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Trade promo best_practices
- 1. Trade Promotions - BESTPRACTICES -
- 2. 2 BEST PRACTICES: TradePromotions LIFT CORRECT METRICS: CORRECT MEASUREMENT: RETAIL SALES, NOT SHIPMENTS EVENT WEEKS ONLY ACCUBASE QUALITATIVE INFO; NOT QUANTITATIVE CORRECT DATA HARMONIZATION: BRAND SIZE STRUCTURE GEOGRAPHY HIERARCHY WEEK ENDING DATES SPENDING > AD IMAGE > SCAN DATA SPENDING INFORMATION TACTICS: OBSESSION WITH DISPLAYS INEFFECTIVE PROMOTION PACKS “DIS”-LOYALTY CARDS DISCOUNT COMMUNICATION AND GIMMICKS PROMOTIONAL FREQUENCY PLANNING: TOP DOWN: TREND BASED BASE AND INCREMENTAL CONSTRUCT PRIOR YEAR ACCRUAL RECONCILIATION AND SPREADING ALGORITHM THE ROLE OF DISTRIBUTION LIFT MODELS EXECUTION: OBJECTIVE: IMPROVE PROFITS – RETAILER AND MFR MARGIN POOLING SELF-DEFEATING BARRIERS: RETAILER AND MFR ARBITRAGE OPPORTUNITY CONDITION INCREMENTAL FACTOR ROI CONSUMER UNITS CFS
- 3. 3 BEST PRACTICES: TradePromotions LIFT CORRECT METRICS: CORRECT MEASUREMENT: RETAIL SALES, NOT SHIPMENTS EVENT WEEKS ONLY ACCUBASE QUALITATIVE INFO; NOT QUANTITATIVE CORRECT DATA HARMONIZATION: BRAND SIZE STRUCTURE GEOGRAPHY HIERARCHY WEEK ENDING DATES SPENDING > AD IMAGE > SCAN DATA SPENDING INFORMATION TACTICS: OBSESSION WITH DISPLAYS INEFFECTIVE PROMOTION PACKS “DIS”-LOYALTY CARDS DISCOUNT COMMUNICATION AND GIMMICKS PROMOTIONAL FREQUENCY PLANNING: TOP DOWN: TREND BASED BASE AND INCREMENTAL CONSTRUCT PRIOR YEAR ACCRUAL RECONCILIATION AND SPREADING ALGORITHM THE ROLE OF DISTRIBUTION LIFT MODELS EXECUTION: OBJECTIVE: IMPROVE PROFITS – RETAILER AND MFR MARGIN POOLING SELF-DEFEATING BARRIERS: RETAILER AND MFR ARBITRAGE OPPORTUNITY CONDITION INCREMENTAL FACTOR ROI CONSUMER UNITS CFS TPM = Trade Promotion Management TPO = Trade Promotion Optimization TPI = Trade Promotion Implementation TPM = Trade Promotion Measurement TPB = Trade Promotion Best Practices TPP = Trade Promotion Planning TPO = Trade Promotion Optimization Current Revised
- 4. 4 BEST PRACTICES: TradePromotions CONSUMER UNITS CFS LIFT CORRECT METRICS: CORRECT MEASUREMENT: RETAIL SALES, NOT SHIPMENTS EVENT WEEKS ONLY ACCUBASE QUALITATIVE INFO; NOT QUANTITATIVE CORRECT DATA HARMONIZATION: BRAND SIZE STRUCTURE GEOGRAPHY HIERARCHY WEEK ENDING DATES SPENDING > AD IMAGE > SCAN DATA SPENDING INFORMATION TACTICS: OBSESSION WITH DISPLAYS INEFFECTIVE PROMOTION PACKS “DIS”-LOYALTY CARDS DISCOUNT COMMUNICATION AND GIMMICKS PROMOTIONAL FREQUENCY PLANNING: TOP DOWN: TREND BASED BASE AND INCREMENTAL CONSTRUCT PRIOR YEAR ACCRUAL RECONCILIATION AND SPREADING ALGORITHM THE ROLE OF DISTRIBUTION LIFT MODELS EXECUTION: OBJECTIVE: IMPROVE PROFITS – RETAILER AND MFR MARGIN POOLING SELF-DEFEATING BARRIERS: RETAILER AND MFR ARBITRAGE OPPORTUNITY CONDITION INCREMENTAL FACTOR ROI Wk1 Wk2 Wk3 Wk4 Wk5 Wk6 Wk7 Wk8 Wk9 Wk10 Base Unit Actual Unit Weekly Sales Units WHAT AM I MEASURING? RETAIL DOLLARS SHIPMENT DOLLARS EQUIVALIZED VOLUME CASES CONSUMER UNITS CFS = CONSUMED FACTORY SHIPMENTS Net Wholesale Price x Retail Units Example: Net Cost = $3.50; Sales = 600 Units CFS = 600 x $3.50 = $2,100
