RetailWire Webinar: RFID Drives Promotional ROI
By George Anderson
Trade promotion is a critical part of manufacturers’ budgets for driving sales at retail. For retailers, it is not only a proven method for building incremental volume and profits of promoted products but for complementary items, as well.
Despite its importance, each party says actual performance falls below their expectations. Two-thirds of retailers do not believe they are getting a fair return on promotions while 91 percent of manufacturers believe they are ineffective despite spending upwards of 15 percent of their sales budgets on trade promotions.
Last Thursday’s RetailWire Webinar, ROI from RFID: Promotion Execution, explored some of the reasons that promotional
programs fail and how the lack of timely store-level information makes it nearly impossible to make the corrections necessary to quickly fill holes in execution.
It also served as the site of the first official announcement that OATSystems, ADT Tyco and Intel were conducting a 50-store test RFID test to track promotional performance at retail.
Marc Osofsky, vice president, marketing & product management for OATSystems, told attendees how the use of radio frequency identification (RFID) technology can dramatically improve promotional performance.
According to Mr. Osofsky, RFID tracking of promotions has several advantages over traditional legacy systems.
RFID enables retailers to not only identify whether product has made it to the store but if promotional product and displays have made it on the floor. Since RFID transmits this information in near real time to vendors and retailers, fast action can be taken to alert store managers and a manufacturer’s store level coverage personnel.
Once a program period has concluded, according to Mr. Osofsky, legacy systems may be able to identify the sales achieved during a promotion but they do not identify areas where execution fell down and the systematic learning needed to improve future performance.
Conversely, RFID tracking provides the level of detail to not only assess performance of the just finished promotion but also to accurately forecast future program opportunities and the means to achieve them.
One opportunity that RFID has identified is in the area of stock-outs, many of which occur as a result of pre-promotional program activity.
“If you have a promotional spend or a circular coming out two weeks from a date in which a product is moved out; if the store moves it out too early, the product will move from the sales floor; sell out; will be an out of stock situation when the advertising circular hits and all that does is drive customers to the store who become frustrated with that supplier and buy a competitor’s product,” Mr. Osofsky said during the Webinar broadcast.
RFID also helps trading partners see when stores have not complied with the terms of the promotion. In some cases, as Mr. Osofsky pointed out, this may be because manufacturer pallet displays have to be broken down because they are too large to fit in the backroom or on the sales floor.
The use of RFID tags enables retailer and manufacturer to see, for example, if a display pallet has spent less than a day on the sales floor. Because the information is transmitted in near real time, the parties can investigate if promotional product was moved to an end-cap or if there is a real problem with execution that needs to be addressed immediately.
“This process describes how things generally work today with folks using POS data to determine if there are sales on a given SKU or looking for an uptick on a promotional item. That data has to be reviewed by an analyst then sent to a third party. That third party then has to schedule it with the rep to get to the store. That rep then has to fit it into a schedule and get to the store and send confirmation and this can extend anywhere from seven to 21 days, which may be well beyond the promotional period to begin with.
To provide further quantified support for his position, Mr. Osofsky along with Randy Dunn, director of RFID for ADT Security Systems announced that their companies along with Intel would be launching a 50-store RFID test to track promotional performance at retail.
“The solution is called Promotions on Standards. It will be announced officially today (Thursday, May 18) and you’re hearing it first on RetailWire,” said Mr. Osofsky.
“The Promotion on Standards solution is designed to help other retailers who have not yet engaged in RFID to get started in an ROI-based manner,” he said. “We have found that the biggest win-win-win for retailers, suppliers and consumers for RFID…the first place to start is around promotion display compliance…better execution of promotions at the store-level.”
“We’re making it available for up to five retailers to participate. For each retailer, ADT Tyco will install readers, antennas, stands, etc to provide a physical RFID layer for each of up to 10 of their stores, and they are funding that exercise as part of this proof of ROI project. So you have a total of 50 stores across five retailers that will be wired,” he said.
“This is a very concrete way to enable a retailer who has not been engaged in RFID to get started with the subsidization of the infrastructure from ADT Tyco; Intel providing
servers and funding the academic study and OATSystems providing the necessary software at the store level as well as the analytic software for both the retailer and the suppler.”
Moderator’s Comment: How much of a need is there for improvement in the area of promotions? What opportunities do
you see for radio frequency identification (RFID) technology to improve performance at store-level, specifically in connection with the execution of promotions? –
George Anderson – Moderator
The use of RFID to help control availability and understand product placement and purchase at a store-specific level has been something I have taken great interest in for a while.
