To promote or not to promote? That is the question. Especially during the holiday shopping season when consumer packaged goods (CPG) companies spend millions of dollars on trade promotions, hoping to get their products in the hands of consumers. This is vital when one in three consumers will make purchases driven by a promotion.
Perhaps a better question is: Was that money well spent?
That answer can be difficult to find through all the “noise” – competing promotions, ever-changing whims of consumers, and erratic pricing. Measuring the impact of promotional spend – essential to Revenue Management strategies – can be done. If CPG companies follow these three steps, they can measure the impact across a variety of trade promotions:
- Establish Your Goal: Set a specific goal for the trade promotion. Is your aim to drive volume? Increase short-term revenues? Make tactical competitive gains? Goals allow you to focus your analysis on the promotion and benchmark success. Not all promotions are the same, and some can drive different consumer behavior, making it critical to clearly state your expectations for all promotions. Define what you want to achieve and how it will be measured – then stick to it.
- Isolate the Promotional Impact: The past holds key lessons, and the history of your trade promotions is no exception. Access all historical data: including timing, promotion type, spend, volume, and revenue. Before you dig into the analysis, normalize the data using statistical models to isolate the impact of the promotion. This helps to eliminate other factors that introduce noise to the analysis- such as overall demand trends, normal seasonality of your business, and other pricing actions and initiatives. Use this dataset to measure the true impact of the promotion and the real return for your promo dollars.
- Measure – Then Do It Again: Once your promotion is underway, be certain to review key metrics as data is available. Looking at the entire promotional period will allow you to normalize the data and definitively quantify the promotion’s uplift – success or failure, but monitoring early results can help you catch errors in strategy or execution, with time to correct the final outcome. Once the promotion is complete, use the normalized sales data to measure against the goal and benchmarks you established. With this analysis you’ll be able to determine the effectiveness of your past trade promo spend, and make better decisions in the future.
The holiday season is a high-demand time for consumers, and in mid-swing. Don’t delay measuring the effectiveness of your promotions. Start by monitoring key metrics for the holiday season now, and conduct a complete evaluation of your normalized sales data next month. There’s no better time than the New Year to start measuring success.