Do promotions of trade really lead to profitable growth, or do they raise volume and scale without benefit?
Trade promotion expenditure has remained one of the biggest line items in sales and marketing budgets of the last year, especially in the consumer goods and other retail sectors.
According to a recent industry estimate, trade promotion currently accounts for over 20% of the total revenue of most CPG brands (Telus). However, a large percentage of such promotions do not meet ROI expectations due to improper planning, flawed implementation, or a lack of visibility into performance.
In the current world of margins, trade promotion is no longer a matter of discounts and seasonal functions that businesses can offer. Increasing input prices, consolidation in the retail sector, and data-driven pricing strategies have made promotional effectiveness a board-level issue.
Now is the time that executives pose even tougher questions: Which promotions really increase incremental sales? Which erode margins? And what merely moves demand up, but never makes permanent value?
The trick is not only to control promotional expenditure but also to estimate it precisely. The fragmented data, the lag in reporting, and the absence of post-promotion analysis continue to hamper many businesses’ ability to relate promotional activity to actual financial results (BeatRoute). This has led to decisions made on assumptions rather than performance insights.
The blog discusses five useful, outcome-oriented ideas that can help a business become more proficient in trade promotions, enhance performance, and boost ROI in a more competitive retail environment in the future.
5 Result-Driven Tips to Manage Trade Promotions:
In his article in Applied Marketing Analytics, Colin Bunn argues that, given the enormous investments and efforts involved in consumer packaged goods promotions by manufacturers and retailers, implementing a thorough promotional optimization program should be a fundamental operational focus rather than merely a goal.
Therefore, we’ve outlined the top 5 tips below to assist you in effectively managing trade promotions:
1.Set Clear Objectives and Key Performance Indicators (KPIs)
Successful trade promotions help improve the company’s bottom line.
But how do you measure how successful your trade promotion was?
One big reason trade promotions fail is that management repeats their old plans without measuring any results. The same old tactics are carried out year after year without knowing whether that plan is actually driving sales.
Key performance indicators are like the GPS for managing trade promotions. They give you direction about what to do next and what action to take to move closer to achieving your goals.
KPIs also help you know how much you have completed (or not) via your TPM.
KPIs for Trade Promotion Optimization
The KPIs that help provide insights to optimize trade promotions are lift, sales increase, trade spend, trade rate percentage, and ROI (Repsly).
Before you plan your trade promotions for the next quarter, it’s a good idea to measure your KPIs from previous promotions.
Promotion Lift
Promotion life measures the percentage increase in sales or other relevant metrics during the promotional period compared to non-promotional periods. It helps assess the campaign’s direct impact on driving consumer behavior.
For example, a promotion lift would quantify the increase in sales or foot traffic for a physical outlet. Foot traffic refers to the number of consumers visiting the store during the trade promotion period. Increased foot traffic demonstrates the campaign’s ability to attract customers to physical retail locations.
Sales Increase
Measure the company’s sales change during and after the campaign compared to baseline sales figures. This KPI assesses the campaign’s impact on driving revenue.
Return on Investment (ROI)
ROIs evaluate the campaign’s financial effectiveness by comparing marketing costs to revenue generated from increased sales (Repsly).
Perhaps profit on increased sales/trade spend (can we differentiate this?) color.
A positive ROI indicates that the campaign generated more revenue than the investment made.
Trade Rate Percentage
Trade Rate Percentage = (Promotional Sales / Total Sales) * 100
Monitoring the trade rate percentage helps businesses understand the impact of their promotional activities on overall sales performance. It answers crucial questions such as:
- How have our recent trade promotions impacted consumer interest and product demand?
- Has a higher trade rate percentage increased product visibility on shelves or online platforms?
- Have any specific products seen a significant uptick in sales during the promotions?
Many management teams only focus on lead generation and closing sales. However, retail companies also launch marketing campaigns to improve their brand image and engage with consumers.
Trade promotions are also planned to change consumer perception and awareness about the brand. The KPI can be measured by conducting surveys before and after the event.