- 5. 5 BEST PRACTICES: TradePromotions LIFT CORRECT METRICS: CORRECT MEASUREMENT: RETAIL SALES, NOT SHIPMENTS EVENT WEEKS ONLY ACCUBASE QUALITATIVE INFO; NOT QUANTITATIVE CORRECT DATA HARMONIZATION: BRAND SIZE STRUCTURE GEOGRAPHY HIERARCHY WEEK ENDING DATES SPENDING > AD IMAGE > SCAN DATA SPENDING INFORMATION TACTICS: OBSESSION WITH DISPLAYS INEFFECTIVE PROMOTION PACKS “DIS”-LOYALTY CARDS DISCOUNT COMMUNICATION AND GIMMICKS PROMOTIONAL FREQUENCY PLANNING: TOP DOWN: TREND BASED BASE AND INCREMENTAL CONSTRUCT PRIOR YEAR ACCRUAL RECONCILIATION AND SPREADING ALGORITHM THE ROLE OF DISTRIBUTION LIFT MODELS EXECUTION: OBJECTIVE: IMPROVE PROFITS – RETAILER AND MFR MARGIN POOLING SELF-DEFEATING BARRIERS: RETAILER AND MFR ARBITRAGE OPPORTUNITY CONDITION CONSUMER UNITS CFS INCREMENTAL FACTOR ROI Wk1 Wk2 Wk3 Wk4 Wk5 Wk6 Wk7 Wk8 Wk9 Wk10 Base Unit Actual Unit Weekly Sales Units INCREMENTAL FACTOR = INCREM UNITS / TOTAL UNITS What percentage of my business goes away if I stop promoting entirely? Base Units = 100/Wk 400 350 600 INCREMENTAL FACTOR = INCREM UNITS / TOTAL UNITS BASE UNITS = 100 x 10 = 1,000 TOTAL UNITS = (100 x 7) + (400 + 350 + 600) = 2,050 INCREM UNITS = 2,050 – 1,000 = 1,050 INCREM FACTOR = 1,050 / 2,050 = 51%
- 6. 6 BEST PRACTICES: TradePromotions LIFT CORRECT METRICS: CORRECT MEASUREMENT: RETAIL SALES, NOT SHIPMENTS EVENT WEEKS ONLY ACCUBASE QUALITATIVE INFO; NOT QUANTITATIVE CORRECT DATA HARMONIZATION: BRAND SIZE STRUCTURE GEOGRAPHY HIERARCHY WEEK ENDING DATES SPENDING > AD IMAGE > SCAN DATA SPENDING INFORMATION TACTICS: OBSESSION WITH DISPLAYS INEFFECTIVE PROMOTION PACKS “DIS”-LOYALTY CARDS DISCOUNT COMMUNICATION AND GIMMICKS PROMOTIONAL FREQUENCY PLANNING: TOP DOWN: TREND BASED BASE AND INCREMENTAL CONSTRUCT PRIOR YEAR ACCRUAL RECONCILIATION AND SPREADING ALGORITHM THE ROLE OF DISTRIBUTION LIFT MODELS EXECUTION: OBJECTIVE: IMPROVE PROFITS – RETAILER AND MFR MARGIN POOLING SELF-DEFEATING BARRIERS: RETAILER AND MFR ARBITRAGE OPPORTUNITY CONDITION CONSUMER UNITS CFS INCREMENTAL FACTOR ROI 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 0% 20% 40% 60% 80% 100% Bertolli Classico Ragu Prego Barilla Base U Increm U Increm Factor Pasta Sauce Sales Pasta Sauce Sales Productivity
