Almost every CPG company runs promotions but are they always effective?
The truth is, less that 50 percent of promotions are effective. Most companies promote their products without a clear strategy to grow sales and increase brand awareness. While it's important to support key retailers, a promotion that doesn't increase sales and foot traffic in the category is simply a waste of money.
When planning a promotion think carefully about all of the factors involved including:
- Fixed cost (promotional fees and merchandising costs)
- Menu cost (ROTO, etc.)
- Miscellaneous cost
- Off-invoice – case rate (reduced case cost – cases sold)
- Bill-back/shipments – case rate (reduced case cost –cases sold)
- Scan down rate per unit (amount paid to reduce the item price)
Once you know the cost of the promotion, you need to evaluate the benefit of the result.
The kind of sale you want
There are two different kinds of sales: sales that occur everyday in the absence of any promotion and incremental sales that occur as a direct result of a promotion. The goal of every promotion is to build everyday sales.
Some companies promote constantly and as a result they have trained consumers to only buy products when on sale. This can be extremely costly and can actually reduce category growth. Rewarding existing loyal customers with a promotion results in "subsidized volume" or rewarding an existing customer who would buy your product anyway.
Having answers to all of the factors above will help you develop a promotional strategy to reach your goals. Retailers need manufacturer partners that are committed to their success. Knowing your category and developing a solid promotional strategy, that also benefits the retailer, will set you apart from the competition. Retailers are happy to reward manufacturers willing to take a leadership position.
These simple steps will help you properly plan for promotions that will grow sales, and increase customer take away, profits and brand awareness. This should be the goal of every manufacturer.
How do you plan for effective promotions? Share in the comments.