For instance, in 2019, Target launched its “Target Run and Done” campaign to highlight the convenience and variety available in its stores. The campaign featured TV commercials, digital advertising, and social media promotions showcasing how Target stores provide everything customers need in one convenient trip, from groceries to household essentials to apparel.
Target’s “Target Run and Done” campaign resonates with consumers by emphasizing its commitment to offering a diverse range of products and a seamless shopping experience.
2.Focus On The In-Store Display
How your product looks, where it is placed, and how your customers see it at a retail outlet make a big difference. That’s why products at the same level as a consumer sell faster than those above or below (Doni Fun).
A great visual merchandising strategy plays an important role in the ROI. Different products have different retail displays that are ideal for them.
Here are some key aspects that your trade promotion strategy should address regarding in-store displays:
- Attractive signage and messaging on your display will get your products noticed by shoppers.
- Entryway displays, end caps, and window displays increase your visibility to the buyer.
It is not necessary to design a lavish retail display. (Do you know millennials prefer minimalistic designs over extravagant ones? So, if you are targeting them, make sure your designs are no-fuss, clean, and modern.) Even the simplest displays can increase sales if designed with the end buyer’s interests in mind and backed up with a solid visual merchandising strategy.
Vault Display
Wonder Vault Display: Oreo’s Innovative Retail Experience & Trade Promotion
Several years ago, Oreo, known for its innovative marketing campaigns, created the “Wonder Vault” experience in select retail locations. The display resembled a whimsical “vault” or treasure chest, often oversized and colorful, evoking excitement and curiosity (Doni Fun).
Inside the Wonder Vault, various Oreo products, including different flavors, limited editions, and packaging sizes, were showcased in a visually appealing manner. Some displays included interactive elements, such as touch screens and QR codes, that shoppers could use to unlock digital content, including recipes, games, and behind-the-scenes videos related to Oreo.
The Wonder Vault’s design and messaging aligned with Oreo’s brand identity of fun, creativity, and indulgence, creating a memorable experience for shoppers.
Location Strategy:
The Wonder Vault displays were strategically placed in supermarkets or convenience stores in high-traffic areas, ensuring maximum visibility and consumer engagement.
This example demonstrates how Oreo used creative design, interactive technology, and thematic consistency to enhance the retail experience and drive consumer engagement with their products (Doni Fun).
Such displays attract attention, strengthen brand loyalty, and encourage impulse purchases through an immersive and memorable retail environment.
3.Offer Deals And Discounts
93% of US consumers regard offers and discounts as key factors in their purchasing decisions. Hence, your trade promotion strategy should incorporate temporary price reductions. This approach encourages existing customers to buy more and attracts new ones.
But remember: timing is crucial.
For instance, leveraging these promotions during peak shopping periods, such as the holiday season, can significantly boost sales. Manufacturers should collaborate with retailers to initiate promotions well in advance, ideally starting a month before, to appeal to early planners (Sales Promotion Agency). Delaying discount offers until the last minute risks getting lost amid competitors vying for attention during the busiest shopping periods.
Temporary Price Reductions (TPR)
Temporary price reductions (TPRs) play a significant role in the trade promotion strategies of consumer packaged goods (CPG) products, particularly those categorized as essential items or fast-moving consumer goods (FMCG). These promotions involve a temporary price decrease, typically at least 5% from the regular price, to stimulate consumer interest and drive short-term sales.
Both IRI and Nielsen highlight one key aspect of TPRs: their temporal nature. Initially intended as a short-term promotional tactic, TPRs are designed to create urgency and encourage immediate purchase decisions among consumers.
Flash Sale Promotions
Flash-sale promotions are a powerful strategy for generating excitement about your brand and capturing the interest of potential customers who may not have considered purchasing from you before.
Dramatically slashing prices on select items for a brief period creates a sense of urgency that drives impulse purchases (Sales Promotion Agency). This approach acts as a magnet, drawing new customers to your online and physical stores, where they will likely explore and purchase additional products during their visit.
4.Coupons & Promo Codes
Coupons and promo codes can be addictive. Once customers experience the benefits (a.k.a. cost savings) of using them, it’s hard to ignore them (Shelvez).
