Know the true value of your promotion

Do you know the value of your promotions and whether they are reaching their intended target consumers?

Most every CPG company runs promotions but are they always effective? Most are not!

CPG manufacturers run promotions to increase brand awareness, increase foot traffic, support retailers, drive sales, reward loyal customers, and to load consumer’s pantries (pantry loading is the stockpiling of an item by the consumer taking them out of the market for a while so that they don’t shop competitive items)

Less than half of all promotions are effective. Most brands promote their products without a clear strategy to grow sales and increase brand awareness. While it’s important to support key retailers, a promotion that doesn’t increase sales and foot traffic in the category is simply a waste of money. Brands need to set clear objectives and focus their promotional strategy around those goals.

When planning a promotion you need to carefully think about all of the factors involved, including:

  • Menu cost (ROTO, etc)

  • Fixed cost (promotional fees and merchandising costs)

  • Bill-back/shipments – case rate (reduced case cost – cases sold)

  • Miscellaneous cost (other)

  • Off-invoice – case rate (reduced case cost – cases sold)

  • Scan down rate per unit (amount paid to reduce the item price)

Once you know the cost of the promotion, you need to evaluate the benefit and anticipated the result. This is where a scorecard comes in.  It’s a tool to measure your performance.

There are two different kinds of sales: sales that occur every day in the absence of any promotion (base sales), and sales that occur as a direct result of a promotion (incremental sales). The goal of every promotion is to build “everyday” sales – meaning increasing everyday consumer take- away. This is done by inviting more consumers to buy your products. The health of your brand is measured by the depth and breadth of shoppers who purchase it on a regular basis.

Some brands promote constantly and as a result they have trained consumers to only buy products when on sale. This can be extremely costly and can actually reduce category growth while diluting the strength of your brand.  Rewarding existing loyal customers with a promotion results in “subsidized volume” (rewarding an existing customer who intended to make a purchase without any incentive).  Promotional strategies need to be focused on increasing consumer take away, shopper foot traffic (the number of shoppers in the category), and sustainable category growth.

Knowledge is power, especially when it comes to maximizing promotions. Having answers to all of the points above will help you develop a promotional strategy that will help you reach your goals.  Retailers need brand partners that are committed to helping them grow sales in their categories.  Knowing your category and developing a solid promotional strategy that also benefits the retailer will set you apart from your competition and give you a significant competitive advantage.  Retailers are happy to reward brands that are willing to take a leadership position in their categories.

These simple steps will help you properly plan for promotions that will grow sales, increase profits, increase customer take away, and increase brand awareness. This should be the goal of every brand and retailer.

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By |2017-09-23T17:11:15+00:00May 6th, 2017|Price/Promotion Optimization|

About the Author:

Daniel Lohman, CPSA is Strategic Advisor in the CPG and Organic Industry. His company, Category Management Solutions (CMS4CPG LLC), provides innovative ideas, actionable insights and strategic solutions for companies interested in gaining a significant competitive advantage. He assists companies in expanding their retail distribution and improving their merchandising. His extensive knowledge and expertise reaches far beyond traditional category management and has earned him recognition throughout the industry as an expert, speaker, trainer and thought leader. Daniel can be reached at Dan@CMS4CPG.com. Connect with me on LinkedIn.

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