What's a Good Promotion?

DEVELOPING A SINGLE QUALITY MEASURE FOR PROMOTIONS WITHIN A STRATEGIC FRAMEWORK

There are many ways of looking at a promotion and evaluating the effective and efficient use of trade funds. To address this issue we might first ask the question “why promote?” Generally, the incentive to promote is to increase the visibility and show the product in association with others which leads to new usage ideas for the consumer. There are a number of good reasons why one might choose a simple price promotion;

• Offensive sales gain – to offset competitive threats. Typically this may mean a situation where the supplier is prepared to forego short term profits.
• Recover market share – sustaining a nominated loss of contribution to gain a position over competitors
• Stimulate Sales – without a loss of contribution and hopefully an increase in overall profitability. This is probably the most common rationale for promotions. Implicit in this is that the company will increase sales revenue and thus the total profit from the promotion will be greater than if there were no promotion at all.
• Reward – for existing brand loyal users. This may be a short-term loss of profitability and may even make money if a lot of brand loyal consumers stock up.
• Switch – However, if there are a large number of promotions targeted at “deal loyal” users then they will switch brand frequently. When promoting to this group the best course of action is to make sure that the promotion is profitable as there may be no long-term future gains to be had.
• Gets new users to Trial – for new products every new trial is valuable; this incentive is premised on the assumption that the long-term value of a new user may be worth many times the cost of the initial purchase, so the supplier is prepared to invest heavily to obtain a new consumer. This may justify the high cost of a promotion. Trade promotions of new items often need to be supported by other vehicles such as demonstrations and media advertising.
• Reward to Trade. This often happens to get a buyer off your back. If however, it is viewed as being good for both parties, there should be a profit opportunity.
• Because the trade Threatens Deletion – in many instances buyers have co-op budgets to achieve. There is pressure on suppliers to maintain ranging and promotion of your products in the category ensures support for your brand.

Each of these scenarios has different parameters of cost, price point, mechanic, vehicle and incremental volume gain. In reality the sales team gets a certain amount of money to spend on promotions, some say that these funds are a “cost of doing business”. The more money that is provided the more we will sell. If only this were true! We really need to understand how we can effectively apply the limited trade funds to maximise their efficiency.

Read more about “What’s a Good Promotion using Promax PX” by downloading the complete whitepaper

Promax PX Reporting and Analysis

Overview

Promax PX is a rich source of financial and supply chain information that provides an insight into customer and product profitability. The communication of the information within Promax is essential to the business process that tracks, predicts and optimises trade funds investment. That is why Promax has such a diverse and comprehensive reporting environment. The interactive and responsive user interface communicates information rapidly in tabular, graphical and white paper report forms. The stakeholders involved with promotion activity extend beyond the user base of Promax PX and can include the executive team, customers, supply chain and marketing to name a few. The reporting facilities inside Promax enable visibility of key information via global dashboards, web based reports and scheduled output to spreadsheets. It is this variety of communication mechanisms that facilitate the realisation of a rapid return on investment from the implementation of the Promax PX project.

In this document we review the many communication channels that Promax PX and Promax AnalytX provide.

The object orientated design of Promax PX provides a consistent and familiar interface for the selection and filtering of data relevant to the user’s enquiry. The account and product hierarchy from the core business system is reflected in Promax and updated transparently to reflect any revisions that may occur through changes in the business environment.

Read more about “Promax PX Reporting and Analysis” by downloading the complete whitepaper

Sales & Volume Planning with Promax PX

The forecasting capabilities of Promax have been a core part of the application’s functionality for many years. Since the inception of the system it has addressed the need to provide a forecast of financial data to be the basis of accruals for deferred trade promotions expenditure. This soon involved the transformation of those forecasts into revenue and volume estimates for each promotion. Those estimates required the development of algorithms to calculate baseline sales and seasonal effects to further improve forecasting accuracy.

The innovation and research at Promax over the last couple of years has taken the modelling and sales/volume planning capability of Promax PX to a new level, placing it at the forefront in Trade Promotions Optimisation and Sales & Volume Planning. This paper describes best practice for the combination of activity based forecasting, statistical modelling and market intelligence to give a holistic approach to sales/volume planning for CPG (Consumer Packaged Goods) companies.

WHY ARE CPG COMPANIES DIFFERENT?

Most computer based demand planning systems were derived to solve the problems of manufacturing and purchasing organisations with large SKU (stock keeping Unit) counts and limited amount of “market intelligence” on consumer demand signals. They are typically based around statistical models derived from sales (ex-factory/warehouse) in monthly buckets. The fundamentals are there, in that they all produce a statistical forecast that reflects the seasonality of the sales and its growth or decline from the current level for each SKU. The frustration for CPG businesses is these tools do not deal effectively with those products that are highly promoted. Promotions cause large spikes in the demand, way above the baseline sales rate. The demand signal often appears confused as the spike hits the supplying warehouse well before the promotion is launched to the consumer. The incorporation of this information into traditional demand planning systems consumes endless hours of debate and consultation in the Sales & Operations Planning forum often resulting in poor forecasting accuracy, expensive and unrewarding business processes and inevitably the consequential out-of-stocks and expedition costs that are all too familiar.

The renowned forecaster R G Brown, who lays claim to have invented the statistical modelling technique known as exponential smoothing, has been asked many times by those trying to solve the forecasting dilemmas “What is the best source of data for forecasting?”. His reply, with quintessential ambiguity, is consistent “You should try and use the most reliable source of data that most accurately records consumption”. That used to be ex-factory sales from invoices/shipments but now for CPG companies there are reliable sources of POS (Point Of Sale) data that are clean and verifiable. The granularity of this data is improving with weekly sales by product/customer readily available from syndicated data providers. A number of companies are working with their retail customers to obtain data on a daily basis for each store.

The real point of difference is that CPG companies need to understand the forecast from the perspective of baseline sales and promotional uplift. This requires a multi-causal approach to modelling data that concurrently models baseline, trend, seasonality and the effect of price and other promotional factors. Furthermore the character of the customer’s buying behaviour has to be understood and modelled as the generation of a useful forecast for the supply chain requires a transformation of what the consumer will buy from the check-out to replenishment orders on the manufacturer from the retailer for re-supply. These models need to operate effectively without the need for inventory data, as this is rarely available in a timely and convenient form.

DEVELOPING AN “ACTIVITY BASED” FORECAST

An “activity based” forecast is one where events such as promotions are individually defined and modelled. To derive an activity based forecast we need to decompose the historical demand data into identifiable elements that can be used to establish the forecast.

Read more about “Sales & Volume Planning with Promax PX” by downloading the complete whitepaper