The most
effective
promotion
A competitive study
across LATAM markets
Juan A. Tello (SKIM)
Manuel M. Zamora (Mondelez)
Up to 60% of purchase
decisions are made in front of
the shelf
And only 5% of human
decision making is rational
Yet, customers attention is very limited… lost in context
Assimilate max 5
pieces of information
at once
Shoppers “chunk”
...
Promotions are
becoming an
important asset to
deliver brand
strategy for most
companies and
capture customer’s
attention
Powerful insights
driving promotional
strategy
Top promos in Colombia according
to Shopper Study 2013:
• Packaging trade,
...
Role of promotions
varies depending on
the brand’s position
in the market
LeaderChallenger VS
ImproveGross
Margins
Wise
marketing
trade
investments
Improve
profitabilityof
stocksof
retailers/
distributors
Companies s...
Lower
ROI
Beware the loss of
promotion
sensitivity if abused
over time
Promotion
effectiveness
Incomplete Disaggregate
Anecdotal
Scattered
4
Countries Mexico
Colombia
BrazilArgentina
Laundry
Detergent
Breakfast
Cereal2
Product
categories
21
Types of
Promotion
Discounts by volume
Buy 3
packs for a
20%
discount
Buy One
Get One
Free
(BOGOF)
Buy two
Get One
Free...
2
metrics
PersuasionReach
The Most Effective
Promotions
Basedonpromoeffectiveness
Buy 1
get 1 free
3 for the
price of 2
Freesamp
Freegift
Buy3Get20%...
Economical alternatives
to BOGOF & 3x2
FreeGift
Buy3Get20%+
Freesamp
-FreeGift
Buy3Get20%,
Freesamp
+InstantTrip
Buy3Get20...
Economical alternatives
to BOGOF & 3x2
Buy3Get20%,
Freesamp,
InstantTrip
+FreeGift
54%
AnExtraItemAnUncertain
Promotion
AP...
Buy3Get20%,
Freesamp,
InstantTrip
+FreeGift
Relative
Results
Laundry
Detergent
Breakfast
Cereal
1 2 3 4 5 6 7 8 9 10 11 12...
Quality of
the GIFT
matters
Locally EffectiveAlternatives
Top Promotions
Argentina
Free Samples
Free Gifts
More for same price
Bundles
Brazil
Free Sam...
ARE THE MOST CHARITABLE
DOESN’T ENJOYA GOOD GAMBLE
ARE MORE MATHEMATICALLY MINDED
Promotion Specific Insights
Cause
Related
Uncertain
Rewards
Same Discount,
Different
Wording
HOWTO
EFFECTIVELY
COMMUNICATEA
PRICE REDUCTION
REDUCTION
3
Different Ways
The effectiveness of each wordingdepends on…
Startingbaseprice Magnitudeofdiscount Currencydeno...
Effective
alternative
>4=$
“More product for
the same price”
Morepalatable
financial
proposition
Improve
Brandloyalty
outp...
Engagement
Loss aversion Salience Format
Affect-
reciprocity
Priming Free Anchoring
Scepticism Prospect
Prominence /
order...
Engagement
Loss aversion Salience Format
Affect-
reciprocity
Priming Free Anchoring
Scepticism Prospect
Prominence /
order...
Engagement
Loss aversion Salience Format
Affect-
reciprocity
Priming Free Anchoring
Scepticism Prospect
Prominence /
order...
Engagement
Loss aversion Salience Format
Affect-
reciprocity
Priming Free Anchoring
Scepticism Prospect
Prominence /
order...
Engagement
Loss aversion Salience Format
Affect-
reciprocity
Priming Free Anchoring
Scepticism Prospect
Prominence /
order...
KeyBehavioral
Economic
Principles
MostEffective
Promos PromoPitfalls
LOSS OF PROMOTION
SENSITIVITY IFABUSED OVER TIME
LOWE...
Drop by
booth 16
to find out
more
www.skimgroup.com
Juan A. Tello (SKIM)
Manuel M. Zamora (Mondelez)
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The most effective price promotion

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SKIM has taken on the challenge of systematically measuring and comparing the effectiveness of 20+ types of promotions across 4 countries in Latin America, for two CPG product categories. To add a fundamental layer to our understanding of what works and doesn't work in LATAM markets, we aimed to identify key underlying behavioral economic principles driving the success of certain promotions.

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The most effective price promotion

