the most effective price promotion
DESCRIPTION
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.TRANSCRIPT
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The most effective promotion A competitive study
across LATAM markets
Juan A. Tello (SKIM)
Manuel M. Zamora (Mondelez)
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Up to 60% of purchase
decisions are made in front of
the shelf
And only 5% of human
decision making is rational
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Yet, customers attention is very limited… lost in context
Assimilate max 5
pieces of information
at once
Shoppers “chunk”
information to simplify
the task
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Promotions are
becoming an
important asset to
deliver brand
strategy for most
companies and
capture customer’s
attention
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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
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Role of promotions
varies depending on
the brand’s position
in the market
Leader Challenger VS
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Improve Gross
Margins
Wise
marketing
trade
investments
Improve
profitability of
stocks of
retailers/
distributors
Companies should be selective in order to
Find right level
of promotion for
the category
Improve ROI
Max.
incremental
sales and
reduce
cannibalization
Productivity has become the name of the game
Find the sweet spot
between incremental
sales and value – fuel
sustainable growth
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Lower ROI
Beware the loss of
promotion
sensitivity if abused
over time
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Promotion effectiveness
Incomplete Disaggregate
Anecdotal
Scattered
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4 Countries
Mexico
Colombia
Brazil Argentina
Laundry Detergent
Breakfast Cereal 2
Product categories
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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
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2 metrics
Persuasion Reach
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The Most Effective Promotions Based on promo effectiveness
Buy 1 get 1 free
3 for the price of 2
Freesamp
Freegift Buy3Get20% Bundle
20% more
RelSav – 20%
Charity 20%
Instant Trip
Refund 100%
Replace 100%
SweepTrip Rebate 20%
AbsSav-10%
AbsSav-20%
F->T 20%
F->10% LoyalCard 30%
RelSav 10%
Coupons 20%
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Economical alternatives
to BOGOF & 3x2
Free Gift Buy3Get20% +
Freesamp
- FreeGift
Buy3Get20%, Freesamp
+ InstantTrip
Buy3Get20%, Freesamp, InstantTrip
+ FreeGift
44% 50% 52% 54%
1 promo 2 promos 3 promos 4 promos
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Economical alternatives
to BOGOF & 3x2
Buy3Get20%, Freesamp, InstantTrip
+ FreeGift
54%
An Extra Item An Uncertain
Promotion A Price
Discount Free Sample
Optimal Quartet of Promotions
4 promos
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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
BO
GO
F
3x
2
Fre
eG
ift
Fre
eS
am
p
Bu
nd
le
20
% m
ore
Bu
y2
Ge
t20
%
F >
T 2
0%
Ab
sS
av –
20
%
RelS
av –
20
%
Ins
tan
t T
rip
Refu
nd
10
0%
Ch
ari
ty 2
0%
F >
T 1
0%
RelS
av –
10
%
Rep
lac
e10
0%
Lo
ya
lCa
rd 3
0%
Co
up
on
s 2
0%
Ab
sS
av –
10
%
Reb
ate
20
%
Ch
ari
ty 2
0%
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Quality of the GIFT matters
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Locally Effective Alternatives 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
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ARE THE MOST CHARITABLE DOESN’T ENJOY A GOOD GAMBLE ARE MORE MATHEMATICALLY MINDED
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Promotion Specific Insights
Cause Related
Uncertain Rewards
Same Discount, Different Wording
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HOW TO EFFECTIVELY
COMMUNICATE A
PRICE REDUCTION
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REDUCTION
3 Different Ways
The effectiveness of each wording depends on… Starting base price Magnitude of discount Currency denomination
Relative % Discount
Absolute Savings
From – To Pricing
A psychological barrier has been crossed
YES NO
Currency denominations
are high
Absolute Savings
YES
NO
- 20% Save $2 From $ 11
to $ 9 Save $2
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Effective alternative
>4=$
“More product for the same price”
More palatable financial
proposition
Improve Brand loyalty
outperforms a straight % reduction
Involves pack & manufacturing
changes
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Engagement
Loss aversion Salience Format
Affect-
reciprocity Priming Free Anchoring
Scepticism Prospect Prominence /
order Endowment
The more
the merrier
11 Behavioral Economic Principles
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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
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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
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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
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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
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Key Behavioral Economic Principles
Most Effective Promos
Promo Pitfalls
LOSS OF PROMOTION
SENSITIVITY IF ABUSED OVER TIME
LOWER ROI
Free Sample A price discount
An uncertain promotion An extra item
Alternative promos:
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Drop by booth 16 to find out more
www.skimgroup.com
Juan A. Tello (SKIM)
Manuel M. Zamora (Mondelez)