The true impact of trade promotions – how to repeat success and learn from mistakes

The true impact of trade promotions – how to repeat success and learn from mistakes
Most of the time, analyzing the impact of trade promotions is anything but straightforward. In this post we cover 6 common pitfalls regarding promotion impact analysis and explore some ways to avoid them.

Most of the time, analyzing the impact of trade promotions is anything but straightforward. Which is why it is often skipped, especially when analysis is performed solely with Excel. Repeating past promotions without giving much consideration to their actual success has become an industry habit, as the difficulties in analyzing their true impact is generally acknowledged.

In this post we cover 6 common pitfalls regarding promotion impact analysis and explore some ways to avoid them.

1. The KPIs are not aligned with the objective

What are you trying to achieve with the promotion? Is your goal to find new trial users for a novelty product or are you aiming to expand store coverage for your products? Is there fierce competition and you are defending your market share? Are you working together with your retailer partner on the shared goal of driving more traffic to the stores? Or are you just trying to boost the sales and profitability of your product portfolio with the promotion?

All activity planning starts with defining the objective for the promotion. The set of KPIs used should always be aligned with the target. Defining numeric targets can further improve the quality of the post-event analysis when you can objectively compare your results to your planned targets.

All activity planning starts with defining the objective for the promotion.

If defining promotion objectives is not yet a part of your promotion processes, setting overall objectives without numeric targets might be the ideal first step on the way towards better promotion planning and more detailed targets.

2. Inaccurate baseline sales

Calculating promotion sales growth might sound like a piece of cake for anyone who hasn’t spent hours on doing it. However, in the course of time it will become clear that finding a reliable baseline for sales is not an easy task. When defining baseline sales, you try to estimate an alternative past in which the promotion did not occur. What would the sales of the promotional items have been without the actions taken?

We have identified three different approaches to defining baseline sales in FMCG companies. The most common approach is to always compare against the same comparison period, for example, the period preceding the campaign, the same period in the preceding year, or the average of last year’s sales.

Another common approach is to manually pick a promotion-free period for comparison, but this consumes a lot of time.

A third approach makes use of advanced analytics and models the baseline sales by taking into consideration promotion-free sales, sales trends and seasonality. This approach provides a unique combination of good accuracy with little manual effort.

3. Fragmented data sources combined with a large number of promotions cause challenges for promotion analysis

It is impossible to carry out reliable promotion success analysis without pulling data from various sources. To effectively analyze promotion performance, you will most likely need to combine at least sell-out data, store delivery data, product cost information, reimbursements & discounts, and promo investments.

Doing this work manually one promotion at a time is not uncommon, but it often leads to analyzing only a fraction of the activities. Hence, this is an area, where an investment in proper tools will pay off.

4. Taking too narrow a perspective to promotion impact

If you end up looking only at what happens to the promotional items during the promotion period, you are most likely seeing only half of the truth and missing the full picture.

It is essential to take a broader perspective to promotional performance and look at what happens to demand in other channels. Is demand merely transferred from one retailer to another, causing a negative impact on your overall margin?

Take a look at your other products during the promotion and what happens to their sales. Does the promotion cannibalize the demand of similar items in your portfolio or does the increased visibility create a halo effect on your complementary offerings?
What happens to the demand after the promotion? Are your customers stocking up, resulting in a dip in the demand following your promotion? Or does the demand remain high due to the new loyal customers that you managed to gain with your promotion?

By overlooking all these questions you might end up with a false understanding of the impact of your promotion. Yet, trying to cover all the aspects manually, you might run out of time. Having an automated or semi-automated analysis process in place will help provide all the ingredients you need for the big picture, and an understanding of your objectives will give you insight on which aspects to emphasize.

5. Overlooking the investments

Analyzing sales growth without understanding the resources invested in the promotion may lead to wrong conclusions.

At a minimum, you should consider all the direct costs related to the promotion, like retailer marketing money, discounts & reimbursements given, and campaign package costs. Accounting for indirect costs such as brand marketing expenses or the use of field force time may improve the accuracy of promotion impact analysis and provide a more holistic view of your expenses, but the additional effort required does not always pay off. Whatever cost elements you decide to include in the promotion analysis, try to be systematic in order to keep your promotions comparable with each other.

A direct link between your trade promo optimization & planning tool and your post-event analysis tool will facilitate the collection of required cost information for your promo analysis.

6. Analyzing promotions individually instead of on the brand and chain levels

If you analyze promotions one by one, there is a good chance that due to time constraints, you will end up analyzing only a fraction of the promotions.

If you analyze promotions one by one, there is a good chance that due to time constraints, you will end up analyzing only a fraction of the promotions.

You will be able to draw conclusions much quicker by performing promotion analysis on a higher level and looking at the impact of different promotion tactics on the brand and chain levels. Discovering the best discount percentage or the most efficient in-store campaign spaces for different brands helps you set out promotional guidelines without going to too much detail on each individual promotion.

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What is the status of your trade promo analysis?

Do the points described earlier seem familiar? With systematic processes, a standardized data warehouse, and BI tools, it will be possible to find out which promotions should be repeated, and which should remain in history.

Interested in improving your promotional performance? Reach out to us and we'll be happy to discuss how we can help you gain better return on your marketing spend.

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