could demonstrate to the retailer that their requests are not necessarily providing the best value even for themselves.
In this area we saw a lot of variation across the Nordic countries. In Denmark the pressure from retailers was strongest leaving FMCG companies to struggle in finding a decent level of baseline sales without promotions. In Sweden the FMCG companies emphasized how challenging it was to cut down unprofitable promotions, since retailers do not want to lose their campaign fees. And in Finland the discussions at certain product categories focused too much on price and trade terms, leaving very little room for shopper-centric activity planning.
Top three tips to overcome the challenges related to retailer collaboration in executing trade promotions:
- Automate creation of fact-based argumentation from retailer viewpoint.
- Pick your battles. Sometimes you might need to run an unprofitable promotion to maintain a good relationship.
- Plan your promotions on time and share plans inside your organization to ensure optimal execution down to shop floor level
Time to take trade promotion analysis and optimization to the next level?
Trade promotions are vital for any FMCG company also going forward. With right tools supporting the business, companies can use data efficiently, ensure that previous ineffective promotions are not repeated and that their personnel’s expertise is used where it matters the most.
We are already working with some of the leading FMCG companies in the Nordics to help them get better return on their promotional spend by using advanced analytics. Our goal is to make A² Trade Promotion solution the best choice for any FMCG company. Get in touch and we'll show you how it works!
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Interested to learn more about the true impact of trade promotions? You can check the blog post here.