Gaining Competitive Advantage: Strategy is Key Best practices in developing a process for promotional optimization and measurement

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1 Market Track Perspective TM Gaining Competitive Advantage: Strategy is Key Best practices in developing a process for promotional optimization and measurement Within today s retail environment, there is expansive opportunity for more collaboration between manufacturers and retailers, particularly in their joint efforts to drive shoppers to buy their brand or shop their stores using promotions. There are similar motivations behind promotions for retailers and manufacturers. They both share in the goal of growing their shopper base and increasing sales (Figure 1). Both aim to net new trials and shoppers. Both want to see category growth and share growth. Both want to drive the amount and frequency of shopper spend. That said, the paths to achieving these goals differ between manufacturers and retailers. Their paths are similar, yet parallel. In their efforts to net new trials and shoppers, retailers desire incremental store traffic, while manufacturers seek incremental share of that traffic. To attain category and share growth, retailers aim to grow their category sales, while manufacturers want to grow their share of their category sales. In regards to spend, retailers want to build basket sizes, while manufacturers want to increase the incidence of their products being included in baskets. Concerning frequency, retailers want to increase trips to the store, while brands want an increase in the frequency with which their products are purchased. These are subtle but important differences in their paths to achieve strategic goals. Manufacturers and retailers require different information and different processes to create a promotional plan that will drive shopper trial and purchase of their products. In this issue of Perspectives, we will address the top business problems that manufacturers face in their efforts to drive trial and purchase of their brands and products. We will pose the question of whether or not manufacturers are employing the RIGHT promotional strategy at their top accounts, and provide recommendations on how to measure current performance and execute the right strategy adjustments. Ultimately, our goal is to strengthen manufacturers ability to achieve their strategic goals by improving their promotional measurement process using the right information and insight. Market Track s Shopper Insight Series Over 300 manufacturers rely on Market Track for the market intelligence needed to improve their promotional decisionmaking and drive their business performance. Every manufacturer with whom we work strives for promotional optimization--in other words, orchestrating a promotional plan that optimizes both the trial and purchase of their brands and products, given the resources they have at their disposal. Where many manufacturers struggle in this effort to achieve optimization is with the process of turning data and insight into effective action. In this issue of Perspectives, we will introduce our process for promotional measurement, analysis, and, ultimately, optimization. Our methodology has been developed over the course of nearly 30 years partnering with the leading companies in the retail industry, and incorporates competitive promotional data with sales and performance metrics. We will integrate insights from our most recent shopper survey as well, in which we surveyed over 1,000 primary household shoppers, asking about their preferences, behaviors, and key influences that drive where they shop, what they buy, when they buy, and how much they buy.

2 Figure 1: Parallel paths in goals between retailers and brands A shopper s path to purchase is non-linear. Understanding what opportunities exist to engage shoppers promotionally, and at what points in their path to purchase these engagements have influence, is a critical first step in a manufacturer s creation of an effective promotional strategy. Understanding the purchase journey It s important to consider how various methods of reaching shoppers impact their purchase journey. They are all critical in impacting decision making and perception, but at different points. Broadcast media (TV and radio ads) drive shopper awareness of a particular product category or brand and in some cases promote special sale events. Promotional programs like paid search, mobile applications, or online video drive shopper consideration, with shoppers indicating interest by searching on a particular product or brand or downloading a mobile application. I decide what brands to buy based on offers in the store circular Print circulars, e-circulars, and opt-in drive shopper trial and traffic by promoting specific details around the purchase of a manufacturer s product, such as price, product descriptions, and other offers and overlays. Shoppers leverage these promotions regardless of if they are stocking up on purchases, or only buying a handful of items, as our Grocery Shopper Insight survey showed. 72% of shopper respondents claimed they Will always use promotions when asked if they were more likely to seek promotions when they stocked up versus buying only a few Items. We asked shoppers directly about what drives their decision to choose a particular brand in our Shopper Insight Survey. 58% of shoppers claimed that they either Always or Most of the time decide which brands to buy based on offers featured in a store s print circular (Figure 2). Even more eye-opening was the rate at which shoppers claimed to purchase brands they do not typically buy due to a promotion they received for a competing brand. Just under 78% of shoppers claimed that over the past 12 months, Over the last 12 months, have you purchased a brand other than what you normally buy based on a promotion you received? Source: Market Track Grocery Shopper Insight Survey Figure 2: Circular influence Source: Market Track Grocery Shopper Insight Survey Figure 3: Brand switching 2 Market Track Perspective TM

