Category Management Effective Promotions

Transcription

1 2006 Category Management Effective Promotions Tony Almeida Director of Training & Development Kraft Foods International July 2009

2 The Kraft 3-Step Category Builder Category Review Category Definition Category Role Category Analysis Category Performance Category Strategy Category Tactics Implementation STEP 1 What about? The Scope STEP 2 What is and could be? Status / Potentials / Objectives STEP 3 How? Action

3 The Kraft 3-Step Category Builder Category Review Category Definition Category Role Category Analysis Category Performance Category Strategy Category Tactics Implementation STEP 1 What about? The Scope STEP 2 What is and could be? Status / Potentials / Objectives STEP 3 How? Action

4 Category Role The Role of the Category has an impact on how the retailer allocates its resources and priorities within the store. There are four typical roles: Destination Routine Occasional // Seasonal Convenience To To be be the the primary category provider and and help help define the the retailer as as the the store store of of choice. Superior consumer value. value. To To be be one one of of the the preferred category providers and and help help develop the the retailer. Customer expects to to find find the the category. To To be be a a major major category provider by by delivering frequent competitive consumer value. value. Occasion based. The The category meets an an unplanned purchase or or impulse need. need. This This enhances the the position of of a a one-stop shop. shop.

5 The Kraft 3-Step Category Builder Category Review Category Definition Category Role Category Analysis Category Performance Category Strategy Category Tactics Implementation STEP 1 What about? The Scope STEP 2 What is and could be? Status / Potentials / Objectives STEP 3 How? Action

6 The 5C s model C Company C Customer / Channel C Category Performance C Consumer / Shopper C Competition

7 The 5C s model C Company C Customer / Channel C Category Performance C Consumer / Shopper C Competition

8 Track the performance of the category The 5C s model C1 Category Use a score card to track key KPI s and identify what is happening

9 Identify the causal factors of the performance The 5C s model C2 Company - Yours Demand Base Advertising Consumer New Products New Authorizations Shelving Incremental Tactic (Feature/Display) Pricing Frequency Timing Investment Trade Funds Supply Availability Quality

10 Identify the causal factors of the performance The 5C s model C3 Customer / Channel Demand Base New Stores Pricing Cannibalization Other Incremental Tactic Pricing Frequency Other Supply Credit Labor Disputes Other

11 Identify the causal factors of the performance The 5C s model C4 Competition (to You) Demand Base Advertising Consumer New Products New Authorizations Shelving Incremental Tactic (Feature/Display) Pricing Frequency Timing Supply Availability Quality Most effective when conducted by Channel and Customer Level

12 Identify the causal factors of the performance The 5C s model C5 Consumer / Shopper Triggers Political Economic Social Technological Environmental Legal Attitudinal Most effective when conducted by Channel and Customer Level

13 C Company C Customer / Channel No new products launched Reduced promotional packs Space increased for multi-packs at the expense of singles months Category C Consumer / Shopper Snack foods +5% We are+1% C Competition Increased demand for multi-packs Mixed flavour packs demand from families Increased lunchbox demand because of $ Year Brand X launched multi-packs with mixed flavours Brand X Buy 2 get 1 Free promotions

14 The Kraft 3-Step Category Builder Category Review Category Definition Category Role Category Analysis Category Performance Category Strategy Category Tactics Implementation STEP 1 What about? The Scope STEP 2 What is and could be? Status / Potentials / Objectives STEP 3 How? Action

15 Category Strategies Characteristics of the six most applied strategies by customers Strategies Traffic building Transaction building Profit generating Share protecting Excitement creating Image enhancing Intent This strategy aims at getting the consumer to the store and into the category This strategy aims at increasing the consumer average spend in the category This strategy aims at increasing category % margin and cash flow The retailer wants to be unbeatable in this category defends market share and sales This strategy aims at meeting the consumer needs by offering innovative products This strategy aims at creating a desired image towards the category customer Characteristics High price awareness High purchase frequency Multiple purchasing High household penetration High transaction value High family attraction Impulse products Display sensitive products High loyalty No price sensitivity High margin Cross purchasing Frequently purchased by target customer High price sensitivity Frequently promoted by target competitors Innovation / Special events New products / Markets High brand awareness Image enhancing through Brand marketing Assortment Shopping environment

