Got profitable promos?
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.
Profitable promotional lift has gone to hell in a handbasket. Little by little over the years, incremental dollars are fading, regardless of levels of spending.
So retailers and manufacturers alike are experimenting with new ideas instead of merely bitching about how their trading partners are thieves and how promotion is an inefficient, money-grabbing boondoggle that randomly and rarely builds sales or consumer loyalty.
Okay, so 96.5 percent of that is true. And bitching is enormous fun. But it’s right up there with watching YouTube videos when it comes to getting anything constructive done. Here are three ideas to ponder:
Promote smaller, innovative brands more often or more deeply. It’s easy to lock in with major manufacturers on the same programs year after year, but you need to shake things up if it’s clear the category is losing ground or has gotten stale. Often, there’s no real excitement (think tired line extensions) in these programs anyway and you’re just training shoppers to buy big brands only on deal. Unique and innovative products (more often coming from smaller brands) add fresh excitement and help differentiate your offering. And a deep promotion on one of these items — especially if it has a relatively high shelf price — builds trial among shoppers who may not want to risk spending more than usual. Often, these trial buyers become long-term users.
Take the risk and give these innovative items the facings they deserve, too. If your buying/merchandising is based on last quarter’s scan data, you’re driving a car by looking in the rearview mirror. Spend more time looking at menus of hot restaurants in your area to stay on top of consumer trends. Then, take action on the shelf, whether it’s adopting new items or giving more space to innovative items that are on trend.
Bring new ideas to your trading partners. They’re probably as frustrated as you are, and more willing to negotiate than before.
Discussion Questions
DISCUSSION QUESTIONS:
What tips do you have for creating effective and profitable grocery promotions? Which suggestions above make the most sense?
Poll
BrainTrust
Paula Rosenblum
Co-founder, RSR Research
Ralph Jacobson
Global Retail & CPG Sales Strategist, IBM
The entire industry has self-immolated in the flames of promotions. We are just about to publish RSR’s annual pricing benchmark and the results are nothing short of stunning.
In fact, it seems grocers are actually performing better than other segments. Fashion is in complete destruction mode.
I think the best idea for grocers is two-fold: promote private label, where they have more room to tweak, and promote micro-assortments — whether that be local or innovative brands. Local is definitely a winner lately.
But no matter how you slice it, it’s time to slow the promotional cadence a bit and differentiate in other ways … “Publix, where shopping is a pleasure … ” How many retailers can say that with a straight face?
Highlighting new products in a category is the best idea presented in the article. Consumers, particularly Millennials, like new items. Second, show consumers how products will enhance their lives. This can be accomplished through advertising. After that, use promotion to generate trial. Third, cross-promote with complementary items. Retailers can generate higher sales and profits from bundling, rather than selling single items.
Profitable promotions are largely a self-fulfilling prophecy based upon the on-shelf (not promotional display) space that is given to a product. That is, if the shelf allocation (i.e., facings by shelf depth) that is given for a product is too low, then you will be out-of-stock more often then not. For decades we have said that 90 percent of movement comes to the shelf, not the auxiliary displays. If you want to build the movement of a particular item, drive sales by giving it just a bit more than average presence on the shelves and continue with a consistent promotional drive over an extended period of multiple weeks to gain shopper awareness.
I remember when I was running a store way back in the ’80s and I took a primary endcap and left it filled with one SKU, a private-label, high-margin chocolate chip cookie. I expanded the shelf allocation to a multiple of probably four or five times the spread that other key brands had, and I left the endcap up for 13 weeks. By the end of that promotion, that PL cookie was the fastest moving cookie in the store. Maybe that’s not much of a surprise, other than the fact that I had the product at regular price. That’s right, my primary endcap was at regular price, just to introduce the item to the shoppers.
In markets where chain loyalty is low, promotions need to bring shoppers into the store. When we look at promotion analysis, we often look only at the brand that is promoted, ignoring the fact that I bought $50 worth of other stuff while getting my Cocoa Puffs on sale (are you listening, Publix?). In markets where loyalty is high, perhaps because of few competing chains, then the ideas presented above and in the article make a lot of sense.
Don’t focus on just price as part of the promotion. There were a few other Ps involved. Being visually exciting and well-placed in a store draws people to the items and sometimes interesting fixtures/displays compliment. Do actual people sampling. Promotion isn’t just about lowering the price and throwing the product out there.
Decades of promotion productivity work have led me to the conclusion that there is no silver bullet. Starting with a strategic orientation regarding the shopper behavior you are looking to change is key.
For some categories, items or windows it may be about driving traffic or penetration; for others it may be transaction/basket size or even simply rewarding loyalty. These decisions then drive the role of frequency vs. depth, display vs. shelf, etc., and they must dovetail into the other elements of the marketing mix.
These principles can be proven out with the use of loyalty card data tracking households over time to determine if we’re really filling up the leaky bucket and generating full-margin repeat purchases, or merely capturing price-sensitive switchers for the week with a low-margin sale.
If you can only get your customers’ attention through price reductions then you are fungible. Unless you can differentiate your stores and chains, you will always fall back on price promotions.
The suggestions in this article are about innovation and transparency in the retailer-manufacturer relationship and taking mutually beneficial risks (and sharing in benefits).
As Paula mentioned, the turn to local sourcing of goods carries a lot of value from seed to table. Also, truly localizing your assortments will get you much closer to the local demand and tastes.
Sustained success will come by turning the decision matrix from one of negotiating allowances and improving buying power to one that revolves around a value paradigm that delivers new and refreshing customer experiences.
Novelty and visibility.
Promotion starts and ends with the item(s). If the item makes the shopper’s life better, then the less work a promotion needs to do to show a profit. Conversely, even the most robust and attractive promotions can’t trigger sustained interest or volume. However, promotional profitability doesn’t have to be the primary goal.
Alternative objectives should be considered including trial (HH penetration), offset competition, increase basket ring, etc.
Grocers need to get more creative in their their product promotion strategies. Don’t just rely on manufacturers’ routine trade promotion plans that are mechanical and stale.
Retailers need to analyze real-time data and promote what is hot or what is not (move excess inventory). Run promotions that engage shoppers and enhance loyalty instead of promotions that are merely discount driven. They should also consider moving to customer based pricing to drive sales.
There are many tools to utilize in making promotions effective and profitable. They all start with the right products, supported by effective messaging and off shelf display. One of the most effective tools that my team utilized were in-flyer coupons, at a hot price. They conveyed price leadership, while protecting margins via redemption slippage. Customers would still buy the promoted products off of end caps and side stacks, but not all utilized the coupons. The overall margin had a better mix rate than just a short term low price feature.
If you have been having problems with the manufacturer for so long then you should try to find another company that makes the same thing until that main company that you were with gets the product right or just stay with the other company.