  1. 1. The most effective promotion A competitive study across LATAM markets Juan A. Tello (SKIM) Manuel M. Zamora (Mondelez)
  2. 2. Up to 60% of purchase decisions are made in front of the shelf And only 5% of human decision making is rational
  3. 3. Yet, customers attention is very limited… lost in context Assimilate max 5 pieces of information at once Shoppers “chunk” information to simplify the task
  4. 4. Promotions are becoming an important asset to deliver brand strategy for most companies and capture customer’s attention
  5. 5. Powerful insights driving promotional strategy Top promos in Colombia according to Shopper Study 2013: • Packaging trade, • Cinema tickets • Musical events and concerts • Cell phone minutes (77% prepaid) Design a promotion easily accessible by shoppers
  6. 6. Role of promotions varies depending on the brand’s position in the market LeaderChallenger VS
  7. 7. ImproveGross Margins Wise marketing trade investments Improve profitabilityof stocksof retailers/ distributors Companies should be selective in order to Findrightlevel ofpromotionfor thecategory ImproveROI Max. incremental salesand reduce cannibalization Productivity has become the name of the game Find the sweet spot between incremental sales and value – fuel sustainable growth
  8. 8. Lower ROI Beware the loss of promotion sensitivity if abused over time
  9. 9. Promotion effectiveness Incomplete Disaggregate Anecdotal Scattered
  10. 10. 4 Countries Mexico Colombia BrazilArgentina Laundry Detergent Breakfast Cereal2 Product categories
  11. 11. 21 Types of Promotion Discounts by volume Buy 3 packs for a 20% discount Buy One Get One Free (BOGOF) Buy two Get One Free (3x2) Coupons/rebates Coupons inside Rebates (get 20% back) Store rewards points Bonus points on loyalty card Price reduction Price From-To (10%&20% reduction) Absolute saving$ amount (10%&20% reduction) Relative% saving (10%&20% reduction) Satisfaction guaranteed 100% satisfaction guaranteed ($ refund) 100% satisfaction guaranteed (product replacement) Sweepstakes Instant prize on the inside of the label Sweeps- takes (register) Charity Charitable Cause Bundles Comple- mentary Bundle Free gift with purchase Sampling Free sample Same price, more product 20% more for same $ deal
  12. 12. 2 metrics PersuasionReach
  13. 13. The Most Effective Promotions Basedonpromoeffectiveness Buy 1 get 1 free 3 for the price of 2 Freesamp Freegift Buy3Get20%Bundle 20%more RelSav–20% Charity20% InstantTrip Refund100% Replace 100% SweepTrip Rebate 20% AbsSav- 10% AbsSav-20% F->T20% F->10% LoyalCard 30% RelSav 10% Coupons 20%
  14. 14. Economical alternatives to BOGOF & 3x2 FreeGift Buy3Get20%+ Freesamp -FreeGift Buy3Get20%, Freesamp +InstantTrip Buy3Get20%, Freesamp, InstantTrip +FreeGift 44% 50% 52% 54% 1 promo 2 promos 3 promos 4 promos
  15. 15. Economical alternatives to BOGOF & 3x2 Buy3Get20%, Freesamp, InstantTrip +FreeGift 54% AnExtraItemAnUncertain Promotion APrice DiscountFreeSample Optimal Quartet of Promotions 4 promos
  16. 16. Buy3Get20%, Freesamp, InstantTrip +FreeGift Relative Results Laundry Detergent Breakfast Cereal 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 1 2 10 3 4 5 7 9 6 8 11 16 12 15 13 19 17 14 18 20 21 Differences by product category Correlation of 0.99 BOGOF 3x2 FreeGift FreeSamp Bundle 20%more Buy2Get20% F>T20% AbsSav–20% RelSav–20% InstantTrip Refund100% Charity20% F>T10% RelSav–10% Replace100% LoyalCard30% Coupons20% AbsSav–10% Rebate20% Charity20%
  17. 17. Quality of the GIFT matters
  18. 18. Locally EffectiveAlternatives Top Promotions Argentina Free Samples Free Gifts More for same price Bundles Brazil Free Samples Instant prizes Sweepstakes 10% discounts Loyalty Card Points Rebates Replacements Colombia Instant Prizes Bundles More for same price Free Gifts Free Samples Loyalty Card Points Coupons Sweepstakes Mexico Free Gifts Free Samples Bundles From-to discounts Sweepstakes Instant prizes Coupons What to do What NOT to do Sweepstakes Rebates Coupons Replacements Refunds
  19. 19. ARE THE MOST CHARITABLE DOESN’T ENJOYA GOOD GAMBLE ARE MORE MATHEMATICALLY MINDED
  20. 20. Promotion Specific Insights Cause Related Uncertain Rewards Same Discount, Different Wording
  21. 21. HOWTO EFFECTIVELY COMMUNICATEA PRICE REDUCTION
  22. 22. REDUCTION 3 Different Ways The effectiveness of each wordingdepends on… Startingbaseprice Magnitudeofdiscount Currencydenomination Relative% Discount Absolute Savings From–To Pricing Apsychologicalbarrierhasbeencrossed YES NO Currency denominations are high Absolute Savings YES NO -20%Save$2 From$11 to$9Save$2
  23. 23. Effective alternative >4=$ “More product for the same price” Morepalatable financial proposition Improve Brandloyalty outperforms a straight % reduction Involves pack & manufacturing changes
  24. 24. Engagement Loss aversion Salience Format Affect- reciprocity Priming Free Anchoring Scepticism Prospect Prominence / order Endowment The more the merrier 11 Behavioral Economic Principles
  25. 25. Engagement Loss aversion Salience Format Affect- reciprocity Priming Free Anchoring Scepticism Prospect Prominence / order Endowment 11 Behavioral Economic Principles The power of “free” can make people consume what they wouldn't under normal circumstances
  26. 26. Engagement Loss aversion Salience Format Affect- reciprocity Priming Free Anchoring Scepticism Prospect Prominence / order Endowment 11 Behavioral Economic Principles Promos with a bigger visual impact offering more product do show higher effectiveness levels
  27. 27. Engagement Loss aversion Salience Format Affect- reciprocity Priming Free Anchoring Scepticism Prospect Prominence / order Endowment 11 Behavioral Economic Principles Mixed results. Lack of immediate or compelling enough rewards which overcome scepticism, leads to subpar promos
  28. 28. Engagement Loss aversion Salience Format Affect- reciprocity Priming Free Anchoring Scepticism Prospect Prominence / order Endowment 11 Behavioral Economic Principles Mixed results. Promos shielding shoppers from a potential buyers’ regret. Refunds and replacements take a defensive position while product sampling is more proactive
  29. 29. KeyBehavioral Economic Principles MostEffective Promos PromoPitfalls LOSS OF PROMOTION SENSITIVITY IFABUSED OVER TIME LOWER ROI FreeSample Apricediscount Anuncertainpromotion An extraitem Alternativepromos:
  30. 30. Drop by booth 16 to find out more www.skimgroup.com Juan A. Tello (SKIM) Manuel M. Zamora (Mondelez)

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