Inserting the Consumer into the Trade Promotion Process

Transcription

1 Inserting the Consumer into the Trade Promotion Process Steve Baumberger & Jim Coleman 2004 FMI Conference

2 Today s Discussion The Situation: The Daunting Dilemma of Trade Promotion Promotions don t pay and we can t figure out what to do The High Performance Shopper: Inserting the Consumer into Trade Promotion Consumers actually create the demand we are trying to generate The Road Ahead: Charting a course for Growth and Profits Winning retailers and manufacturers will together find a way to maximize return on investment 2

3 The Situation: A Daunting Dilemma Consumer packaged goods companies have been facing a number of growth challenges. Economic Environment and Trends More Diversity More Time Challenged More Stores More Products Sizes, Flavors, Brands, Private Label More Media & Marketing Noise More Promotion Dollars More Regulation and Scrutiny 3

4 The Situation: A Daunting Dilemma Unfortunately More has not applied to profitable growth for most CPG companies. 3-Year Shareholder Return vs. Revenue Growth ( ) 30% 3-Year Revenue Growth (CAGR) 20% 10% 0% -10% -20% R 2 = % -60% -40% -20% 0% 20% 40% 60% 80% 100% 120% What Sets the Leaders Apart? Introduction of desirable products Ability to increase volume/price and/or improve product mix Above average return on trade promotion investment Ability to consistently grow revenue 3-Year Total Shareholder Return (TSR) Source: Factset, Accenture Analysis 4

5 The Situation: A Daunting Dilemma Between 1995 and 2000, consumer products companies undertook several efforts to improve the performance of their trade promotion spending. CPG Industry Efforts Shifted marketing efforts from trade (59 to 56%) and advertising/media (21 to 19%) to consumer/emarketing (20 to 25%) Allocated more trade promotion dollars to drive merchandising (67 to 77%) vs. buy-down price (33 to 23%) Offered less off-invoices (35 to 23%) and more scan-downs (8 to 20%) Used less credit memos (56 to 25%) and Gelco drafts (56 to 38%) and more prepayments (32 to 81%) and EDI (n/a to 13%) Conducted more post-event trade promotion effectiveness analysis Event spending, shipment, and purchase recaps (80 to 94%) Incremental volume analysis on promoted items (76 to 88%) Cost/incremental case (40 to 75%) and profit/incremental case (32 to 50%) Adjustments for cannibalization and pantry loading (n/a to 25%) 5

6 The Situation: A Daunting Dilemma Despite these efforts in the right direction, most trade promotion events still are not profitable for manufacturers. Trade Promotion Inefficiency Note: Retailer View Gary Singer Manufacturer Sales Promoted Categories $190 Billion Best Case Manufacturer Payback Credited Incremental Manufacturer Sales* Estimated Net Incremental Manufacturer Contribution Trade Promotion Spending $22 Billion $11 Billion $25 Billion Hidden Costs $3-5 Billion *Estimates of true incremental range from 0% to 20% of credited incremental depending on category which significantly worsens the profit picture Source: Progressive Grocer, IRI Data, Accenture Analysis Only 50% of manufacturers measure promotion event profitability 80-90% of promotions are not profitable for manufacturers Consumers are unaware of 51% of items bought on sale Source: Accenture Trade Promotion Best Practices Study 6

7 The Situation: A Daunting Dilemma What it is coming down to? 1980 s Brand Management 1990 s ECR 2000 s Shoppers 2010 s Individuals Brand Driven Mass Marketing Focus Category Driven ECR Focus Behavior Driven Segment Focus Customize Marketing One-to-one Focus 7

8 The Situation: A Daunting Dilemma CPG Manufacturer and Retailer Challenge How do we increase the lifetime value and loyalty of our highest potential consumers? 8

