You want to sell more product. So, you work with your retail partners to plan and run a trade promotion. But even with the most supportive retailers, running trade promotions isn’t cheap, nor do they promise returns.
Trade funds are a big investment for manufacturers, which is one big reason why manufacturers purchase retail analytics – to make sure they are getting a healthy return on their investment. But if you don’t have a bottomless budget, how can you use retail analytics to make sure you’re getting the most out of your trade promotions? And if you do invest in trade promotions, how do you know how much to invest, and with whom?
Read on to learn which key metrics to track, and which simple Byzzer reports can help you do just that.
What is trade spend?
Essentially, any investment a CPG manufacturer makes to increase demand for their products could be considered “trade spend”. Especially as e-commerce and digital advertising has matured, the list of what could be considered “trade spend” has grown much longer than it used to be. For our purposes, this article focuses on retail trade spending on in-store promotions.
The objectives of trade promotions
The promotion you decide to invest in may vary depending on the specific retail challenge you are hoping to tackle.
Trade promotions are commonly employed for new brands or items. Small CPG manufacturers can pursue any number of ways to raise brand awareness – social media campaigns, influencer marketing, SEO – but when it comes to brick and mortar retail strategy, nothing proves as tried and true as an investment in a good old fashioned trade promotion like a display or feature.
Maybe your item or brand isn’t new at all, but you just need to remind folks – hey, we’re here, and you’ll like us if you try us. A strategically placed display or pricing discount can make all the difference as to whether a shopper purchases your product over a competitor’s, or purchases anything from your category at all.
Market segment penetration
Maybe you’ve got great brand awareness in the Northeast, but nobody in the Midwest has ever heard of you: sounds like it’s time to invest in a trade promotion! Or, maybe you’ve got significant distribution and strong velocity at a couple niche healthy food retailers, but you want to improve sales at more mass market retailers. Sounds like it’s time to reach new audiences with a trade promotion.
The Metrics – What are you measuring?
Start with the fundamentals. This is where your POS (point-of-sale, or retail measurement) data comes in really handy. You need to break down your total sales to see what factors are truly driving a bump in total dollars or units sold – do you have your retail partner to thank for that trade promotion? Or would that increase have happened anyway?
Click on the image to take a closer look.
The chart you’re looking at above is an example report from Byzzer’s Promo vs Non-Promo Decomp Tree. If you invest in nothing else to track the success of your CPG trade promotion, it should be this report.
To run this report, you’ll select your focus brand, market, and the dates within which you’d like to see your sales data. This makes it easy to see what impact any trade promotions may have had on your sales, because you can select for the dates during which your trade promotion ran. Or, you could run the report twice – for the same length of time one year ago when no trade promotions were running, versus the length of your most recent trade promotion, for example. You may also tailor what markets you select to only those where your promotion was running, for example, if you’re a BevAl brand running a promotion at a drugstore, perhaps you look at Drug retailers only.
In either case, the top of the tree will show you what kind of increase you enjoyed in sales (if any), and then you can easily follow the tree down to your promotional sales to see the breakout of those numbers.
In the case of the example above, you can see exactly why it’s so important to use a report like the Promo vs Non-Promo Decomp Tree to track success. (Click on the image to take a closer look.) While Allstar Bev has seen an increase in sales for the selected period, it was not due to across-the-board success of their promotions. While the brand’s TPR (temporary price reduction) proved more effective versus a year ago, both display and feature promotions have underperformed compared to last year, meaning that incremental volume (i.e. units sold that would not have otherwise without the trade promotion) has not performed up to the expected standards.
CPG metric to track: Incremental vs Non-incremental Dollars
The first, most basic way to determine if your trade promotion is working is to compare your incremental sales to your non-incremental (sometimes called “base”) sales.
If we look at the above example from the Promo vs Non-Promo Decomp Tree, this report does us the added favor of grounding these numbers in a little context. For example, we can see our total sales sits at $818.4M, with $592.8M of those coming from non-incremental, or expected sales, and $225.7M coming from incremental, or sales made on trade promotion. By themselves, comparing your incremental vs non-incremental sales may not tell you everything you need to know, but that’s why context is important – look at how these numbers have changed versus a year ago, and see what the percent impact to total sales has been. In the case of the above example, we can see that the $225.7M generated by your trade promotions is actually significantly less than the $266.3M generated by sales for the same period a year ago, contributing to total sales by 14.6% less than it had in the past. That’s a sign your trade promotion spend is not optimal, and it’s time to dig deeper to diagnose the problem.