16 Category Tactics The category tactogram builds on the category stratogram, identifying specific actions that tie back to the category strategies. Role:?? Category Tactogram Tactics:/ Strategy Traffic Building Transaction Building Profit Generating Share Protecting Excitement creating Image Enhancing Assortment (Ranging) Pricing Promotion Frequency of promotions Cross category promotions Meal Solutions Display high margin items near promotions Frequency of promotion on category leaders Displays and themes Consistent with positioning Merchandising

17 The Kraft 3-Step Category Builder Category Review Category Definition Category Role Category Analysis Category Performance Category Strategy Category Tactics Implementation STEP 1 What about? The Scope STEP 2 What is and could be? Status / Potentials / Objectives STEP 3 How? Action

18 Category Tactics Promotion Assortment Pricing Promotion Shelf Merchandising

19 Promotion The Definition Promotion Temporarily change price / value conditions to influence sales and perceptions. Objective: The Objective Of Promotion Is To Influence Consumer Purchasing Behavior As A Means To Increase Sales Volume And/Or Profit. Purpose: Provide An Audience (Customers/Consumers) With An Incentive To Purchase Within A Specific Period Of Time

20 Promotion Setting Process Define Promotional Objectives Develop Promotional Design Strategy Develop Promotional Tactic Conduct Promotional Planning Conduct Promotional Evaluation

21 1 1. Define Promotional Objectives Target: CONSUMER Overall Objectives Volume/ Revenue/ Share Growth Consumer Penetration Manufacturer Profit Growth Retailer Margin Growth Consumer Behavior Objectives Trial Pantry Loading Continuity Increased Usage Image Enhancement B2C

22 1. Define Promotion Objectives, Continued Consumer Behavior Definitions Trial Is The Objective Most Often Used For New Or Expanding Brands And For Established Brands With New Or Improved Products Pantry Loading, Or Gaining Incremental Volume In The Short-Term From Current And Occasional Users Is A Frequent Objective For Products In Which The Rate Of Consumption Is Expandable (Increases With Availability) Continuity Of Usage Among Current Users Simply Prompts The Regular, Repeat Purchase Of Your Product By These Users, Increasing Share Of Requirements At The Expense Of Competition. It Is Frequently Implemented By Mature, Well-Established Brands (Facing Heavy Competitive Pressure) Increased Usage Recipe Programs And Usage Related Premiums Such As A Dispenser Are Examples. Usually This Objective Is For Brands With High On Hand Levels And Low Turnover Image Enhancement This Is Rarely The Primary Objective Of A Promotion, But Often Is An Important Secondary Consideration. Different Than Continuity, The Goal Here Is To Increase The Overall Demand For A Category (Vs. Getting A Greater Share Of Existing Demand)

23 1 1. Define Promotional Objectives Target: SHOPPER Overall Objectives Volume/ Revenue Growth Consumer Penetration Manufacturer Profit Growth Retailer Margin Growth Shopper Behavior Objectives Increased in-store traffic Increase frequency of of visit Increase basket size Increase loyalty to to store or or brand B2S

24 1. Define Promotion Objectives, Continued Shopper Behavior Definitions Traffic, Maximizing the penetration and number of shoppers into the store. Frequency, Maximizing the number of times per month a shopper visits the store. This increases the number of chances and unplanned or impulse purchase can occur. Spend, Maximizing the total value of the spend by basket. Converting light shoppers to heavy shoppers. Loyalty Maximizing the shoppers purchases of a category by minimizing the purchase from a competitor s establishment

25 1 1. Define Promotional Objectives Target: RETAILER Overall Objectives Volume/ Revenue Growth Consumer Penetration Manufacturer Profit Growth Retailer Margin Growth Retailer Behavior Objectives Authorization/ Distribution Increased shelf allocation share of of market equals share of of shelf Share of of voice - Promotions B2B

26 2 2. Develop Promotional Strategy Promotional Strategy is How the Promotional Objective will be reached Key Considerations: What do we want to happen? Example: Attract new (or lapsed) customers Who is the consumer/ shopper? Example: Demographics, characteristics, shopping mission Where the incentive is being delivered? Example: Channel, customers, region, format, number of stores Level and type of Incentive Example: Trial Package with purchase of complimentary item, 10% Money back offer

