An Optimized Approach to Measure Promotion Strategies Effectiveness

In today’s era, promotions and discount offers a part and parcel of the marketing strategy of any CPG company. Various studies show that consumer companies are spending to the tune of 20% of their annual revenue on trade promotions, which is significant and worth studying.

However, a no of factors influences the success of promotions. Measuring promotion effectiveness is the key to ensure that a business is getting optimum returns on its promotion spending.

The successful businesses concentrate not only on developing innovative and creative promotional campaigns but also pay an equal attention to tracking trade promotion effectiveness analytics as well.

Now, let us expand the horizon of our knowledge about what trade promotions are and how to measure promotion effectiveness with the best approach in this blog.

What is Promotion?

Promotion is an attempt by marketers to inform, persuade, or remind consumers and B2B users to influence their opinion or elicit a response. Most firms use some form of promotion. Because company goals vary widely, so do promotional strategies. The goal is to stimulate action from the people or organisations of a target market. In a profit-oriented firm, the desired action is for the consumer to buy the promoted item.

Trade promotions are marketing offers and incentives offered to the members of the distribution channel in the form of coupons, discounts, promo codes, rebates, and other methods to drive growth in sales.

The goals of trade promotion are to

  • Maximise the sales of a product or service.
  • Enhance brand awareness among customers.
  • Create and increase demand at the retail level.
  • Introduce a new product or reintroduce an existing product in the market.
  • Strengthen the bond with retailers.
  • Incentivize retailers to actively participate in promotion.

Evaluating Promotional Effectiveness

Today, promotions can be found everywhere, and running constantly. Visit your local mall and you will likely be overwhelmed by the “% off” signs and abundance of special offers and discount scheme. The customer is nowhere ready to pay the full price anymore. This bombardment is changing the behaviour of consumers, who are becoming all too used to buying most of their everyday need products on promotions only. One can easily say trade promotions are powerful drivers of sales at the retail level. However, along with implementation promotional activities should be also analysed using a data-based approach; this is to understand if they have delivered the targeted results.

Measuring promotional effectiveness is a stepwise process and includes:

  1. Study and Analysis of Past Promotions:

    Before starting any promotion, it is critical to study past promotions. Analysing these campaigns helps determine factors driving success and the pitfalls. Past data about sales, profits, ROI serve as pillar posts against which we can compare current results.

    Developing a proper promotional plan with a clear aim is vital to analyze and improve promotion effectiveness. We must define the channels used for a particular sort of promotion to identify the source of data.

  2. Defining KPIs:

    The next step is to determine the primary metrics for measuring trade promotion effectiveness. Metrics like sales volume, profits, sales lift, pull-forward, cannibalization, ROI need proper tracking. No single metric can give a clear idea of the performance of a promotion, and businesses must use a combination of KPIs to ensure good results.

    Promotion managers can identify the effective promotional products. They can also analyse other parameters, like customer satisfaction, engagement of old customers, and life-time value of customers.

  3. Organizing and Managing Promotional Data:

    Data collected from different sources now have to be harmonized and cleansed to make them comparable and reliable. It can be confusing if distributors are using varied formats to record promotional data.

    The next step is to organize the data so you can attribute sales and profits to the right promotional effort. Knowing which promotional effort brought about which sale helps in determining the return on investment (ROI).

  4. Analyzing Results:

    After organizing the data from different channels of promotion, it is time to dive deep into it. Every measure, like sales volume, the cost of promotions, profits, and return on investment, are analyzed in depth.

    Many promotion management platforms are available that make computation and analysis across large data sets easy and fast. They use machine learning and AI to reliably deliver insights about the effectiveness of sales promotion.

  5. Reporting:

    In the last step the results have to be recorded and reported. Reporting is critical to not only understand the reasons for the success or failure of a promotional campaign but also to optimize it in the future and its efficient working. A promotion effectiveness dashboard in a promotion management platform is ideal for recording and reporting relevant metrics.

Leverage Machine Learning and AI to understand promotion effectiveness

Consumer goods companies spend as much as ⅕ th their revenues on trade promotion. So, it is now of much importance to measure the effectiveness of spending such a huge amount of money. Before, it was a difficult task as Channel Partners who were executing such promotions vigorously used to control the dissemination of sales data partly because of fear and there was no such incentive to do so.

But as with growing trends of the passing of inventory risk with suppliers, retailers are now readily sharing sales and inventory data with suppliers. Combining this with the availability of higher computing power at a relatively low cost, Artificial Intelligence (AI) technology has been making rapid strides in consuming such data and predicting outcomes based on past performance.

  • Prediction and Simulation: Once models are established and ready for use, the ‘what-if’ user interfaces in the application can help users manually simulate different scenarios by tweaking factors that are in their control to arrive at the most optimal promotion to run by using linear programming.
  • Cannibalisation and Halo: This application enables the enterprise to measure and understand the effect (positive or negative) of a product’s trade promotion on other products and the customer basket. This is necessary to understand how promotions truly impact net sales year-on-year.
  • Multi-Causal Modeling: The application provides comprehensive insights into what factors influence the promotion performance, how, and to what extent. These “causal” factors could be one or more of Price, Location, Seasonality, Display Advertising, Retail Format, Customer Activation, etc.

Conclusion:

Rebates, discounts, creative displays, boards, and coupons are strategies that almost every business uses. The most vital thing is to track and find the most effective promotional strategies that have yielded the best returns.

The use of technology to track trade promotion effectiveness can streamline the whole process. Today, many trade promotion effectiveness analytics platforms are available that have in-built features are effectively handling large chunks of data generated during promotions.

The data management and predictive analysis of these advanced platforms are tools that can help businesses get the most out of their promotional campaigns.

Check out our various solutions and case studies. Write us atinfo@transorg.com

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