Shopper-Centric PromoAdvocating a More Strategic Approach to Trade Investment

Introduction

Ask anyone in sales — and especially trade finance — if they are getting the most out of their trade dollars and the answer will be a resounding no. The telling stats have been quoted so often that they are almost cliché by now:

– Trade is the second-largest line item on a P&L, accounting for nearly 20% of revenue and $1 trillion (with a T) in spend.

– Over two-thirds of trade promotions do not break even.

– Only 14% of senior managers are satisfied with their ability to manage trade promotions.*

While these results are disappointing, they are not surprising. When it comes to evaluating promotional performance, even the best companies know only half the story. Despite major advances in data systems, companies still rely on “traditional” data, such as lift and incremental volume, in setting promotional objectives, planning events, and measuring effectiveness. As a result, most companies have little or no understanding of the impact of promotion on the ultimate audience (the shopper).

At Kantar Retail, we advocate a more enlightened, strategic approach to trade planning and measurement that puts the shopper squarely at the center.

* Source: Promotion Optimization Institute's 2016-2017 TPx and Retail Execution Report

3. Measure

2.Plan

1.Think

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1. Think Shopper

In our experience, most companies are lacking a clear shopper-centric strategy when it comes to their trade investments. The Strategic Role of Trade (SROT) is an afterthought at most companies — even Fortune 100 companies spending billions on trade. For example, ask most sales executives the role of trade at their company and you will likely hear some derivative of “to drive volume” (or possibly “incremental volume”). In all likelihood, any mention of the shopper will be noticeably absent.

As with all marketing and sales investments, trade strategy should start with — and revolve around — the shopper. Before trade planning, your organization needs to establish the behaviors it seeks to drive with promotions and the respective shopper objectives. For example, do you want your trade plans to grow shoppers (penetration), increase trips (frequency), and/or build baskets (transaction size)?

Define the strategic objective:

1. Shoppers (Penetration) Most relevant when you are seeking to capture market share by winning new shoppers

2. Trips (Frequency) Most relevant when you are looking to increase buy rate and increase share of requirements (AKA loyalty) among your existing franchise

3. Baskets (Transaction Size) Most relevant when you wish to incent shoppers to buy in larger quantities and spend more per trip

What shopper behaviors do you wish to incent?

Which trade events and programs will

spur this behavior?

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2. Plan Shopper

As with all investments, it is important to align the plans to the objectives and strategy. Shopper behavior should dictate the promotional calendar you build and execute at each account. By taking a more strategic, shopper-led view, your trade plans will progress from simply spiking short-term volume to incenting and motivating desired buying behaviors.

Let the strategy dictate the plans:

1. Penetration Drivers

To drive penetration, promotions need to give shoppers a reason to switch from their preferred products and to try a relatively unknown and untested offering. As such, these types of promos generally offer deeper discounts (e.g., 33% or more) to incent new trial. These events are particularly effective when launching a new product or brand in order to encourage trial.

2. Trip Converters

To increase frequency and buy rate, it generally is not as necessary to “go deep.” As such, these promotions generally offer less depth of discount (e.g., 15 - 25%) since you simply need to “nudge” occasional users to buy and use your product more often.

3. Basket-Builders

To encourage shoppers to buy in larger quantities, the trade plan likely would include promos like BOGOs and multiples offers (e.g., two for $5). Basket-building promotions are most effective in categories that are highly “expandable,” that is, consumers accelerate their usage once they have loaded up.

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3. Measure Shopper

“What gets measured gets done.” This truism definitely applies to trade investments.

In our experience, there is a wide range of sophistication when it comes to the promotional KPIs that are meas-ured, monitored, analyzed, and optimized, as illustrat-ed in the Trade Measurement Journey below.

Most companies live somewhere in the “Evolving” to “Proficient” range of the continuum. They rely on traditional metrics, such as incremental volume and lift, in evaluating promotions. While these measures help to quantify immediate uplift, they generally treat all volume as equal and provide no visibility into shopper behavior. Therefore, relying solely on these metrics can lead to poor decision-making, as illustrated in Appendix 1.

To date, very few companies leverage shopper data (e.g., loyalty card) to achieve more “Enlightened” status. As a result, very few companies fully under-stand promotional impact on shopper behavior, and "true" Trade ROI.

Shopper measurement matters:

– Did your promotions bring in new shoppers (penetration) who will stay with the franchise in future purchase cycles (repeat)?

– Did your promotions convert new trips (increase frequency), or did they simply subsidize a likely sale?

– Did your promotions build baskets (transaction size), and, if so, will this lead to expanded category consumption over time (rather than pantry loading)?