From supplements to detergents and cleaning products, coupons and promo codes allow companies to understand consumers’ buying habits and optimize their campaigns accordingly.
5.Leverage Data and Analytics
Data analytics gives you a deeper understanding of your target customers and allows you to determine the most effective channels for communicating with them. That is why data analytics forms the core of TPO, empowering businesses to analyze vast datasets, discover patterns, and forecast outcomes with precision.
Leveraging data and analytics helps marketing teams learn to communicate their product’s value effectively and refine the conversion journey to help prospects convert more efficiently. This helps increase conversion rate and lower cost per acquisition, ultimately leading to a higher ROI: getting you more of what you want for less (Shelvez).
Moreover, data analytics allows firms to anticipate promotion outcomes in real time. With access to up-to-the-minute data, companies can promptly modify strategies if promotions fail to yield expected results. This agile approach enables quick identification and adjustment of underperforming promotions based on data-driven insights.
Read here to learn more about optimizing trade promotion ROI through data analytics.
5 Trade Promotion Pitfalls that Businesses Should Avoid:
One of the most potent and costly mechanisms of retail sales has been trade promotions. However, an industry analysis of last year indicates that much trade promotion expenditure does not create incremental value, usually because of preventable planning and implementation mistakes (KatPro). The most well-known brands have discovered that being successful in promotion does not equal increased spending, but smarter management. Knowing what not to do is as important as following best practices.
1.Do Not Run Promotions in the Dark:
It is a usual and expensive error to launch a trade promotion without specific ROI measures. Promotions must be based on specific results, such as incremental volume, increased margin contribution, or increased shelf share.
International CPG leaders such as Unilever and Nestle have shifted to objective-based promotion planning systems, where a campaign must demonstrate tangible value to be approved. Promotional strategies will only be used as discounts without clear goals to achieve.
2.Do Not Excessively Correlate Price Discounts to the Detriment of Brand Value:
Overuse of deep discounts will hurt brand perception and profitability in the long term. The giants of retailing, including Procter and Gamble (P&G), have publicly criticized blanket discounting in favor of specific promotions and value-added offers. Excessive discounting conditions consumers to defer purchases and puts a strain on margins, which, as with volume spikes, can be short-lived and seldom long-lasting.
3.Do Not Overlook Post-Promotion Performance Analysis:
The inability to examine the outcomes of promotions once they are implemented prevents organizations from knowing what actually leads to success. Through post-event analytics, brands like PepsiCo spend significant sums to quantify incremental sales, cannibalization, and demand shifts.
The absence of organized post-promotion reviews means that companies will be subjected to repetitive campaigns that do not achieve the expected outcome and will end up allocating future funds in a misdirected manner.
4.Do Not Overlook the Risks of In-Store Performance:
One can even have the best thought-out promotions, and yet the execution crashes at the retail end. Problems like out-of-stock items, incorrect prices, or missing shelf positions tend to ruin outcomes.
To ensure promotions are visible, available, and properly implemented, companies such as Coca-Cola maintain close in-compliance by collaborating with retailers and tracking execution in real-time. Ineffective implementation may make great potential promotions become sunk costs.
5.Do not take trade promotions as a one-on-one activity:
Supply chain planning, sales forecasting, and financial controls should be aligned with trade promotions. Corporations such as Kraft Heinz incorporate planning for promotional activities into their finance, sales, and operations to prevent stockouts and margin surprises. Promotions, when implemented independently, will create an overabundance of stock, hasty logistics, and unforeseen cost increases that will negatively affect overall ROI.
Conclusion
Aggressive trade promotions have the potential to become a significant driver of growth – however, only when these promotions are conducted with discipline, discernment, and responsibility. All business organizations can avoid these five pitfalls, improve margins, enhance execution, and, in doing so, guarantee that promotional spending delivers actual, quantifiable value. This is not about conducting more promotions, but rather the right promotions, the right way, as successful brands have shown.
CPG manufacturers and retailers spend vast amounts of time and resources managing trade promotions. Yet many promotions fail to generate any ROI or positively impact sales. You should try these five result-driven dos and don’ts that teams can utilize to ensure rewarding trade promotion management.