Trade promo best_practices

Trade Promotions

- BEST PRACTICES -

2

BEST PRACTICES: Trade Promotions

LIFT

CORRECT METRICS:

CORRECT MEASUREMENT:RETAIL SALES, NOT SHIPMENTSEVENT WEEKS ONLY

ACCUBASE

QUALITATIVE INFO; NOT QUANTITATIVE

CORRECT DATA HARMONIZATION:

BRAND SIZE STRUCTUREGEOGRAPHY HIERARCHYWEEK ENDING DATES

SPENDING > AD IMAGE > SCAN DATA

SPENDING INFORMATION

TACTICS:OBSESSION WITH DISPLAYSINEFFECTIVE PROMOTION PACKS“DIS”-LOYALTY CARDS

DISCOUNT COMMUNICATION AND GIMMICKS

PROMOTIONAL FREQUENCY

PLANNING:

TOP DOWN: TREND BASEDBASE AND INCREMENTAL CONSTRUCT

PRIOR YEAR ACCRUAL

RECONCILIATION AND SPREADING ALGORITHM

THE ROLE OF DISTRIBUTION

LIFT MODELS

EXECUTION:

OBJECTIVE: IMPROVE PROFITS – RETAILER AND MFRMARGIN POOLINGSELF-DEFEATING BARRIERS: RETAILER AND MFR

ARBITRAGE OPPORTUNITY CONDITION

INCREMENTAL FACTORROI

CONSUMER UNITSCFS

3


LIFT

CORRECT METRICS:


ACCUBASE









PLANNING:


PRIOR YEAR ACCRUAL



LIFT MODELS

EXECUTION:




CONSUMER UNITSCFS

TPM = Trade Promotion

Management

TPO = Trade Promotion

Optimization

TPI = Trade Promotion

Implementation


Measurement

TPB = Trade Promotion Best

Practices

TPP = Trade Promotion Planning


Optimization

Current Revised

4


CONSUMER UNITSCFS

LIFT

CORRECT METRICS:


ACCUBASE









PLANNING:


PRIOR YEAR ACCRUAL



LIFT MODELS

EXECUTION:




Wk1 Wk2 Wk3 Wk4 Wk5 Wk6 Wk7 Wk8 Wk9 Wk10

Base Unit Actual Unit

Weekly Sales Units

WHAT AM I MEASURING? RETAIL DOLLARS SHIPMENT DOLLARS EQUIVALIZED VOLUME CASES CONSUMER UNITS

CFS = CONSUMED FACTORY SHIPMENTS

Net Wholesale Price x Retail Units

Example: Net Cost = $3.50; Sales = 600 Units

CFS = 600 x $3.50 = $2,100

5


LIFT

CORRECT METRICS:


ACCUBASE









PLANNING:


PRIOR YEAR ACCRUAL



LIFT MODELS

EXECUTION:



CONSUMER UNITSCFS

INCREMENTAL FACTOR

ROI



Weekly Sales Units

INCREMENTAL FACTOR = INCREM UNITS / TOTAL UNITS

What percentage of my business goes away if I stop promoting entirely?

Base Units = 100/Wk

400350

600

INCREMENTAL FACTOR = INCREM UNITS / TOTAL UNITS

BASE UNITS = 100 x 10 = 1,000TOTAL UNITS = (100 x 7) + (400 + 350 + 600) = 2,050INCREM UNITS = 2,050 – 1,000 = 1,050

INCREM FACTOR = 1,050 / 2,050 = 51%

6


LIFT

CORRECT METRICS:


ACCUBASE









PLANNING:


PRIOR YEAR ACCRUAL



LIFT MODELS

EXECUTION:



CONSUMER UNITSCFS

INCREMENTAL FACTOR

ROI

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

0%

20%

40%

60%

80%

100%

Bertolli Classico Ragu Prego Barilla

Base U Increm U Increm Factor

Pasta Sauce Sales

Pasta Sauce Sales Productivity

7


LIFT

CORRECT METRICS:


ACCUBASE









PLANNING:


PRIOR YEAR ACCRUAL



LIFT MODELS

EXECUTION:



CONSUMER UNITSCFS

ROI

INCREMENTAL FACTOR



Weekly Sales Units

Base Units = 100/Wk

400350

600

ROI = Increm CFS / Increm Spend $

Set internal ROI Objective as a function of margin % Metric can be used and shared by sales managers Easily communicated (“need x$ for every $1 spent)

EXAMPLE

Assume Total cost of 3 Events is $1,500

ROI = ($3.50 x 1,050) / $1,500 = $3,675 / $1,500 = 2.4

If Internal Margin > 42%, then event is profitable (1/2.4)

8


CONSUMER UNITSCFSINCREMENTAL FACTORROI

LIFT

CORRECT METRICS:


ACCUBASE







DISCOUNT COMMUNICATOIN AND GIMMICKS


PLANNING:


PRIOR YEAR ACCRUAL



LIFT MODELS

EXECUTION:



Accuracy of Baseline Sales estimate is critical.