27 2 2. The six Promotional Platforms The six C s Promotional Strategy Cost Convenience Concept Communication Customer Relationship Consistency A key part of any customer s value perception; promotions are often used to influence costs & therefore perceived value Location, Opening Hours, pack size suited to purchase occasion, product availability; promotions to drive impulse A mix of product & delivery of the brand promise ; promotions can add to the brand concept in the mind of the consumers Keeping the customer informed; can be very powerful if used in conjunction with right promotional offer Promotions facilitate relationship building between brand & customer (shopper) On-going quality & reliability through integration of the other 5 C s

28 3 3. Promotional Tactics vs. Objectives A Promotional Tactic is a specific activity designed to meet a specific strategy Shopper Promotions Temporary Price Reduction Multi-buys Bonus Packs Coupons / Vouchers Loyalty Points/Card Gifts* Competitions/ Contest* Displays Events Trade Promotions Loyalty Bonuses Credit Change of Terms* Sale or Return* Competitions/ Contest* Sales Force Promotions Bonuses / Commission Coupons / Vouchers Gifts* Competitions/ Contest Attract new (or lapsed) consumers Increase loyalty of existing customers Increase usage Persuade retailers to stock the brand and gain additional visibility Compensate for price increases Motivate your sales force Not all options shown here are used by all manufactures *Check local policies/ laws and compliance requirements

29 3 Tactics mapping to impact Consumer Types Current Loyals Competitive Loyals Switchers Causal Factor Promotions Coupons Special Packs Sampling Contest/ Sweepstakes Continuity Programs Refunds Price-Offs/ Discounts Premiums Trade Deals Cause Related Promotions Reinforced Strong Strong Limited Strong Strong Strong Strong Strong Strong Strong Extra Sales Moderate Strong None Strong* Strong Moderate Strong Moderate Strong Moderate Crossover Sales Moderate Strong -- Strong* Strong Moderate -- Strong -- Limited Intense Loyals None None Limited Limited None None None Limited None Limited Value Seekers Limited Limited Moderate Limited Limited Limited None Limited Limited Limited Inertia Limited Limited Strong Strong Moderate Limited None Moderate Limited Strong Value Strong Strong None Strong Strong Strong Strong Strong Strong Strong Variety Strong Strong None Strong None Strong Strong Strong Strong Strong Distribution Moderate None Strong Limited Moderate Limited None None Moderate Moderate Price Buyers Strong Limited Limited Limited Limited Strong Limited Limited Strong None Non Users Price Limited None None None None Moderate None None Limited None Value Limited None Limited Limited Limited Moderate None Limited Limited Limited Lack of Need None None None None None None None None None None Possible residual factor Sales Promotions Essentials by D. Schultz Exhibit 3.3 * Depends

30 4 4. Promotional Planning Route Define Activity & Support Calculate Forecast. Calculate Breakeven. Calculate ROI. Capture Objectives for each promotional activity Set KPI s

31 Incremental, Base & Lost Sales Incremental Sales Sales achieved as a direct result of in-store activity. Had the activity not taken place, the sale would not have been made. Base Sales Sales that would have occurred had there been no instore activity on the pack. These sales include those promoted sales that would have occurred without making the promotion. Establish the impact of regular price changes on Base Sales Lost Sales Sales lost as a result of competitor in-store activity. Had the competitor not run a promotion, these sales would have been achieved by our brand.

32 4 4. Understanding Base, Incremental and Timing is critical to planning 16 KEY HOLIDAYS LBS. (In Millions. ) Incr Lbs Base Lbs Week Ending

33 Fixed vs. Variable Know your Promotional Costs Fixed A fixed promotional cost is is a given cost that that will will be be incurred regardless of of how many units are are sold Variable A variable promotional cost is is a cost that that will will depend on on the the number of of units sold $5000 Feature Ad Placement Fee Fixed $100 Display Rack (One for each store) Variable $2.00 Off Regular Price When You Buy 2

34 4 4. Promotional Planning Template Brand: Powered Beverage A Retail Account: Retailer A Timing of Planned Activity: Summer period-may 1- Sept 30 Promotion objectives 1.To increase consumer trial of a new flavour 2. Comments: Measures of Success Measure Info n Source Timeframe for Eval. Forecast Current Forecast Impact Achieved Impact Volume Spend ROI In-Store Compliance ACNielsen ACNielsen Promo Eval Sales Rep +/- 6 months +/- 6 months +/- 6 months +1/2/3/4 weeks $ stores $ % 230 stores