3 How often do you buy store brand/private label items? Source: Market Track Grocery Shopper Insight Survey Figure 4: Impact of store/private label Shoppers are frequently choosing to forgo the brands they normally buy for store/ private label, with almost 83% saying they buy store/private label at least Sometimes. Of the factors that would cause shoppers to buy store/private label items, over 50% indicated Lower price than my normal brand. Over 65% of shoppers indicated they believe the quality of store/private label to be the same or better than brand name items. they have purchased a brand other than what they normally buy as a result of a competing promotional offer (Figure 3). Shopper Engagement Strategy: Getting their attention What are some of the current strategies retailers are leveraging to differentiate their promotional offer from their competitors, and how are these strategies impacting manufacturer s ability to drive trial and purchase of their brands? Price and offer type continue to be focal points for retailers. They want to appeal to shoppers with the best value offer in the market, and have taken steps to evolve their strategies to ensure shoppers know when they shop their store, they are getting the best possible deal. There are several examples of current promotional strategies that shoppers see almost every time they pick up a circular, navigate to a retailer website, or click through an from a retailer. An increasing number of retailers have adopted the price-match guarantee, ensuring they will not be beat on price on key promoted products. Particularly during key periods like Black Friday and holiday, when the volume of competitive discounts and sales is difficult to monitor and react to, this strategy holds an important appeal to shoppers, knowing they are guaranteed the best possible price. Retailers are also increasing their promotional allocation to Private Label brands, likely in large part due to the higher margins and lower promoted sale prices on Private Label items. Through April 2014, the number of Private Label promotions on circular front and back pages has increased by 7% compared to Results of our most recent Grocery Shopper Insight Survey lent support to the promotion of Private Label brands as well. 83% of shopper respondents claimed to buy Private Label brands at least Sometimes (Figure 4). With the goal of driving shopper trial and purchase of your brands, and accepting the current promotional trends hitting shoppers across all retail channels, how should manufacturer s approach the question of whether or not they have the right promotional strategy with their top accounts? In this next section, we will outline Market Track s process for optimizing manufacturer promotional strategy. We will examine: A process for comparative assessment of a manufacturer s presence in market based on share, frequency, impressions and spend A framework for comparative and predictive analysis of promoted pricing relative to dynamics impacting the market, trade class/channel, competitive set, category, and region Proprietary statistical models leveraging Market Track, third party, and manufacturer performance data to benchmark performance and uncover market level opportunity within a manufacturer s promotional program Evaluation of ad quality, messaging, and promotional strategy in driving shopper behavior. Share Analysis: How is your category being supported? Retailers utilize their circular and other promotional channels to drive activity for both staple, high frequency departments, as well as to help push categories that are either seen as highdemand engagements or are experiencing sluggish sales (category rejuvenation). Anchoring yourself to this conversation means understanding over time how each of your top retailers have treated your category, and how they are driving this message to your shoppers. Figure 5 shares a long-term category support analysis for the print media type, measured in ad blocks. This analysis allows manufacturers to quickly uncover which categories are gaining promotional support at their key accounts, and which are losing support. In Figure 5, the yogurt, hot dogs, and milk categories have seen a steady increase in the number of ad blocks allocated to each year to year since By contrast, the pre-packaged deli meats and bacon categories have seen their category support erode over the same three year period. But category support goes well beyond ad counts an additional layer of metadata is added to the analysis in Figure 6. Beyond understanding whether or not your top accounts are promoting your category, Figure 6 reviews category support by page position for specific dates or key periods. This analysis not The Power of Market Intelligence 3

