When the total expenditure on trade promotions reaches considerable peaks, quickly valid questions arise about ROI and trade promotion effectiveness. Planning and executing consistently successful promotions, from single events to annual promotion plans, remains elusive for most consumer products companies. Periodic and continuous reviews of sales performance, for both non-promoted and promoted items, combined with the difficulty of testing the potential impact of variables that might influence promotion performance, make this a very sensitive issue.
How should consumer products companies jump start their journey to trade promotion optimization?
First of all let’s define the difference between trade promotion management and trade promotion optimization. While the first refers to the approach of managing those initiatives led by the market, with a specific focus on sales targets, and involving only the sales department, to reach a trade promotion optimization a whole list of other factors need to be taken into consideration, such as the production capacity, the logistics flexibility, the supply chain responsiveness, and the marketing strategies.
The only way consumer products companies have to maximize overall revenue, volume and profitability for both themselves and their retailers, is to optimize planned promotions thorough an Analytics-Driven approach.
5 Steps to improve the effectiveness of trade promotions:
1. Rely on the right technology solution to collect and analyze actual data in real time
2. Use big data, to shed light on decisions and stop guessing
3. Prepare and constantly review the demand plan with the proper dimensions’ granularity
4. Involve all the company’s key departments in a real cross functional process
5. Monitor final results of action and decisions with specific business metrics and KPIs
Investing in promotion optimization will bring immediate economic benefits: costs savings, predictable demand lift, production process improvement and innovative engagement solutions. Having at disposal meaningful insights into the factors affecting the performance of promotions, management and forecasting activities will be more streamlined and effective: above all, it will be possible to assess planned and actual trade promotion spending, sales volumes and ROI.
How is your company doing? Ask yourself a few simple questions:
- Who is actually in charge of approving promotions?
- Is there a process in place to take strategic decisions involving all the key actors?
- Are you supported by an adequate system while carrying out planning activities?
- Are you monitoring the promotion effectiveness on the market, comparing expectations with results?
- Can you evaluate the ROI of a promotion, considering also financial data?