What’s Wrong With Current CPG Trade Promotions
JERSEY CITY, N.J. — Much like the media realm, the consumer product landscape is becoming increasingly fragmented. Competition is rising, new channels are developing and choice is rampant. The combination of these factors, among others, is why retailers and manufacturers are juggling an array of promotion options to publicize their products and boost sales of consumer packaged goods (CPG).
The results of the promotions, however, are ineffective and often lead to losses rather than gains, said Doug Bennett, senior vice president of sales effectiveness at Nielsen. In a recent Nielsen webinar entitled "Changing Your Trade Promotion Trajectory: How to Become Part of the Elite Tier of Companies That Are Reversing The Promotion Trend," Bennett discussed the problems CPG retailers and manufacturers are facing, as well as the four fundamental themes of execution.
For the past 10 to 15 years, manufactured packaged goods specifically have been putting more dollars toward trade execution to drive revenue and profitability. Unfortunately, despite more money being put into trade promotion, the return on that spend has been diminishing over time.
“We can all agree that this is an unsustainable trend for our businesses,” said Bennett.
Nielsen analysis showed that two-thirds of trade executions (or 67 percent) don’t break even, in which revenue is returned for every promotional dollar spent. Over the last two years, only one-third broken even.
The two big themes driving these numbers is a diminishing return curve for promotion frequency and the overuse of deep discounts — defined by Nielsen as greater than a 25-percent discount from everyday or base price. According to the data, for the average category trade efficiency, more than 25 percent of promotions on deep discount significantly degrade the return on investment (ROI).
Bennett outlined four fundamental themes of execution for retailers and manufacturers:
- Measurement challenges: Disparate data sources/measures/dates; must-do events vs. discretionary.
- Strategic planning vs. tactical planning: Setting guardrails at headquarters to modify retail consistency with strategy.
- Promotion plan management and execution: Tools don’t “talk” to each other.
- Management process: Break the cycle of ad-hoc execution and management.
Bennett further dissected the second fundamental theme, and said manufacturer and retailer teams need to prioritize what products to promote within the portfolio. Across different seasonality, retailers must be grounded and leverage the right weeks and promotion duration to maximize the products. The main problem sales teams have is taking a product and revisiting an old promotional plan that simply will not work because the duration of the promotion is not taken into consideration, Bennett explained.
The final point he made under this fundamental theme is that success lies within guidance from headquarters. “A winning approach is getting very simple guidelines out to the customer organization. … Headquarters guidance is really all about influencing the sales organization, influencing the customer team and not just replicating what has been done in the past and using facts to drive that,” he added.
In order for retailers and manufacturers to become “winners,” they should use an integrated approach to pricing and trade investment, Bennett advised. He offered four simple calls to action:
1. Leverage technology to focus on activation;
2. Be specific to brand and category outcomes among customer teams;
3. Integrate systems for improved efficiency and secure commitment; and
4. Be transparent and invest to win.