- 7. 7 BEST PRACTICES: TradePromotions LIFT CORRECT METRICS: CORRECT MEASUREMENT: RETAIL SALES, NOT SHIPMENTS EVENT WEEKS ONLY ACCUBASE QUALITATIVE INFO; NOT QUANTITATIVE CORRECT DATA HARMONIZATION: BRAND SIZE STRUCTURE GEOGRAPHY HIERARCHY WEEK ENDING DATES SPENDING > AD IMAGE > SCAN DATA SPENDING INFORMATION TACTICS: OBSESSION WITH DISPLAYS INEFFECTIVE PROMOTION PACKS “DIS”-LOYALTY CARDS DISCOUNT COMMUNICATION AND GIMMICKS PROMOTIONAL FREQUENCY PLANNING: TOP DOWN: TREND BASED BASE AND INCREMENTAL CONSTRUCT PRIOR YEAR ACCRUAL RECONCILIATION AND SPREADING ALGORITHM THE ROLE OF DISTRIBUTION LIFT MODELS EXECUTION: OBJECTIVE: IMPROVE PROFITS – RETAILER AND MFR MARGIN POOLING SELF-DEFEATING BARRIERS: RETAILER AND MFR ARBITRAGE OPPORTUNITY CONDITION CONSUMER UNITS CFS ROI INCREMENTAL FACTOR Wk1 Wk2 Wk3 Wk4 Wk5 Wk6 Wk7 Wk8 Wk9 Wk10 Base Unit Actual Unit Weekly Sales Units Base Units = 100/Wk 400 350 600 ROI = Increm CFS / Increm Spend $ Set internal ROI Objective as a function of margin % Metric can be used and shared by sales managers Easily communicated (“need x$ for every $1 spent) EXAMPLE Assume Total cost of 3 Events is $1,500 ROI = ($3.50 x 1,050) / $1,500 = $3,675 / $1,500 = 2.4 If Internal Margin > 42%, then event is profitable (1/2.4)
- 8. 8 BEST PRACTICES: TradePromotions CONSUMER UNITS CFS INCREMENTAL FACTOR ROI LIFT CORRECT METRICS: CORRECT MEASUREMENT: RETAIL SALES, NOT SHIPMENTS EVENT WEEKS ONLY ACCUBASE QUALITATIVE INFO; NOT QUANTITATIVE CORRECT DATA HARMONIZATION: BRAND SIZE STRUCTURE GEOGRAPHY HIERARCHY WEEK ENDING DATES SPENDING > AD IMAGE > SCAN DATA SPENDING INFORMATION TACTICS: OBSESSION WITH DISPLAYS INEFFECTIVE PROMOTION PACKS “DIS”-LOYALTY CARDS DISCOUNT COMMUNICATOIN AND GIMMICKS PROMOTIONAL FREQUENCY PLANNING: TOP DOWN: TREND BASED BASE AND INCREMENTAL CONSTRUCT PRIOR YEAR ACCRUAL RECONCILIATION AND SPREADING ALGORITHM THE ROLE OF DISTRIBUTION LIFT MODELS EXECUTION: OBJECTIVE: IMPROVE PROFITS – RETAILER AND MFR MARGIN POOLING SELF-DEFEATING BARRIERS: RETAILER AND MFR ARBITRAGE OPPORTUNITY CONDITION Accuracy of Baseline Sales estimate is critical. TABS AccuBase™ is extendable to all retailers and countries with scan data (e.g. TRU, Home Depot) Huge over ship potential
- 9. 9 BEST PRACTICES: TradePromotions CONSUMER UNITS CFS INCREMENTAL FACTOR ROI LIFT CORRECT METRICS: CORRECT MEASUREMENT: RETAIL SALES, NOT SHIPMENTS EVENT WEEKS ONLY ACCUBASE QUALITATIVE INFO; NOT QUANTITATIVE CORRECT DATA HARMONIZATION: BRAND SIZE STRUCTURE GEOGRAPHY HIERARCHY WEEK ENDING DATES SPENDING > AD IMAGE > SCAN DATA SPENDING INFORMATION TACTICS: OBSESSION WITH DISPLAYS INEFFECTIVE PROMOTION PACKS “DIS”-LOYALTY CARDS DISCOUNT COMMUNICATION AND GIMMICKS PROMOTIONAL FREQUENCY PLANNING: TOP DOWN: TREND BASED BASE AND INCREMENTAL CONSTRUCT