So you have done your promotional planning, does that mean no more problems? Unfortunately not. It is still quite easy to end up with a severe overspend situation. This is because most promotions have no limit on the amount the chain may wish to buy. Why this should be so is one of those things that has become ‘part of the way we do business’, and has no basis in logic. It is just as illogical as extended buy periods, for businesses where there is perpetual motion and a pipeline of product! But it causes very real problems. Even with the most careful of planning, unless you monitor the trade spend during the year, you will almost certainly get a big surprise at the end of the year. Planning alone will not control trade spend. In this section we are not concerned whether the trade spend is worthwhile, only with keeping the total costs within predefined boundaries.
This is a precis of a research paper entitled ‘The Decomposition of Promotional Response: An Empirical Generalisation’ by David R. Bell, Jeongwen Chiang and V. Padmanabhan, published by Marketing Science.
This very interesting paper based on research conducted in 1999, studies 173 brands in 13 categories in the USA over a 52 week period, based on the household expenditure of 250 families and 3 stores. The overall conclusion is that the percentage of promotional lift attributable to brand switching is an average of 75%, which is somewhat below previous studies. In 1988 Gupta measured this at 84%, and A.C.Nielsen more recently (precise date unknown, but published in 1996) at 80%.
Of even more interest is the category by category variance. Categories were selected to encompass both those that are known to expand consumption, as well as those that are ‘storable’ or ‘necessities’.The balance of the lift not attributable to brand switching was also analysed into the two components of category expansion (genuine additional incremental volume) and accelerated purchase (reduction in expected inter-purchase interval). A determination was also made of the relative impact of brand factors, category factors and consumer factors to identify which is the most significant. All in all, they are able to explain 70% of the actual promotional response. One of the significant findings is that category effects are more significant than brand effects, and consumer effects (i.e. demographics) are quite minimal.
The workflow authorisation capabilities of Promax allow controls to be applied to the amount of money on a promotion. The control is set as a series of management parameters and applied at the point of confirmation of the promotion.
The user hierarchy within Promax PX allows for the escalation of promotions that exceed the authority of the current user. These can be alerted to a senior manager via email or the welcome screen, and reviewed within the Promotion To Do window.
Two types of control are used, the total amount of money on the promotion, it must be below the limit of the individual doing the confirmation, and the amount per product that is offered as a case deal must also be below the limit for that person. When a deal is above the limit of that person, the authorisation will escalate to the next level of management. A manager can be set as having another limit for total spend and the escalation process can continue further up the organisation.
The screenshot above shows the promotional program window from Promax. Each of the bubbles in this display represents a promotion. The colours of the bubble represents the status of the promotion as it passes through its life cycle. White bubbles indicate planned promotions, the bubbles indicate confirmed all active promotions. The yellow and red bubbles indicated exception conditions where management criteria have been breached. Each of these promotions are subject to a variety of workflow and authorisation mechanisms.