BONUS: To pinpoint your problem (or success), use the Promotion Incremental Sales Trend Report. If you ran the promotion for three months, for example, this report allows you to track changes in your incremental vs non-incremental sales over time. There’s always the possibility that your promotion performed very well in the first six weeks, then tanked in the following six weeks. Being able to identify exactly when things went wrong or well is key to learning and adjusting your strategy for next time.
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CPG metric to track: Promotional (Discount/Feature/Display) Lift
Once you’ve established whether you’re driving incremental lift or not (i.e. an increase in sales due to a trade promotion), it’s time to dig a layer deeper to see where the real successes or failures are coming from. You’ll find these metrics at the bottom of this Promo vs Non-Promo Decomp Tree. These are a great way to track success (or lack thereof) on trade promotions, especially if you run your report with strategically chosen markets within the timeframe of the promo you want to measure your ROI on.
Understand what you’re measuring: NielsenIQ retail measurement data looks at promotions in three buckets: Discount (or Temporary Price Reduction), Feature (or store circular), and Display (or sometimes called Secondary Display). From a manufacturer perspective, this gives you the ability to track your return on investment more granularly. For example, if you only see that promo sales are up, but you have two on-going promotions – one as a display in Retailer X and one as a TPR in Retailer Y, you have to know if both are driving lift (the increase in sales), or if one is a flub and the success of the other is carrying the team.
So how does NielsenIQ define these three key promotional metrics?
Lift Due to Discount
or Temporary Price Reduction, should hopefully be self-explanatory. By NielsenIQ definitions, this discount is TEMPORARY – after seven weeks of a discount, that will be considered the new price.
Lift Due to Feature
refers to any increase in sales you enjoyed thanks to inclusion in the retailer’s in-store circular or sometimes as a newspaper insert.
Lift Due to Display
means your product was strategically placed somewhere other than its normal shelf. By definition it must be a place where shoppers can pick up and place your product in their cart (versus a sign featuring your logo, for example). Like a discount, NielsenIQ also defines these displays as temporary.
If you want to dig deeper into the incremental sales generated by each type of promotion, you’ll love Byzzer’s Price and Promotion Landscape Report. You’ll find all the info you need not only to track the progress of your discount, feature and display promotions over time, but also you’ll be able to compare your promotional success to the promotional success of your key competitors in the category – including specific prices used in TPR promotions.
Sounds pretty great, huh? That’s because it is. Click on the image to take a closer look.
CPG metric to track: Trade / Promotional Efficiency
By dictionary definition, trade efficiency measures how much promotional lift is associated with each dollar spent discounting an item for promotion. While we don’t know exactly what you spent, we do know how much the item was discounted and therefore the impact to margin. A value above $1 means the investment breaks even – and the higher above $1 dollar, the more efficient your promotions are at bringing you that sweet, sweet return on your investment in trade promotion. If your trade efficiency falls between $0 and $1, however, that means your investment drove incremental lift, but did not break even. In a worst case scenario, values less than $0 means that promotions didn’t drive any incremental lift at all.
The reason we like this metric for measuring return on investment for your trade promotion spending is because it’s a simple, all-in-one way to assign an exact value to your promotional efforts. The Price and Promotion Landscape Report mentioned above can tell you this metric, but if you’d also like to hold a retail partner accountable, you might be interested in the Promotion Support and Lift Report.
Let’s say you run the same promotion with multiple retail partners. Chances are, results will vary, and while the promotion might yield incremental gains with some of your retail partners, you may notice that other retail partners are trailing behind on their promises or under-delivering on results. That’s where the Promotion Support and Lift Report earns its keep: Select your desired time period (presumably the length of the trade promotion) and the markets you want to measure against one another. You’ll see success (or failure) across your three key metrics – TPR/discount, Display, and Feature, across the retailers you want to hold accountable. If, for example, you see consistent success across the board at all but one or two retailers, you know who you need to speak to.
Pro-tip: You can also run the Promotion Support and Lift Report to compare against your competitors instead of to compare retailers, which can be a great tool for showing new retail partners that your product deserves retail support in their stores. Learn more at The Reports You Need to Nail Your Next Category Review.
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There’s a lot to understand about tracking the progress of your trade promotions, but with a focus on these key metrics, you’ll be able to hone in on the data that matters most to measure your return on investment in trade promotion.