How do I maximise my promotions/promotional spend?

John Wanamaker’s famous quote about advertising rings an uncomfortable bell for many CPG commercial directors:

“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”

Substitute “promotions” for “advertising” and you’ve just described the dilemma faced by most CPGs as they allocate budget to programmes that invest across brands, customers and channels to increase shopper purchase of their products.

“Half the money I spend on promotions is wasted; the trouble is I don’t know which half.”

From our work with hundreds of CPGs over the past twenty years, we have identified the seven key behaviours of the most successful revenue growth management principles that define best practices and direct promotional spending to those brands, customers, and events that generate the greatest return.

Set Goals

It should be the obvious starting point but plenty of account managers are persuaded to run a promotion, or a series of promotions, without a clear picture of how the promotion will attract shoppers and help the products/ brands being promoted. What do you want to achieve? For example:

This is not a definitive list – you may have other objectives that you’re looking to achieve but be careful in solely pursuing a financial goal e.g. increased revenue or margin in the short-term as these can come at the expense of future sales and margin.

Understand past performance

“Those who cannot remember the past are condemned to repeat it.”

You have probably promoted in the past. You will certainly have seen some changes in distribution (the number of grocery stores where your products are present) and price. Every past promotion, price rise and distribution change will have a corresponding change in overall sales as you reach more or fewer shoppers.

Get familiar with these patterns – understand them in detail. Ask yourself what was the effect of the change and what might have been done differently. For example:

Many promotions – over 20% from our research – suffer from supply issues. Under-supply in advance of, or during, the promotion event throttles shoppers from participating. Over-supply during the latter stages of an event can drive post-event waste and retailer penalties.

In addition, over 40% of promotions suffer from some broader form of execution issue: running in fewer (or more!) stores than planned; missing signage in-store; individuals SKUs missed; lack of supporting POS materials etc. In many cases, these issues are remedied during the short life of the event but weak execution in the first few days can reduce promotional impact by as much as 30%.

Identify what works

From a broad understanding of past product launches, price and distribution changes, and promotional activities, you can start to identify themes. Over the long-term, you want to consider:

In every case, the answer will vary by product, retailer and your promotional goals. Always keep the goals in mind; the best route to achieve a volume goal may be a very different mechanic, with a different retail customer, from the best route for an awareness campaign.

When considering what works, also consider what doesn’t work! Where have you run promotional events or campaigns where goals were not achieved? What was the knock-on cost to the business? What lessons can you draw from planning, execution and measurement that you can apply to your promotional strategy over the next 12 months?

Experimental mindset

Whenever you are planning and forecasting – and every promotional event is based on some form of forecast – you want to plan to the best of your ability but allow new evidence to influence future activity. In short, agility is better than certainty; ask yourself how you can adopt a ‘test-and-learn’ approach that enables you to set goals, run events and measure their effect quickly.

Planning necessitates assumptions: baseline shopper demand for your products; price sensitivity and its impact on participation; joint ability to execute (you and your retail customer) etc. Your plans need to include these assumptions, and you should measure them during and after, adjusting your expectations accordingly. Approaching promotional activity in this way over a three-to-six month period allows you to amass data from which you can develop fine-grain insights to inform future plans. This is particularly important if your past performance data is sparse, if goals were unclear or if records of promotional mechanics, compliance or supporting POS are difficult to ascertain.

Agile execution – a willingness to adjust promotional events to capture relevant data and learn about shopper and retailer behaviour – will reap rewards in the medium-term. This can be difficult to accept when your commercial director is demanding a short-term uplift in revenue; holding your nerve and applying a little science will always prove the better approach over the coming years.

Execute in partnership

Active participation of your retail customers – from your buyer, through supply chain, to store teams – is critical for promotional success. The best planned promotion, of the very best product, can fail in-store through failed communication and execution. To achieve the best results you must look at the promotion through the eyes of the retailer and support their teams during the execution phase:

Collate information on execution across all of your promotions and use this in future planning – both to set realistic targets and goals, and to factor execution ability into your retailer plans. Investing heavily with those retailers who consistently execute reliably is one of the most effective ways to increase your promotional returns.

Review and challenge claims

Retailer claims for post-promotion funding settlement should always be reviewed against agreed terms and plans. Good practice requires alignment between your account management, legal and finance teams to ensure that every retailer invoice is checked against promotional plan, execution record and terms – so that you pay the appropriate amount and no more.

Best practice shows that you plan for future retailer invoices during the promotional negotiation and then continuously review these amounts as the promotion unfolds – flagging deductions for non-compliance as they occur. In this way, you and your retail customer maintain an up-to-date record of monies due. This best-practice approach requires a regular (ideally daily) review of promotional performance and a regular (usually weekly) review of performance, compliance and adjusted invoice expectations.

Plan strategically

Finally, remember that no one promotion can or should define a successful campaign. The goals that you set for each promotional campaign should align with your broader business objectives, with a focus on the appropriate blend of increasing shopper awareness (of specific brands and products), attracting volume (and reducing competitor reach), switching preferences (for short- and long-term gain) and upgrading shoppers into your premium brands and products wherever possible.