PRIOR YEAR ACCRUAL RECONCILIATION AND SPREADING ALGORITHM THE ROLE OF DISTRIBUTION LIFT MODELS EXECUTION: OBJECTIVE: IMPROVE PROFITS – RETAILER AND MFR MARGIN POOLING SELF-DEFEATING BARRIERS: RETAILER AND MFR ARBITRAGE OPPORTUNITY CONDITION C# 0409724 6% Base Coop Minimum Fund $123,264 $12,772 C# 0409724 6% Base Coop Minimum Fund $123,264 $12,772 C# 0409722 1.20% Loyalty Card Program Minimum Fund $31,316 $2,214 C#0441392 Ad 6/29-7/7/12 scan $1.71 .2 oz 6,963 $12,394 C#0441392 Ad 6/29-7/7/12 scan $1.71 Itchy .2 oz 4,977 $1,129 C#0441392 Ad 6/29-7/7/12 scan $1.71 1 oz 2,419 $4,629 C#0441392 Ad 6/29-7/7/12 scan $1.71 contact .2 oz 3,040 $2,411 C#0441392 Ad 6/29-7/7/12 scan $1.71 Cool Red .2 oz 2,179 $2,325 C#0441392 Ad 6/29-7/7/12 scan $1.71 Complete .2 oz 2,271 $4,042 C#0441392 Ad 6/29-7/7/12 scan $1.71 Max .2 oz 6,699 $11,924 C#0441392 Ad 6/29-7/7/12 scan $1.71 Triple .2 oz 4,992 $1,113 C# 0409724 6% Base Coop Minimum Fund $123,264 $12,772 C# 0409724 6% Base Coop Minimum Fund $123,264 $12,772 C# 0409722 1.20% Loyalty Card Program Minimum Fund $31,316 $2,214 C#0441392 Ad 6/29-7/7/12 scan $1.71 .2 oz 6,963 $12,394 C#0441392 Ad 6/29-7/7/12 scan $1.71 Itchy .2 oz 4,977 $1,129 C#0441392 Ad 6/29-7/7/12 scan $1.71 1 oz 2,419 $4,629 C#0441392 Ad 6/29-7/7/12 scan $1.71 contact .2 oz 3,040 $2,411 C#0441392 Ad 6/29-7/7/12 scan $1.71 Cool Red .2 oz 2,179 $2,325 C#0441392 Ad 6/29-7/7/12 scan $1.71 Complete .2 oz 2,271 $4,042 C#0441392 Ad 6/29-7/7/12 scan $1.71 Max .2 oz 6,699 $11,924 C#0441392 Ad 6/29-7/7/12 scan $1.71 Triple .2 oz 4,992 $1,113 Spending Data: WE 07/07/12 Ad Data: WE 07/05/12 Syndicated Data: WE 07/08/12 Is TPI Software essential for Promotional Evaluation? Short-Term: NO Long-Term: YES
- 10. 10 BEST PRACTICES: TradePromotions LIFT CORRECT METRICS: CORRECT MEASUREMENT: RETAIL SALES, NOT SHIPMENTS EVENT WEEKS ONLY ACCUBASE QUALITATIVE INFO; NOT QUANTITATIVE CORRECT DATA HARMONIZATION: BRAND SIZE STRUCTURE GEOGRAPHY HIERARCHY WEEK ENDING DATES SPENDING > AD IMAGE > SCAN DATA SPENDING INFORMATION TACTICS: OBSESSION WITH DISPLAYS INEFFECTIVE PROMOTION PACKS “DIS”-LOYALTY CARDS DISCOUNT COMMUNICATION AND GIMMICKS PROMOTIONAL FREQUENCY PLANNING: TOP DOWN: TREND BASED BASE AND INCREMENTAL CONSTRUCT PRIOR YEAR ACCRUAL RECONCILIATION AND SPREADING ALGORITHM THE ROLE OF DISTRIBUTION LIFT MODELS EXECUTION: OBJECTIVE: IMPROVE PROFITS – RETAILER AND MFR MARGIN POOLING SELF-DEFEATING BARRIERS: RETAILER AND MFR ARBITRAGE OPPORTUNITY CONDITION INCREMENTAL FACTOR ROI CONSUMER UNITS CFS TPI = Trade Promotion Implementation TPM = Trade Promotion Measurement TPB = Trade Promotion Best Practices TPP = Trade Promotion Planning TPO = Trade Promotion Optimization Revised New Flow TPM = Trade Promotion Measurement TPB = Trade Promotion Best Practices TPP = Trade Promotion Planning TPO = Trade Promotion Optimization TPI = Trade Promotion Implementation
