I was with a Revenue Growth Management leader from a top CPG a few months back. As we were sitting in his office, discussing the future of trade spending, I asked him what he thought of one of the popular rebate apps that his company had been buying offers on. He hadn’t known about it. Actually, as he got to looking around, he learned that there were ~35 different people in the organization with the authority to independently authorize consumer-facing promotions.
This isn’t uncommon. For example, I’ve been asked by pretty much every major Health/Personal Care company if we have a solution at Eversight for layering/stacking, which is sometimes also known as math-off’s; usually it’s when a retailer (often in the Drug channel, although it’s used all over) show how much lower their selling price would be if you add in a coupon or other incentive that’s available.
As an industry, CPGs publish ~$500 billion in coupon liability in the U.S. alone, yet budget for only ~$3.6 billion in redemptions. (Source) There have been some successful efforts to constrain the most egregiously unstrategic redemptions, (e.g., pressuring retailers to remove the Clip-It-All button or equivalent from their load-to-card loyalty apps), but no matter how sophisticated individual efficiencies here may be, we’re still talking about a big picture where 0.72% of offered funds are claimed. If I were a CPG CFO I’d be up at night worried about the next evolution of technology here leading to an unpleasant surprise, even if it’s only 0.1% more we’re talking about a $500 million surprise loss.
What would happen if a larger retailer, or one that was more aggressive/tech saavy, called the industry’s bluff on the $497 billion in authorized but unused discounts?
With today’s technology, it’s nearly trivial to write a script to scrape all the coupons available online and apply them instantly at checkout. Imagine what would happen if a software company started scraping CPG coupons and applying them when consumers shopped on click-and-collect sites, or what would happen if a print at home coupon aggregator got integrated into a top retailers’ loyalty systems and all offers were automatically printed out and deducted at checkout for all shoppers? (Assuming, for this example, that such a retailer would be unbowed by manufacturer pressure to cease doing so).
This is already starting to formally happen via third parties. Every other day there’s a “moneymaker” on an extreme couponing site because one hand didn’t talk to the other of a different CPG… it’s only a matter of time before somebody does something more ambitious about it. To clarify, this is a risk even assuming legal redemptions… although fraud is not an insignificant secondary concern.
So what can you do as a CPG or retail leader? My advice would be as follows:
1) Strongly consider consolidating decision-making authority for any incremental value that touches consumers into the Pricing or Revenue Growth Management team. In today’s digital age it just doesn’t work to have different people touching this stuff in an uncoordinated way. I’m not saying that stacking is always bad (sometimes it’s done on purpose), but unless there’s someone looking out for the full spectrum of investment in an integrated way, there’s (big) money being put at risk.
2) Think of consumer promotion and trade spending/vendor funds as two parts of a singular “sales mix model” (marketing mix modeling is not just for marketing). The investments should fluidly shift between these platforms depending on the areas that drive the best business results. With all the recent advancements in access to consumers via digital platforms, there should be a constant calculus about which promotions are best delivered in a 1:all retailer-specific way (i.e., trade spend or retailer marketing), vs. those that should be offered directly to specific consumer segments (i.e., loyalty marketing and consumer promotion).
3) Consider implementing Zero Based Budgeting for trade spending and consumer promotion. Too many CPGs and Retailers rely on simple inertia and expediency, investing because they invested the same dollars in the same way on this week last year, versus thinking top down about where the best investments can be made and determining which offers are going to perform best. Offer innovation can be a useful tool to determine which offers make the most sense to run (click here to learn more).
4) I’m sorry to even have to say this, but watch out for what one of our customers calls “fact-based lying” coming from your teams up to you, or from your partners to justify promotional investments. It’s all too often that the ROI being calculated for the lift of a certain investment isn’t considering all the other activity that may have supported such a deal. Often these digital offers are excluded from the average prices visible in syndicated or tLog data, and while it must be captured somewhere, the TPM or post-event analysis tools typically don’t capture it. Likewise for shopper marketing–each group can take credit for the final number if it’s not held accountable for controlling for all the other stuff that might have been going on that didn’t show up in the syndicated scan or tLog feed that week. I hope you never have such a situation, but they happen frequently enough that I felt this warranted including.