How Advanced Price & Trade Promotions Analytics Drives Up Profits in FMCG 📈
Trade promotions are a great way for consumer-packaged goods or CPG companies to grow. However, statistics show that though companies invest 20% of their revenue in these promotions, 59% lost money. This is the direct result of improper utilization of analytics. Results show that when done well, CPG promotions can yield five-fold returns. With the right know-how, you can learn to maximize profits. We’ll teach you 5 key methods that can help you do just that.
How Trade Promotions Can Bring Huge Opportunities to CPG manufacturers
According to research, customers have innately wavering loyalty for most consumer product categories. However, many manufacturers use conservative promotion programs that target old customers. This yields negligible returns and at most, short-term sales increases.
Promotions should be targeting new customers instead, especially now that traditional mediums like grocery stores are on a down-turn. Consumers are beginning to favour e-commerce channels and other new platforms. They also have a new interest in health and awareness about sustainable practices.
This can sound like bad news, but there is a wealth of untapped potential in these developments. Through the use of advanced analytics, CPG manufacturers can gain specific and granular insights on the way consumers behave and how they should be targeting them.
Trade Promotion Definition
Before getting into anything, you may be asking, what is trade promotion exactly and what are some types of major trade promotions?
In its simplest terms, trade promotions refer to the marketing activities involved in the relationship between manufacturers and retailers. These are aimed at increasing demand for your products and product viability.
Types of trade promotions include:
- In-store displays
- Temporary price reductions, such as sales or promos
- Coupons, vouchers, or rebates
- Contests, raffles, or giveaways
- Samples and freebies
However, it’s important to keep in mind that this differs from a trade-oriented promotion, which is oriented towards B2b companies or dealers/suppliers within a company network.
Using Analytics To Optimize Trade Promotions
Analytics has advanced to the point where they can give enough insight to tailor-fit promotions to a company’s target audience. In recent years, CPG manufacturers have begun using analytics and data to optimize their promotional campaigns.
We’ll be discussing the key methods you can use to leverage analytics to your businesses advantage.
Maximize Household Penetration and Long-Term Impact
Household penetration refers to the number of households your product reaches in a given market in a specific year. Rather than simply measuring the return of investment or ROI, findings show it’s more profitable to focus on bringing in new customers.
This way, consumer stockpiling does not interfere with the metrics, and sales are viewed as how many individuals buy, rather than how much one individual buys. Global powerhouses like Maybelline or Tsing Tao beer have higher penetration rates than their top 20 leading brand competition.
By looking at a broader set of data rather than narrowing your focus to a niche area of marketing, profitability and penetration rates can be significantly increased. The key to maximising output in this regard is planning for the long run. Think five to ten years, rather than one year. This way your company can break down what really drives the impact of your product.
Build an Analytics Platform To Maximize Insights
Successful companies seek to maximise their data sources. This can mean adding a third party like Nielsen or IRI (Information Reuse and Integration) who can help unify diverse information using innovative strategies and algorithms. This also includes internal sell-in pricing data, financials, and external data sets, among many others.
Third-party owned data can provide a more granular view of consumer behaviour, giving you better insight. Retailers are also realising that by sharing information and data sources with each other, they can increase operational margins by up to 60%.
CPG companies can use an extract transfer load or ETL system to migrate data into one condensed format. Analysing this dataset efficiently can yield valuable insights to create better target promotions.
Read about how to create a good pricing structure
Utilise Research And Simulations
Build a platform of relevant data. Consumers can be segmented through advanced analytics, separating them by an assortment of demographics, behaviours, and preferences. Companies will be able to understand how many regular customers they have versus how many new or infrequent customers there are, given a specific period of time or in response to a promotional tactic.
Besides historical data, companies can run simulations or pricing research. Simulations can be used to estimate the impact of various promotional tactics and on potential household penetration benefits. This way, companies can understand how trade promotions impact their target market. Pricing research can help companies evaluate consumers responses with controlled experiments or through surveys.
Create Action Plans
After analysing these insights, CPG companies can design action plans that serve as guiding principles. These serve to track responses to trade promotions, household penetration, and help balance these against other innate values like driving sales and growing profits.
Guiding principles can also allow companies to evaluate insights within select markets or target demographics. If a principle is validated on a small scale, it can be rolled out on a broader scale for future cycles. In other words, rather than losing revenue blindly rolling out new marketing tactics, smaller-scale rollouts combined with advanced analytics can save time and money.
Build Systems To Maximize Efficiency
The job doesn’t end after campaigns are rolled out. Perfecting execution is key to optimising the full potential of your analytics. To do this, build detailed calendars to manage promotions, evaluate metrics, and do quality control for relevant functions such as sales or backend operations.
Find any bottlenecks or hindrances to efficiency and build competent teams that are able to address these issues innovatively. Promotions teams should also work closely with revenue-growth managers or centres. These teams can plan and develop playbooks or company bibles with updated progress incentives.
Read about the FMCG pricing strategy to double pricing power
In conclusion, using data effectively requires CPG companies to build competent teams with versatile skills. Using business and advanced analytics alongside a good technical infrastructure can give businesses unique levels of understanding and insights. In the long run, sales and growth can be boosted.
For a comprehensive view on building a great pricing team to prevent loss in revenue,
Are you a business in needs of help to align your pricing strategy, people and operations to deliver an immediate impact on profit?
If so, please call (+61) 2 9000 1115.
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