- 11. 11 BEST PRACTICES: TradePromotions CONSUMER UNITS CFS INCREMENTAL FACTOR ROI LIFT CORRECT METRICS: CORRECT MEASUREMENT: RETAIL SALES, NOT SHIPMENTS EVENT WEEKS ONLY ACCUBASE QUALITATIVE INFO; NOT QUANTITATIVE CORRECT DATA HARMONIZATION: BRAND SIZE STRUCTURE GEOGRAPHY HIERARCHY WEEK ENDING DATES SPENDING > AD IMAGE > SCAN DATA SPENDING INFORMATION TACTICS: OBSESSION WITH DISPLAYS INEFFECTIVE PROMOTION PACKS “DIS”-LOYALTY CARDS DISCOUNT COMMUNICATION AND GIMMICKS PROMOTIONAL FREQUENCY PLANNING: TOP DOWN: TREND BASED BASE AND INCREMENTAL CONSTRUCT PRIOR YEAR ACCRUAL RECONCILIATION AND SPREADING ALGORITHM THE ROLE OF DISTRIBUTION LIFT MODELS EXECUTION: OBJECTIVE: IMPROVE PROFITS – RETAILER AND MFR MARGIN POOLING SELF-DEFEATING BARRIERS: RETAILER AND MFR ARBITRAGE OPPORTUNITY CONDITION LIGHTNING ROUND ON TACTICAL RECOMMENDATIONS Except for Consumables, Displays without pricing rarely are worth the effort or expense. Bonus Packs rarely work; nor do Consumer Premium offers. BOGO or B2G1F Packs are usual winners Shoppers that use loyalty cards for deals are among the most disloyal of any shopper. They are very heavy buyers of most categories, though. In order of effectiveness, best way to maximize lift: % Off BOGO Net Price after FSI $ Savings Multiple purchase requirements (impairs lift) B2G50 (Gimmick, worse than 25% Off) Deeper, fewer deals always better than frequent, moderate deals.
- 12. 12 BEST PRACTICES: TradePromotions CONSUMER UNITS CFS INCREMENTAL FACTOR ROI LIFT CORRECT METRICS: CORRECT MEASUREMENT: RETAIL SALES, NOT SHIPMENTS EVENT WEEKS ONLY ACCUBASE QUALITATIVE INFO; NOT QUANTITATIVE CORRECT DATA HARMONIZATION: BRAND SIZE STRUCTURE GEOGRAPHY HIERARCHY WEEK ENDING DATES SPENDING > AD IMAGE > SCAN DATA SPENDING INFORMATION TACTICS: OBSESSION WITH DISPLAYS INEFFECTIVE PROMOTION PACKS “DIS”-LOYALTY CARDS DISCOUNT COMMUNICATION AND GIMMICKS PROMOTIONAL FREQUENCY PLANNING: TOP DOWN: TREND BASED BASE AND INCREMENTAL CONSTRUCT PRIOR YEAR ACCRUAL RECONCILIATION AND SPREADING ALGORITHM THE ROLE OF DISTRIBUTION LIFT MODELS EXECUTION: OBJECTIVE: IMPROVE PROFITS – RETAILER AND MFR MARGIN POOLING SELF-DEFEATING BARRIERS: RETAILER AND MFR ARBITRAGE OPPORTUNITY CONDITION 1,000 1,500 2,000 3,000 LAST YEAR THIS YEAR 0 1,000 2,000 3,000 4,000 5,000 Base U Increm U Distribution Accelerates Incremental Sales +1,000 +500 NO SOUND BUSINESS REASON FOR LIVE ACCRUAL Hard to manage Distortionary pull-forward effects Prior year accrual dramatically reduces year-end surprises.
