Trade spend is inefficient.

Despite the heavy investment most CPGs put into promotions, most of them are highly ineffective and regularly losing money – more than half of all in-store promotions fail to deliver a significant ROI. At the core of the issue is that many of the promotional features are predictable and undifferentiated, resulting in declining consumer loyalty and response.

One of the main reasons this continues to happen is the use (or misuse) of post-event analysis or trade promotion optimization (TPO) solutions. These systems were originally designed to measure the results of promotional events, but they require retailers and CPGs to apply econometric regression to sort through large volumes of aggregated data. The resulting ‘insights’ are then used to plan promotional calendars, but TPO solutions fall short when it comes to discovering new promotions that could potentially work better. As a result, promotional calendars look the same year after year.

At a macro level, it looks as though US trade promotions are simply following the same escalation pattern as typical addiction; promotions have become steadily less effective, but shoppers have become increasingly deal prone and accustomed to deeper discounts. Simply eliminating promotions isn’t the answer. The key is knowing precisely which promotions to run.

Your promotions will go stale over time. Guaranteed.

As an industry, we keep ‘grandfathering’ or ‘anniversary-ing’ promotions year after year; and as shoppers habituate to repetitive promotions they simply don’t pack the same punch they once did. What if you could refresh your planning and restore the inherent value of your promotions? Good news – it’s not magic. It’s just science and foresight.

The simple answer? AI and real-world experimentation. At Eversight, we’ve often extolled the virtues of A/B testing – it’s been used to optimize Amazon’s home page, Google’s AdWords, and Netflix’s recommendations – and it lies at the heart of our Offer Innovation Suite. Through experimentation grown from the basic principles of techniques like A/B testing, thousands of unique offers can be quickly tested with real shoppers, obviating the need for costly in-store trials and resulting in promotions that drastically boost volume sales and trade spend ROI.

With technological advances like this, marketers can move far beyond price-based offers. Models for pricing and promotions have long been guided by the assumption that shoppers are consistently rational beings, but they’re actually far more likely to act on impulse. By letting consumers choose what works best and when, as well as measuring and acting upon that data, retailers and CPGs can attain a new level of success.

Customers of Eversight are leveraging the Offer Innovation Suite as a tool to enable transformation in their trade and promotional planning processes. They are shifting from annual planning processes where general promotional guidance is provided to field sales to providing highly targeted promotional guidance that is reflective of offers that resonate with customers now.

So what can you do as a CPG or retail leader?

1. Consider consolidating decision-making authority
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. This is already starting to formally happen via third parties, and it’s only a matter of time before somebody does something more ambitious about it.

2. Evaluate CPE as a core metric
A shopper walks into a brick and mortar store or scrolls through an e-commerce site while being confronted with displays, coupons, gifts or other incentives designed to influence a purchase decision that will be made in a split second. Whether it be soda, toothpaste, diapers or soap – consumer promotions and engagement (CPE) tactics can significantly nudge a brand’s sales. Despite this, CPE is a relatively overlooked area of spend for many consumer goods manufacturers. Now more than ever, the environment calls for the ability to shift all marketing, trade, and CPE investments fluidly between vehicles. Advances in technology and the digitization of the path to purchase are pushing marketing investments closer to the point of sale while the pursuit of topline growth is more cut-throat than ever. In this new world, CPE activities only increase in their importance, as they can be used to drive both awareness and sales with shoppers in the most relevant context – at the point of purchase.

3. Consider implementing zero based budgeting for trade spending and consumer promotion
Zero-based budgeting is all the rage in consumer goods as of late, and for good reason. It’s effective. It’s also fairly simple to explain. Instead of assuming every department’s budget should be exactly as it was last period, with zero-based budgeting the assumption is that each department should budget for everything that they invest in from a zero base. It’s not just an accounting technique – it’s a philosophy that costs should be justified based on a business purpose and not assumed to be a given.

4. Think of digital as a ‘Revenue Growth thing’, not just a ‘Marketing thing’
In a fall 2017 survey 92% of packaged goods executives acknowledged that digital transformation was a business imperative for their organization, yet only 29% of those executives identified trade promotion as a specific priority area for change. “I think the root cause is that most CPGs have historically thought of ‘digital’ as a marketing thing,” says David Moran, co-founder and chairman of Eversight. “With more than 50% of grocery trips touching a digital asset during the path to purchase, this obviously is not something that can be ignored anymore.” A lot of trade spending processes were built around 12-week lead times to print circulars and pallet drops for big box stores, but in a world where a shopper is most likely reading the weekly circular on their phone – our processes haven’t caught up.

Revenue Growth Management is so much more than pricing.

It’s the art and science applied to growing the top line of a business.

Big data (and the analysis of it) has been a key marketing tool of brick-and-mortar retailers for a very long time, but these days big data isn’t all it’s cracked up to be in the retail industry. This is particularly true for the $300B spent in consumer goods retail, despite the fact that most retailers today use very sophisticated analytics that slice and analyze data in all kinds of ways (loyalty, structured POS, transaction history, etc.)

The goods news is that for the first time – through a combination of predictive analytics, machine learning, and data science – digital testing solutions are becoming available to offline retailers. In the case of trade promotions, online testing is enabling rapid digital experimentation, executed with real shoppers to measure how different offers will perform before implementing any changes in store. This eliminates much of the risk and guess work that is often involved in executing in-store pilots (or worse, rolling out changes blindly), enabling companies to improve volume sales and ROI by only funding the best offers, which have been proven to work.

You want to maximize your revenue given a sunk cost of products (or limited salvage value), and you want to do so smoothly so you don’t have lots of costs mid-season in repricing tags or moving inventory around between stores that are selling out faster than others, etc. but when prioritizing business investments, it’s often the markdown pricing opportunity that looms large, when realistically for most businesses there’s a lot more to be gained from everyday and promoted price optimization. It’s just that the missed opportunities never show up on the P&L…they’re hidden in plain sight.

In a world characterized by digitization, fragmentation, and changing consumer preferences, CPGs should leverage these promotional investments to best serve their customers and drive business performance at scale – and Precise Promotion Guidelines are a great way to arm sales teams with proven recommendations at a more granular level of detail and customer relevance than most existing promotional planning processes. Guidelines can inform promotional strategies across brand marketing, shopper marketing, RGM, and customer sales functions.