I think the majority of retailers have realized that they need to operate on a store-specific level now to really gain the optimal ROI and support key marketing strategies. Optimization solutions have helped retailers to take a major step forward in the last 3 to 5 years; planning at a more granular level will allow retailers to take the next step.
Planning and executing promotions accurately and profitably is paramount to the financial success of all retailers. No matter the level of planning conducted (or budget spent) at Head Office matters when the majority of these initiatives fail in the most important place…the shelf. RFID clearly provides the opportunity for retailers to monitor stock delivery, placement and then sales far more accurately in order to plan better and increase ROI.
In addition to this, RFID could then be used to track all inventory and instantly warn store staff that a potential availability issue is arising in the store. Store staff could then replenish far more efficiently to ensure a reduction in lost sales opportunities, also providing a solution to an interesting challenge retailers have faced for a while – which is the performance of multi-allocated products around the store and therefore planning to meet demand in each location.
Focusing on execution issues is an easy thing for a manufacturer to do around trade promotions. After all, the “fault” lies in the other camp. Do retailers execute poorly? Yes. Is is a competitive advantage and a distinction for a manufacturer to design a promotion intended to mitigate that poor execution? Yes.
But the really high return on investment for trade promotions would be better thinking. Too many trade promotions are designed solely to stuff the pipeline with product, and then count on footsteps at the retailer to pull it through. The timing, nature and structure of the offer are rarely thought through as well as they should be. I know this is a sweeping generality, but live with it. It’s true.
Improving trade promotions means designing one that accomplishes two objectives well: provides a financial incentive for the retailer and a need-benefit incentive for the consumer. Sometimes, price is the best need-benefit you can find for the consumer. But is it always? In the grocery world, it tends to be what stimulates in-store brand switching. Go beyond that. What POS support is provided? Is there additional consumer pull scheduled in conjunction? How synergistic are all the elements of the marketing spend?
Trade promotions, when managed independently, do not maximize anyone’s investment. When seen as an integrated part of the entire marketing spend, they work much better. Even if the retailer doesn’t execute with the best of them.
RFID tags and readers will certainly assist, but I don’t believe they will be the cure all of promotion effectiveness. If RFID tags are the magic bullet, then this technology would already be in wide use, since RFID has been around for some time now.
The variables listed, as well as others that negatively impact promotion effectiveness and ROI center on clarity of expectations by both sides of the table and flawless execution. Until suppliers and retailers ensure total clarity on all the elements of an effective promotion and the “to do’s” are clearly agreed to and committed to, we will continue to see some disconnects.
Flawless promotions do exist now and when they do, it is a win-win-win scenario. RFID tagging will help to more quickly identify the gaps, but will not resolve the shortfalls. Also, tagging and readers do add a cost element; or should I say an added investment in the promotion for both suppliers and retailers….
Most thinking about what happens in stores, whether by shoppers or staff, depends too much on “corporate” type controls and management – and even management imagination, and not enough on the basics of human behavior. It was very gratifying to hear Evan Anthony of Kroger (at the In-Store Marketing Summit) largely discount the value of FSIs from a marketing point of view. The real value of these, he said, is the effect they have on store management – to be sure promoted items are in-stock and featured.
This makes FSIs a very expensive way to influence your own staff, but it is a tremendous insight, and exercise in realism. This is not to discount the value of management “controls,” like automated inventory controls. But I can imagine what will happen as soon as a lot of managers figure out that their time honored practice of putting P-O-P products on the regular shelf, and discarding the P-O-P, is being monitored when the P-O-P heads into the back room and corrugated crusher. A lot of P-O-P discarding will occur by the front door instead of the back.
Human nature will rule, whether of shoppers or staff.
Retailers who can’t be counted upon to be reliable promotion partners have much bigger problems than just promotions. The retailers who are well-run will build the displays on time with proper care. The retail chains who generally can’t be counted upon to build the displays correctly on time are organizations who can’t count on their staff to perform other key retail tasks either. Manufacturers need to partner with reliable well run retailers. Those are the firms most likely to have a future, decent growth, paying their bills on time, with reasonable customer loyalty. Why spend time and money with a partner who can’t be trusted? Promotional dollars should be focused on the winners. Let the competition spend their money trying to get losers to perform.