By optimizing your promotions you increase profit and customer relationship
A poorly executed promotion will not only directly impact the company’s bottom line – but also influence your customer’s bottom line. Up to as much as 20% of the potential promotion sales can be lost if you do not have the right product mix, mechanism, etc.. To optimize your trade promotions it is significant to have a data-driven strategy. Improving your trade promotions will result in increased promotion effectiveness.
There are five layers of actions you must take to find the optimizations in your trade promotions data. If you are working with silo data, you cannot identify all areas for optimizing your promotion effectiveness.
How to evaluate your promotion effectiveness and find optimizations
Having an overview of your trade promotion data is the basis for promotion insights. Analyzing your data, you can evaluate your promotion performance and act on the results. When planning future promotions, you can make corrections based on your findings and optimize promotions performance.
- Unclear promotion planning process leads to missed steps
- Lacking time to analyze promotion effectiveness and promotion profits
- Out of stock and lacking products on the shelves for Trade Promotions
Below you can read more about the 5 necessary actions we recommend adding to your trade promotions process to optimize promotions’ effectiveness, and in the end, make your profit soar.
1. Overview of past, present, and future Promotion data (Harmonize Data)
Harmonized promotion data is the basis of your trade promotion analysis and how you can identify optimization. Having all relevant promotion information in one place across wholesalers and Key Account Managers, you will gain valuable insights.
2. Include Baseline figures
The baseline signifies a normal and expected value. The baseline calculation aims to depict forecast sales with or without promotion sales. If you do not calculate Baseline, we recommend including it, to sufficiently evaluate your completed promotion results. Calculating your baseline can be done in many ways we recommend, using historical POS data, seasonality, and trends to predict a reliable baseline for your trade promotions.
By including Baseline Sales in trade promotions analysis, you can identify your promotion sales lift, which is a KPI very great to evaluate your promotion effectiveness.
3. Define KPIs for promotion performance analysis
It is essential to define your Key Performance Indicator to measure promotions success across wholesalers. The three most important KPIs to determine promotion effectiveness are Promotion Lift analysis, Double Bottom Line Cost-Benefit, and Return On Investment (ROI).
Promotion Lift –Including Baseline in your promotion evaluation will show you where you have to increase your sales during the promotion. The advantage of including a Promotion sales Lift analysis is that it will show you and your customers the effectiveness of the trade promotion. Were your marketing activity and promotion a success, or do you need to make improvements?
Cost-Benefit – Making a Cost-Benefit analysis for both your business and the chains is important to include in your KPI. Then you can plan promotions that are profitable for both you and the chain. Double Profit Line Cost-Benefit will show you where to make optimization to improve the result. Openly communicate both positive and negative outcomes to the buyers to increase trust and your collaboration.
ROI – You should always include a Return on Investment analysis in your promotion effectiveness evaluation. It will show you which completed trade promotions are working and which are not. Using ROI in all stages of promotion planning will improve your profits.
4. Identify areas for optimizations
When you have analyzed your promotions data, your results will show you areas for improvements to future planned promotions. We recommend focusing on the four aspects of promotion optimization below.
Products on the promotion – It will be visible which products sell and which do not by including POS data at an SKU level. It is necessary having the right Product Mix on the promotions and not create unwanted stock in your warehouse or with the Chains. Having a suitable Product Mix will increase your promotion sales.
Mechanisms – Which mechanisms work in which chains for which product groups – this will be visible by including POS data and KPI calculations on the promotions. Does 2 for 20 or 1 for 10 perform best? Choosing the correct mechanisms will directly influence your promotion result.
Trade Spend – By including Share of Net Turnover, you will see how much of your Gross turnover is paid in Trade Spend to the wholesaler. On average over 25% of Gross Turnover is paid in Trade Spend. Optimizing this is low-hanging fruit to improving your profits.
Forecasted volumes – By analyzing your past and present promotions based on realized POS data, baseline, and Sales In, you can more precisely identify the forecasted volumes for each promotion. Now forecasting is be based on data rather than a best guess.
5. Workflows in the organization
Create an internal process that allows you to work continuously with your trade promotions. Implement quarterly meetings across business areas to harmonize your data, so you do not work in silos.
There will only be a single version of the truth about promotion results based on harmonized data. Planning and forecasting across teams will involve multiple business areas to create engagement.
Implementing a great workflow all business areas will always be up to date with actual data and reporting. This visibility provides data support across all channels.
Why you should use these measures for trade promotion optimization
Create an optimization plan and act on the data from your overview and analysis. Use Baseline and historical promotion data to plan more effective promotions based on the identified optimizations. Promotion optimizations are a continuous process and will not happen overnight. On average, suppliers to FMCG can add 5-10 % to their bottom line by acting on the results from the overview on an ongoing basis.
Adapting a continuous process of planning and analysis of your trade promotion data will secure volumes in stock by demand planning and forecasting. Supplying the right amount for a promotion and not having out of stock situations will increase your relationship with the wholesaler buyers. Always plan promotions with the double profit line in mind and showing your customer the results you will improve your customer relationship.
Do you need the tools for optimizing your trade promotions to increase profits?
Without the correct tools, it can be complex to create an overview of your promotions to find optimizations that will increase your profits. We have a framework for creating an overview and insights you can use for optimization.
We want to share our expertise with you on how you can improve your trade promotion process.
You can give us a call at +45 7211 2113.