Shopper FocusRetail Focus Financial Focus

NOVICECompliance/proof of performance

EVOLVINGAnalysis of lift, incremental volume

PROFICIENT

Overlay of trade costs to calculate simple payback

metrics (e.g., CPIC)ADVANCEDOverlay of full revenue rates, COGS to calculate trade ROI and margin delivery

ENLIGHTENEDAnalysis of shopper data to quantify “true” Trade ROI and impact on shopper behavior

The Trade Measurement Journey

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Shopper-Led Trade Analytics

At Kantar Retail, we have identified five core shopper analyses that companies can and should conduct after all major promotional activity. Armed with results of these analyses (and others), companies can make more informed, more strategic, and more shopper-centric decisions about their trade investments.

Unlocking promo-driven shopper behaviors:

1. Lift Decomposition

Which shopper behaviors — new buyers, loading, switching, etc. — are driving incremental volume lift?

2. Scoop & Echo

Does trade promotion build baseline sales by penetrating new shoppers who repeat at full price?

3. Subsidization

Are our promotions subsidizing loyal buyers and reducing the efficiency of trade spending?

4. Expandability

Does trade promotion grow the category by accelerating purchase frequency and/or driving increased basket size?

5. Cherry-Picking

Are regular promotions training shoppers to buy only on deal?

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Conclusion

Trade represents one of the largest expenditures a company makes, accounting for up to 20% of sales. Despite this major investment, promotional planning and execution often are conducted with "blinders on." Companies rush into planning without clear strategic objectives, and execute with limited understanding of promotional impact on shopping and buying behaviors. In a cluttered retail landscape where it is increasingly difficult to attract, engage, and convert shoppers, this practice is no longer good enough.

Companies need to adopt, embrace, and advocate "shopper-centric" promotion principles. Specifically, as sales and category leaders, you need to push your organizations to put the shopper at the center of trade strategy and planning and to leverage shopper data to measure and optimize true promotional impact. In doing so, your promotions will attract the right shoppers, incent the right behaviors, enhance trade returns, and drive long-term category growth at retail.

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Appendix

Lift Decomposition

Using only traditional metrics, such as baseline and incremental volume, Promo Event 2 appears to be a more effective spend. However, once shopper data is analyzed, you can see that Event 1 is attracting New Category Buyers and Brand Switchers, whereas Event 2 is inefficiently subsidizing Brand Loyals.

Category Expandability Rates

Using only traditional Lift metrics, it appears that ketchup and CSD merchandising are equally effective. However, by analyzing shopper behavior over time, you see that CSDs are 8x as expandable. As such, CSD merchandising is more likely to drive expanded category use and less likely to incent pantry loading.

Baseline Incremental

NewBuyers

Brand Switchers

Brand Loyals

New Buyers

Brand Switchers

Brand Loyals

Event 2Event 1 Event 2Event 1

80%Carbonated Soft Drinks

10%Ketchup

0%

50%

100%

150%

200%

Ketchup Carbonated Soft Drinks

Lift on Display Expandability Rates

Incremental Volume Lift Decomposition

Event 2 appears to drive loyals "incremental volume"

But Event 1 is attracting new buyers and switchers, while Event 2 is subsidizing loyals

Overall lift is fairly similar across categories But CSD expanded consumption, while ketchup will drive pantry loading merchandising

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Curious where your trade practices rank? Take this short assessment.

Addendum: How do you stack up?

Promo Partners

Does your organization have — and employ — a strategic customer segmentation?

4 — We have a formal customer segmentation based on key growth, performance, and efficiency metrics.

3 — We have a simple classification based on COT, geography, size, etc.

2 — We try to separate Winners from Losers.

1 — Say what?

Promo Rates

How are trade rates established at your company?

4 — Trade terms are performance-based and fully aligned with customer segmentation and strategic trade architecture.

3 — We generally try to give our biggest and best customers the best rates.

2 — We start with historical rates and work from there.

1 — We throw darts.

Promo Strategy

How would you define the role of trade in your organization?

4 — Motivate the right shopper behaviors (penetration, conversion, spending).

3 — Drive incremental volume (efficiently).

2 — Drive top-line volume.

1 — Keep our customers from yelling at us.

Promo Planning

How do you develop your trade plans?

4 — We define shopper-based objectives (SROT), build strategic trade plans, and optimize events through shopper data analytics.

3 — We conduct a formal pre/post-event analysis to build and optimize the trade calendar.

2 — We start with last year's plan and refine it a bit based on the performance of the year-ago events.

1 — Take last year’s plan and update the date.

Promo Measurement

What metrics does your company use in evaluating trade spend and event performance?

4 — We quantify and optimize true trade ROI using shopper behavior data (e.g. loyalty card, panel).

3 — We calculate ROI using volume, revenue rates, and COGS.

2 — We conduct a simple analysis of lift and incremental volume.

1 — Honestly, we prefer not to know.

17+ = Head of Class

11-16 = Middle of the Class

10 or Fewer = Falling Behind (Seek a Tutor)

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What is your opinion of shopper-centric promotion? I’d love to hear your thoughts. Please email feedback to Jeff.Maloy@kantarretail.com

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