35 4. Promotional Planning Template Brand: A Retail Account: Retailer A Timing of Planned Activity: Summer Period May 1- Sept 30 Planned Activity SKU #1 #2 Promotion Offer Plan Actual Brand A New Flavour 4 Shelf Support Plan Actual POS barker signage Display Support Plan Actual Gondola End Budget Production Costs: Redemption Costs: Trade Support Costs: Total costs: Forecast Actual Comments:

36 The Incremental And Baseline Components Must Both Be Identified Incremental Volume Used To Determine Effectiveness Both Used To Determine Efficiency Calculation Example: Calculate Promotional Volume Forecast Promotion 51 Baseline Volume Is The Average Of Non-Promoted Weeks Week 1 41 Week 2 47 Week 3 48 Week 5 44 Week 6 51 Total 231 Average 46.2 Baseline = 46 Incremental Volume Is Total Volume Of A Promoted Week Less The Baseline 0 No Promotion No Promotion Week 4 = 102 Less Baseline 46 Incremental Volume = 56

37 Fixed vs. Variable Promotional Costs Breakeven point Maintain Profit PROFIT Total Revenue Total costs Variable costs Cost LOSS Fixed costs Units Sold

38 BREAKEVEN

39 FOR OUR PURPOSES Think about it like this Current State Total Revenue Breakeven point Profit Total Costs Cost Loss Profit If you decide to run a promotion are you better or worse than your current state?

40 4. Breakeven Definition Breakeven: Level Of Promotion Volume Where Promotion Profits Are Equal To Promotion Costs 4 Fixed Costs Promotion Costs The Equation + Breakeven (Base Lost Volume Profits Discount) x Breakeven Profits Volume x Promoted Profit Per Case = $0 Balance The Equation Promotion Costs Breakeven Profits Fixed Lost Breakeven Costs + Profits = Promoted Volume x Profit / Case Solve For Volume Promotion Costs Fixed Lost Costs + Profits Promoted Profit / Case = Breakeven Volume Incremental Cases Incremental Cases Needed Needed

41 4. Example: Breakeven Calculation 4 What Is The Breakeven Volume? Product Info: a) Product Cost/Case $10.00 b) List Price To Customer/Case: $20.00 c) Promotion Price To Customer/Case: $15.00 d) Baseline Volume (Cases): 10,000 Promotion Info e) Fixed Promotion Costs: $10,000 f) Discount Per Case: (b c) g) Lost Profit (Total): (f x d) h) Profit Per Case: (c a) Promoted Cost / Promoted Profit per Case = Breakeven V (fixed cost + lost profit)/ Promoted profit per case = Breakeven

42 4. Solution to Example Breakeven Calculation Product Info: a) Product Cost/Case $10.00 b) List Price To Customer/Case: $20.00 c) Promotion Price To Customer/Case: $15.00 d) Baseline Volume (Cases): 10,000 Promotion Info e) Fixed Promotion Costs: $10,000 f) Discount Per Case: $5.00 (b c) g) Lost Profit (Total): $50,000 (f x d) h) Profit Per Case: $5.00 (c a) Promoted Cost / Promoted Profit per Case = Incremental cases needed to recover promo cost (fixed cost + lost profit)/ Promoted profit per case = Incremental cases needed (E+G)/H = 12,000cs 4

43 4. ROI Definition Return On Investment (ROI): The Amount of Net Profit $ Received for Every $1 Invested in the Promotion 4 Incremental Profit Promotion Costs Promotion Costs = ROI Incremental Profit Incremental Volume x List Profit/Case Promotion Costs Fixed Costs + Variable Costs Total Volume x Discount Promotion Costs Fixed Costs + Variable Costs Total Volume x Discount = ROI (Without discount) (All promotional Expenses)

44 4. Sample ROI Calculation What Is The Promotion Return On Investment? a) Product Cost / Case $10.00 b) List Price To Customer / Case: $25.00 c) Promotion Price To Customer/Case: $20.00 d) Baseline Volume (Cases): 15,000 4 Base Scenario Product Info : Promotion Scenario Info e) Fixed Promotion Costs: $12,000 f) Incremental Volume (Cases): 12,000 g) Discount Per Case: (b c) h) Incremental Profit: (b a) x f i) Variable Costs: (d + f) x g j) Promotion Costs: e + i