- 13. 13 BEST PRACTICES: TradePromotions CONSUMER UNITS CFS INCREMENTAL FACTOR ROI LIFT CORRECT METRICS: CORRECT MEASUREMENT: RETAIL SALES, NOT SHIPMENTS EVENT WEEKS ONLY ACCUBASE QUALITATIVE INFO; NOT QUANTITATIVE CORRECT DATA HARMONIZATION: BRAND SIZE STRUCTURE GEOGRAPHY HIERARCHY WEEK ENDING DATES SPENDING > AD IMAGE > SCAN DATA SPENDING INFORMATION TACTICS: OBSESSION WITH DISPLAYS INEFFECTIVE PROMOTION PACKS “DIS”-LOYALTY CARDS DISCOUNT COMMUNICATION AND GIMMICKS PROMOTIONAL FREQUENCY PLANNING: TOP DOWN: TREND BASED BASE AND INCREMENTAL CONSTRUCT PRIOR YEAR ACCRUAL RECONCILIATION AND SPREADING ALGORITHM THE ROLE OF DISTRIBUTION LIFT MODELS EXECUTION: MARGIN POOLING ARBITRAGE OPPORTUNITY CONDITION OBJECTIVE : “MAKE MORE,” NOT “SPEND LESS” dvpp xx d g 1 1 / / CP CF D B Assuming perfect, symmetric information, Mfr share of discount subsidy equal to their share of value chain α = Share of discount subsidy paid for by vendor. g = lift in terms of multiple of baseline unit d = discount percentage v = Marginal cost as % of Retail Price D = Consumer Discount in Dollars F = Factory Price to retailer C = Marginal Cost of Goods P = Retail Price (everyday) VARIABLES Promotional Price Elasticity (aka Lift) Marginal Cost of Goods. Assymetric information MARGIN POOLING SELF-DEFEATING BARRIERS: MFR and RETAILER
- 14. 14 BEST PRACTICES: TradePromotions CONSUMER UNITS CFS INCREMENTAL FACTOR ROI LIFT CORRECT METRICS: CORRECT MEASUREMENT: RETAIL SALES, NOT SHIPMENTS EVENT WEEKS ONLY ACCUBASE QUALITATIVE INFO; NOT QUANTITATIVE CORRECT DATA HARMONIZATION: BRAND SIZE STRUCTURE GEOGRAPHY HIERARCHY WEEK ENDING DATES SPENDING > AD IMAGE > SCAN DATA SPENDING INFORMATION TACTICS: OBSESSION WITH DISPLAYS INEFFECTIVE PROMOTION PACKS “DIS”-LOYALTY CARDS DISCOUNT COMMUNICATION AND GIMMICKS PROMOTIONAL FREQUENCY PLANNING: TOP DOWN: TREND BASED BASE AND INCREMENTAL CONSTRUCT PRIOR YEAR ACCRUAL RECONCILIATION AND SPREADING ALGORITHM THE ROLE OF DISTRIBUTION LIFT MODELS EXECUTION: SELF-DEFEATING BARRIERS: RETAILER AND MFR ARBITRAGE OPPORTUNITY CONDITION OBJECTIVE : “MAKE MORE,” NOT “SPEND LESS” MARGIN POOLING LIGHTNING ROUND ON SELF-DEFEATING BARRIERS MANUFACTURER Trade Spend inherently bad (flawed paradigms) “Me” orientation TPI-bias Display obsession $100MM Brand Threshold – HBC (~$50MM Food) RETAILER Inflexible margin requirements Automatic deductions Total vs. Incremental Ad Block dollars (“Kitchen-Sink” Ads) “Loyalty-card only” strategies