4 Greek products drive incremental coverage in yogurt Greater competition in premium hot dog segment Rise in milk alternatives (almond milk, soy, etc.) Is there consistency in brands promoted? Key business questions: How are retailers leveraging shopper interest to drive co-op engagements and push the category? Are new products coming to market? How are they impacting the category? Figure 5: Share analysis category support by ad blocks only reviews whether your category was promoted, but where within the print circular, and how often. During the March time frame in 2013 and 2014, the Drug channel allocated front page position most frequently to household consumables and candy, whereas categories like wellness and over-the-counter drug most frequently fell on interior pages (Figure 6). Where a retailer promotes your category within their circular can indicate how they view your category as a trip and/or trial driver. It is critical manufacturers not forget that digital media is playing an increasingly important role in driving shopper trial. In our 2013 Reach and Impact Shopper Insight Survey, 66% of the segment of shoppers who claimed to use retailer websites to find promotional deals said that they at least Most of the time decide which brands to buy based on those offers. Understanding how your top accounts are engaging shoppers with digital offers, and what role your category plays in their digital engagements, is important in a manufacturer s assessment of their category s overall standing in their retailer s promotional plans. Figure 7 integrates digital media into a category support analysis, forming a comprehensive omni-channel view of how a manufacturers top accounts are supporting their category. For the selected retailers in figure 7, and social media support of the new bakery and new beverage categories dropped from 2012 to Website support of the bakery and beverage categories also slipped from 2012 to 2013, yet from 2013 to 2014, the beverage category saw a surge of website support (45 to 82 ads during the selected time frame). Why is it important for manufacturers to begin their share analysis at the category level? It provides a look into how your top accounts view your category. If your category support is on the decline, that may determine your next step as a brand, whether that be product innovation (e.g. Greek yogurt rejuvenating the yogurt category) or exploration of new segments (e.g. Milk alternatives like almond milk or soy milk within the milk category). If your category support is on the rise, how can you ensure your brands are seeing the corresponding growth in support? Think of the category support analysis as an Key business questions: Are shoppers finding your brand in the most relevant places? To which departments/ categories are retailers dedicating space? In which categories are they featuring your brand? Figure 6: Keeping your message relevant 4 Market Track Perspective TM

5 Key business questions: Are your top accounts driving your category using digital promotions? Do you receive your fair promotional share online? In promotional ? Figure 7: Category presence in digital opportunity guide based on the promotional support lent to your category by your top accounts. Price/Trade Spend: Understanding competitive threats After gaining an understanding of how your top accounts view your category, the next step in developing a successful promotional plan is installing measures for monitoring competitive promotional threats from within your category. Competitive promotions can negatively impact a manufacturer s share of their category, the incidence of their brands being added to shoppers baskets, and the frequency with which their brands are purchased. A winning promotional plan cannot be crafted without knowledge of competitive ad frequency, pricing, and offer types and overlays. Market Track s competitive win/loss analysis sheds light on the competitive promoted pricing landscape for our manufacturer clients. An example of a win/loss analysis is shown in figure 8, where we examine the ad cadence for competing brands X and Y and the price points at which each of their products were featured. In figure 8, as seen on 3/15/14, Brand X and Y both had their comparable Product C featured in the Kroger circular. The Brand X product was featured at $0.50 more than that of Brand Y on that date at Kroger, which, in Market Track s measurement, would be considered a loss on that ad date. The $0.50 delta in price is also significant on items priced in the $2-$5, according to our shopper survey respondents. When asked at what level of discount shoppers would change the brand they typically buy in favor of another brand for items priced in the $2-$5 range, over 62% claimed they would change at only a 10-20% discount. Over a longer focus period, this win/loss report aggregates all competitive wins and losses to give manufacturers a good idea of their loss rate at each of their key accounts. They can use this information to anticipate at what promoted price they will likely win, lose, or draw, and make adjustments to their pricing strategy in turn. As we touched on in our discussion of some of the noteworthy promotional trends retailers are using to drive shoppers to the store, Private Label promotions are on the rise, and pose as big a competitive threat to many categories as do other national brands. Figure 9 provides an example of a competitive pricing analysis that monitors national brand ad cadence and pricing against Private Label for a select set of retailers. Using this analysis, manufacturers can quickly identify how frequently they are promoted versus Private Label likeitems, whether or not their promotions have been preempted by Private Label, and how they are typically priced relative to Private Label when on promotion. Of course, making the case to a retail account that your brand or product should be promoted more than or in place Brand X, Product C featured at a higher price than Brand Y, Product C at Kroger on the same week. Considered a Loss on competitive promoted price. Key business questions: Are your competitors promoted prices low enough to cause shoppers to switch away from your brand? Figure 8: Competitive insights drive pricing opportunity The Power of Market Intelligence 5