45 4. Solution to Example for ROI Calculation a) Product Cost / Case $10.00 b) List Price To Customer / Case: $25.00 c) Promotion Price To Customer/Case: $20.00 d) Baseline Volume (Cases): 15,000 4 Base Scenario Product Info : Promotion Scenario Info e) Fixed Promotion Costs: $12,000 f) Incremental Volume (Cases): 12,000 g) Discount Per Case: $5.00 (b c) h) Incremental Profit: $180,000 (b a) x f i) Variable Costs: $135,000 (d + f) x g j) Promotion Costs: $147,000 e + i (Incremental Profit Promotion Costs) Promotion Costs = ROI (H-J)/J =1.22

46 4 4. ROI Results A 2007 study by ACCURIS in collaboration with ECR Europe found that the average ROI for the 29,000 instore promotions tracked was: Where 1.0 is breakeven.

47 4 4. Improving ROI Results Size Matters scale promotions, those with an ability to break through the noise and clutter do better Slow growth categories with high advertising show better ROI on promotions. Mature categories show diminishing returns Balancing depth of deal with in store visibility leads to better ROI Higher natural demand leads to higher incremental study by ACCURIS * Source ACCURIS 2007

48 5. Promotional Evaluation Why evaluate? 5 Promotions are at the top of the marketing food chain FMCG Trade as a % of Rev. Trade continues to escalate as a percentage of trade. Research from Marketing Science Institute suggests that of the incremental sales generated by promotional activity:- 1/3 rd is consumer forward stocking (Limited research by ACNielsen suggests that this figure is between 10-20% of incremental sales) 1/3 rd is brand switching 1/3 rd is category expansion (increased consumption or category switching) Today Adv Consumer Trade

49 5 5. Promotional Evaluation Route Identify Actual Promotion Costs Identify Actual Baseline, Incremental & Lost Sales Explain Variations from Expected Extract Key Learning and feedback into next Promotion

50 5. Key Requirements for Promotional Evaluation Accountability Define Success. Set KPI s. Make someone responsible for measuring the KPI s. 5 Measurement Create a Promotional Forecast in the Promotional Planning Phase. Monitor during promotion and results at end of promotion. Evaluate Compare effect and impact against your definition of success and feed this learning into promotional planning phase of future promotions.

51 5. Template for Promotional Evaluation 5 Background and Objectives Description What happened Analysis List here the products on which the promotion ran, the quantities involved, and the name of the promotion. Include the marketing objective, the promotional objective and the reason why the promotional objective was set e.g. we faced a major new challenge from a competitor Offer made to the consumer, mechanic, communication materials, agencies used, media support, timings, trade support Accountability KPI met/nearly met/not met Promotional Response Consumer uptake, trade participation, results of any research or surveys Sales figures Before, during and after promotion Finance Materials, discounts, fees, any profit contribution the promotion made Why did the promotion perform the way it did? What lessons did we learn? What would we do differently next time? Use the 5 C s to evaluate.

52 Promotions: Questions to evaluate your effectiveness Are increases in trade spending aligned with volume or value growth? Or are they outpacing volume? Is trade spending increasing fastest in channels and customers with the slowest growth rate? Are our trade programs simple, fair and easy to execute and support? Or do we have a multitude of programs (such as offinvoice, shipment bill backs, scan based bill backs, display fees, advertisement fees, and new item merchandising allowances)? Does your sales force spend more than half of its time handling the complexities of the programs? Do we know where an incremental spend will yield the highest return? *Boston Consulting Group Converting Trade Spending into Investment*

53 Promotions: Questions to evaluate your effectiveness Does our organization have specific targets and strategies for trade spending or do we spend reactively? Is most of our spending deployed at the onset of the year? Or do we often launch mid year interventions to meet our plans? Does our trade spend lead to greater sales volume? Or do we have a lot of fixed fee programs? Are there leakages from pantry loading, diverting, and invalid deductions? Do our retail customers comply with the terms and conditions of our promotional deals? Are we developing the customer-specific insights that will increase volume with our retailers. *Boston Consulting Group Converting Trade Spending into Investment

54 Promotion Key Take-aways Understand split between promoted and non promoted sales; base & incremental Lift associated with promotional tactic effectiveness ROI vs. incremental sales obtained Duration of promotional events Frequency of promotions Percentage of Incremental sales (where available) Pricing strategy of promotions Understand the splits between promotion tactics (Feature/Display etc) Ensuring the promotional strategy supports the category objectives Are we maximizing any category seasonality? Are consumer insights being leveraged in promotional development?

55 Questions

56 Thank You!