TABS AccuBase™ is extendable to all retailers and countries with

scan data (e.g. TRU, Home Depot)

Huge over ship potential

9



LIFT

CORRECT METRICS:


ACCUBASE









PLANNING:


PRIOR YEAR ACCRUAL



LIFT MODELS

EXECUTION:



C# 0409724 6% Base Coop Minimum Fund $123,264 $12,772


C# 0409722 1.20% Loyalty Card Program Minimum Fund $31,316 $2,214

C#0441392 Ad 6/29-7/7/12 scan $1.71 .2 oz 6,963 $12,394

C#0441392 Ad 6/29-7/7/12 scan $1.71 Itchy .2 oz 4,977 $1,129

C#0441392 Ad 6/29-7/7/12 scan $1.71 1 oz 2,419 $4,629

C#0441392 Ad 6/29-7/7/12 scan $1.71 contact .2 oz 3,040 $2,411

C#0441392 Ad 6/29-7/7/12 scan $1.71 Cool Red .2 oz 2,179 $2,325

C#0441392 Ad 6/29-7/7/12 scan $1.71 Complete .2 oz 2,271 $4,042

C#0441392 Ad 6/29-7/7/12 scan $1.71 Max .2 oz 6,699 $11,924

C#0441392 Ad 6/29-7/7/12 scan $1.71 Triple .2 oz 4,992 $1,113



C# 0409722 1.20% Loyalty Card Program Minimum Fund $31,316 $2,214

C#0441392 Ad 6/29-7/7/12 scan $1.71 .2 oz 6,963 $12,394

C#0441392 Ad 6/29-7/7/12 scan $1.71 Itchy .2 oz 4,977 $1,129

C#0441392 Ad 6/29-7/7/12 scan $1.71 1 oz 2,419 $4,629

C#0441392 Ad 6/29-7/7/12 scan $1.71 contact .2 oz 3,040 $2,411

C#0441392 Ad 6/29-7/7/12 scan $1.71 Cool Red .2 oz 2,179 $2,325

C#0441392 Ad 6/29-7/7/12 scan $1.71 Complete .2 oz 2,271 $4,042

C#0441392 Ad 6/29-7/7/12 scan $1.71 Max .2 oz 6,699 $11,924

C#0441392 Ad 6/29-7/7/12 scan $1.71 Triple .2 oz 4,992 $1,113

Spending Data: WE 07/07/12

Ad Data: WE 07/05/12

Syndicated Data: WE 07/08/12

Is TPI Software essential for Promotional Evaluation?

Short-Term: NO Long-Term: YES

10


LIFT

CORRECT METRICS:


ACCUBASE









PLANNING:


PRIOR YEAR ACCRUAL



LIFT MODELS

EXECUTION:




CONSUMER UNITSCFS


Implementation


Measurement


Practices



Optimization

Revised New Flow


Measurement


Practices



Optimization


Implementation

11



LIFT

CORRECT METRICS:


ACCUBASE









PLANNING:


PRIOR YEAR ACCRUAL



LIFT MODELS

EXECUTION:



LIGHTNING ROUND ON TACTICAL RECOMMENDATIONS

Except for Consumables, Displays without pricing rarely are worth the effort or expense.

Bonus Packs rarely work; nor do Consumer Premium offers.

BOGO or B2G1F Packs are usual winners

Shoppers that use loyalty cards for deals are among the most disloyal of any shopper. They are very heavy buyers of most categories,

though.

In order of effectiveness, best way to maximize lift: % Off BOGO Net Price after FSI $ Savings Multiple purchase requirements (impairs lift) B2G50 (Gimmick, worse than 25% Off)

Deeper, fewer deals always better than frequent, moderate deals.

12



LIFT

CORRECT METRICS:


ACCUBASE









PLANNING:


PRIOR YEAR ACCRUAL



LIFT MODELS

EXECUTION:



1,000 1,500

2,000

3,000

LAST YEAR THIS YEAR

0

1,000

2,000

3,000

4,000

5,000

Base U Increm U

Distribution Accelerates Incremental Sales

+1,000

+500

NO SOUND BUSINESS REASON FOR LIVE ACCRUAL

Hard to manage

Distortionary pull-forward effects

Prior year accrual dramatically reduces year-end surprises.

13


CONSUMER UNITS CFSINCREMENTAL FACTORROI

LIFT

CORRECT METRICS:


ACCUBASE









PLANNING:


PRIOR YEAR ACCRUAL



LIFT MODELS

EXECUTION:

MARGIN POOLING


OBJECTIVE : “MAKE MORE,” NOT “SPEND LESS”

dvpp

xx

d

g

1

1

/

/

CP

CF

D

B

Assuming perfect, symmetric information, Mfr share of discount subsidy equal to their share of value chain

α = Share of discount subsidy paid for by vendor.

g = lift in terms of multiple of baseline unit

d = discount percentage

v = Marginal cost as % of Retail Price

D = Consumer Discount in Dollars

F = Factory Price to retailer

C = Marginal Cost of Goods

P = Retail Price (everyday)

VARIABLES

Promotional Price Elasticity (aka Lift)

Marginal Cost of Goods. Assymetric information

MARGIN POOLING

SELF-DEFEATING BARRIERS: MFR and RETAILER

14


CONSUMER UNITS CFSINCREMENTAL FACTORROI

LIFT

CORRECT METRICS:


ACCUBASE









PLANNING:


PRIOR YEAR ACCRUAL



LIFT MODELS

EXECUTION:

SELF-DEFEATING BARRIERS: RETAILER AND MFR


OBJECTIVE : “MAKE MORE,” NOT “SPEND LESS”

MARGIN POOLING

LIGHTNING ROUND ON SELF-DEFEATING BARRIERS

MANUFACTURER

Trade Spend inherently bad (flawed paradigms)

“Me” orientation

TPI-bias

Display obsession

$100MM Brand Threshold – HBC (~$50MM Food)

RETAILER

Inflexible margin requirements

Automatic deductions

Total vs. Incremental Ad Block dollars (“Kitchen-Sink” Ads)

“Loyalty-card only” strategies

Trade promo best_practices

Business

Transcript of Trade promo best_practices