6 Key business questions: How are well are you performing on price against Private Label options at your top retailers? Are you monitoring pricing against Private Label for all of your product lines? Figure 9: The threat of Private Label of their Private Label brand is tenuous business without an increase in trade spend. Including each of a manufacturers top accounts in the analysis in figure 9 allows the manufacturer to either identify opportunities to shift trade dollars between accounts (for example, to an account at which the delta in promoted price between their product and Private Label is smaller or at parity), or deliver a business case to improve their ad presence at an account at which their promotional cadence and/or pricing is suboptimal. This can be achieved through sharing of success stories or best practices from other top accounts, and collaboration with the under performing account to identify opportunities to improve. Where figures 8 and 9 focused primarily on promoted price points relative to competition, figure 10 introduces a measurement of offer type usage within promoted categories. Offer types can prove a powerful tool for both retailers and manufacturers, both for driving trial and purchase, but also for basket building purposes. Market Track s 2014 Grocery Shopper Insight Survey found that the right offer type can cause shoppers to buy unplanned purchases, or additional quantities of planned purchases, both of which are desired outcomes for retailers and manufacturers. Nearly 45% of shoppers claimed that a Buy/Get offer is the promotion type most likely to cause them to buy unplanned groceries, or buy additional quantities of planned purchases. Manufacturers stand to benefit from their products as a part of a special offer or overlay, yet they are also open to risk if they lack awareness of competitive offers and overlays. Figure 10 shows, by retail channel, the most common offer types and overlays promoted within a specific category during a select time frame. Manufacturers can benchmark their own schedule of offer types and overlays against their category to see whether they are over- or under-indexed for any particular offer type, and work to adjust their offer types where their performance may be lacking. For instance, in figure 10, the Drug channel promoted just over 53% of the category s promotions with a Buy/Get offer. If a manufacturer within that category found that only 20% of their product promotions within that category were Buy/Get offers, a dialogue should be opened with that account to ensure their offer type mix is optimal. Survey respondents claimed Buy/Get as the offer type that drives them to buy larger quantities of purchases Key business questions: Which offer types are most effective in driving your category? Are your products promoted with the right offer types and overlays? Figure 10: Offer type incidence by category 6 Market Track Perspective TM

7 Key business questions: Are you reaching your promotional goals versus your targets, versus last year, and versus competition? Can you measure how far along against your promotional plan you are this year? Figure 11: Performance against promotional goals Measurement: Seeing the impact of your placements Once a manufacturer s process for monitoring their category ad presence, competitive ad presence, and competitive pricing and offer types is ingrained and habitual, meaningful measurement of their performance towards their sales goals can be established. The integration of point-of-sale (POS) data and/or Market Track s online pricing data into competitive promotional data affords manufacturers the ability to measure performance against set promotional goals, how effectively their promotion is at driving sales at key accounts, and how your retailers are adhering to your brand standards. Figure 11 displays a promotional performance measurement analysis based on goals set by Market Track s manufacturer clients. Throughout the year, manufacturers can use this view as a scorecard to measure how their promotional performance is tracking relative to their annual goals. The analysis in figure 11 drills down to the product level for a single manufacturer, and tracks ad counts, percent to target ad counts, percent change from the previous year, and the delta remaining before the target performance is achieved. Though the analysis in figure 11 is limited to ad counts, the same measurement analysis can be applied to page position targets, offer type targets, and sales targets with the incorporation of POS data. The incorporation of POS data illuminates a number of critical performance metrics that all contribute to a manufacturers ability to optimize their promotional plan. Figure 12 shares an example of Market Track s POS overlay analysis, which combines competitive promotional data with sales performance data to identify lifts and dips that result from promotional placements. In figure 12, on 11/4/12, the coffee manufacturer received a high-quality ad featured at the lowest promoted price of the year on a week with no competitive promotional activity. That ad placement resulted in a 161% unit sales lift from the preceding week. In June of the following year, the same product received a low quality ad promoted on the same week (6/16/13) as a competitive item, and they only saw just under 40% unit sales lift from the preceding week. The high quality ad on 11/4/12, which had premium page positioning, Key business questions: Is your promotional lift optimal? Do you have a process by which you can measure your promotional lift for impressions across media types? Figure 12: POS overlay analysis The Power of Market Intelligence 7

