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Part of the 4p’s, Promotion is a vital component in getting your product into the market. From a retail perspective, it’s about enticing consumers to try a product and then buy the product. Often this is done through a combination of advertising and a product promotion. From the channel perspective, there are slightly different approaches.
In an intensely competitive consumer goods sector, optimized go-to-market models are essential. These are the routes to market that companies use to sell and deliver their products and to service their trade accounts.
So, how do manufacturers go about pushing their product through the RTM channel and on shelf? The answer, trade promotions and special discounts.
Trade marketing involves B2B promotions focused on the supply side, incentivizing retailers to buy more products, so they are widely available to customers. Trade promotions also work by invigorating distribution and retail channels, so they become proactive about their consumer-facing promotional activities.
While trade promotions can increase product visibility and brand awareness, they can also grow product categories, differentiate a product to take market share from a competitor and enlarge a specific product’s segment penetration.
Let’s now look at some typical mechanics that manufacturers and distributors use to gain such outcomes.
Even faithful brand buyers may switch to other products that are on deal or time the purchase of their preferred products to coincide with available deals. But the promotion you decide to invest in may vary depending on the specific RTM and retail challenge you are hoping to tackle. Here are some examples available:
1. Percentage Off – This offer type is the #1 way to reach customers with a promotion. What percent off the regular retail price can you offer? This can be based on line item or invoice size but the size of the discount should be big and enticing.
2. BOGOF – Buy 1, Get 1 Free is also very powerful, but not nearly so as offering a percentage off. This mechanism is great for pushing volume metrics. However, BOGOF can backfire quite often either due to poor implementation or supply chain issues.
3. Value Savings – Offering $1 off here, $2 off there is not nearly as effective as the above promotion types. Especially considering that you’re usually paying for a temporary price reduction and the negligible lifts don’t typically justify the investment.
4. Multiple Purchase Requirements – While frequently used, tend to be a deal-breaker. Requiring the customers to buy 2, or 3, or more to receive any discount is generally done to achieve a short-term increase in volume.
According to Nielsen, CPG companies spend more than twice on trade promotion than they do on advertising. In terms of actual expenditures, brands and companies typically spend about 19% of their revenue on trade promotions, compared with about 7.5% on advertising (1).
With such large budgets it is important to have a view on the performance of every promotion. Keeping track of your baseline sales helps to provide an idea of how much your trade promotions are making. In doing so, you can optimize each promotion, ensuring you gain maximum ROI – be it volume or margin.
Surprisingly however, 90% of all manufacturers view the trade promotion system “impossibly inefficient.” (2) Furthermore, 85% feel that the promotion budget is not spent effectively, while only 19% think they get good value for their money. By accurately monitoring promotional impact on orders and inventory levels, manufacturers can improve these perceptions and prevent the following pitfalls:
There are generally three problems with promotions;
1. They do too well and deplete stock pile, slowing down consistent orders until replenishment is needed.
2. The demand is too great and supply can’t keep up with replenishment.
3. The promotion is communicated poorly, providing a poor sales impact and bad data for tracking and forecasting.
Nielsen research has found that more than half of out-of-stocks are caused by poor price and promotion management. For this to be avoided, promotional optimization and management must have a reliable view into the supply chain and financial management systems of the manufacturer and RTM channel.
The key is line of sight! Having a single connected system, moving away from a siloed approach that brings finance, planners, and field sales together in one place, allowing:
1. Finance to see Promotion impact and performance in real-time against baseline, predicted and actual figures.
2. Planners can rapidly plan new Promotions armed with the knowledge of what works and what does not in order to optimize in real time.
3. Field sales can articulate the value of the Promotions and ensure orders are compliant with Promotion rules, increasing order value and reducing returns.
Built from the perspective of an entrepreneurial fast-moving Consumer Goods route to market, FIELDForce was developed specifically to cater for an agile work environment with the customer at the heart of the process. As a platform, it is able to run an entire CPG sales & distribution business while enabling and mobilizing key customer touchpoints. With its built-in promotions and discount engine, it (1) simplifies the invoicing process allowing reps to do what matters most – engage the customer; and (2) captures all orders for baseline tracking and future promotion optimization.
For more information or to find out how we have helped multinational principals and distributors leverage their touchpoints feel free to get in touch with us for a FIELDForce demo.
(1) The Path To Efficient Trade Promotions by The Nielsen Company. Published February 2015
(2) Changing the Channel: A Better Way to do Trade Promotions by David R. Bell and Xavier Drèze. Published January 15, 2002 on MIT Sloan Management Review