8 the lowest promoted price of the year, and a large gap between the last promotional occurrence, saw a significantly higher lift than the low quality ad that dropped on 6/16/13, which lacked premium page positioning, and was promoted on a week during which competitors were promoted. The manufacturer in the example in figure 12 was able to identify the optimal timing, cadence, and page positioning necessary to drive the optimal unit sales lift, all taken from one, concise, easy-to-consume analysis. Do I have the right promotional strategy with my top retailer partners? Before a manufacturer can efficiently and effectively measure the success of their promotional strategy, they must have a thorough understanding of that strategy, and what the levers for success entail. Once their shopper engagement strategy is established, measuring the success of the strategy should follow the steps outlined throughout this Perspective: share analysis, competitive price/trade spend comparison, and measurement against goals and performance metrics. Below is a list of strategy-related questions that, if left unaddressed, could derail a manufacturers ability to not only develop a winning shopper engagement strategy at their top accounts, but also their ability to measure whether or not their strategy is proving successful. Market Track has developed a process by which manufacturers can ensure these questions are addressed with the incorporation of the right data, and the right method for measurement. 1. Shopper Engagement Strategy: Do you know how your category, brands, and products appeal to shoppers? Are your promotions driving increased traffic, trial, and purchase at your top accounts? Do you know how to course-correct if not? How should shopper behaviors and tendencies impact your decisions on promotional strategy? 2. Share Analysis: Do you know which categories are gaining/losing promotional support at your top three accounts? Do you know in which categories your top three accounts are featuring your brand? Are your products represented accurately? Are your categories featured on premium pages and with premium ad types? If so, are your brands and products seeing their fair share of the premium ad space? 3. Price/Trade Spend: Do you know if/when you are winning/losing on price at your top accounts? How does your promotional cadence and pricing compare to your top accounts Private Label products within your category? When your products are promoted with a special offer or overlay, is it the best offer type to drive trial and purchase? How does it compare to competitor offers and overlays? 4. Measurement: Do you know how your actual promotional performance is tracking against your target performance? Versus last year? Can you measure on what promotional cadence, frequency, and at what ad quality your products see the largest sales lift? Do you have a process by which you can monitor your full product line to ensure your brand and product equity meets the minimum requirement at your top accounts? Can you identify when it doesn t? About Market Track Market Track is a market intelligence firm dedicated to increasing our customers returns on their promotional investments and providing real-time visibility into e-commerce pricing. We support our 850+ clients through monitoring and analyzing over 200 U.S. and Canadian markets for every channel of trade and 1 billion buy pages from 3,000 global merchants, enabling dynamic decision making by turning data into actionable insights. Key Takeaways Leverage category support analysis as an opportunity guide based on the promotional support lent to your category by your top accounts. Use competitive pricing analysis to quickly identify how frequently brands are promoted versus Private Label, whether or not their promotions have been preempted by Private Label, and how they are typically priced relative to Private Label when on promotion. Use POS overlay analysis to identify the timing, cadence, and page positioning necessary to drive optimal unit sales lift. Understand who your target shoppers are, and how the promotional strategies at top accounts drive trial and purchase among those target shoppers. Consistently measure. Monitor shifts in category support at top accounts. Measure adjustments to competitive promoted price. Overlay promotional information against performance data. Constant measurement proofs against unexpected results. Learn More For more insight into the entire promotional landscape or an analysis of your digital and print strategies, call Market Track at or perspectives@markettrack.com Market Track. All rights reserved.

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