9 The High Potential Shopper The High Potential Shopper ( HPS ) Program is a simple, scalable process to drive increased lifetime value of consumers. Accenture High Potential Shopper Offering Overview Shopper Re- Segmentation Value Driver Quantification Strategic Retail Planning Understand who they are Understand what drives and motivates them Align your marketing and sales tactics to attract them Measure & Report Continuously improve our unique offers 9

10 The High Potential Shopper High Potential Shoppers excel on three dimensions. Leveraging Segmentation Insights Identify the opportunity for increased revenue! Sample Highest Potential Segment Frequency HPS visit a retailer more often than any other shopper (motivate to visit more often) 100% Basket Variety HPS spend broadly across multiple categories (opportunity to up-sell) 50% Category Average Price HPS spend above average on individual categories (opportunity to cross sell) 0% Frequency Variety Category Avg. Price Channel Dispersion Clear and Measurable Definition 10

11 The High Potential Shopper Using Point of Sale data and advanced modeling techniques, we are able to define various shopper segments. $ Margin per Visit CB2 Shopper Segment Performance CB7 CB1 CB6 CB10 CB5 CB4 CB8 CB Visit Frequency CB9 CB3: Dedicated Loyalists 15% of Customers 29% of Sales CB6: Multi-Format Switchovers Customer Behavior Segments Basket Analysis by Segment Center-Store Produce/Deli/ Bakery Frozen/Dairy Product Category Groups 10% of Customers 8% of Sales CB10: Large-Family Price Shoppers 8% of Customers 18% of Sales 11

12 The High Potential Shopper Shopper segmentation classifies high lifetime value shoppers by valuable behavior instead of demographics. Basket Segmentation Behavior Segmentation 100% Highest Value Any Segment Store 1 High Potential Shopper Gourmet 50% 0% 100% Frequency Variety Category Avg. Price Store 2 Store 3 Medium Potential Shopper Meal Solution 50% Store 4 0% Frequency Variety Category Avg. Price Store 5 Low Potential Shopper Big Family 100% 50% Store 6 Basket Segmentation classifies shoppers using Frequency, Basket Variety, and Category Average Price Behavior Segmentation classify HPS into clusters by similar behaviors 0% Frequency Variety Category Avg. Price Each store has a primary behavioral segment characterizing their High Potential Shoppers 12

13 The High Potential Shopper Once the HPS segments are determined, Value Driver Quantification determines the incremental contribution of individual investments to the lifetime value of HPS. Econometrics allows us to isolate the effect of each element in the marketing and promotion mix Acquisitions 30,000 25,000 20,000 15,000 10,000 Gourmet Segment Sales Return-on-investment analysis makes each element of marketing activity fully accountable This begins to help identify explicitly where trade promotions and other marketing activities are effective, or not, within specific consumer segments Acquisitions 5,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Feb-98 Feb-99 Feb-00 Feb-01 Feb-02 Graphical Depiction of Drivers 0 Feb-98 Feb-99 Feb-00 Feb-01 Feb-02 Direct Mail New Prod Launch Base In-Store Display Print Advertising TV Advertising Promotions Competitor Price Own Price 13

14 The High Potential Shopper Value Driver Quantification is applied to each of the HPS Behavior Segments to determine the most effective vehicles for driving incremental sales. Value Driver Quantification High Potential Shoppers First conclusions Promotionally sensitive Innovation led Key Promotion Innovation Distribution driven Distribution Price elastic Advertising responsive Growing base Price Advertising Base Gourmet Meal Solutions Big Families Wealthy and older Advertising responsive Low price sensitivity Availability of core product is crucial Time pressed executives Price is relevant on certain products New product driven Shop across the week Price and promotionally elastic (BOGOs) Shop around for best bargains Shop during the week 14

15 The High Potential Shopper Value Driver Quantification separates low value from high value activities. Sales Lift ($) Low Lift High Profit Coupons Display+Feature Star High Lift High Profit ROI per $ spent MultiBuy Display+Feature Display Display+Coupons Display+PackOffer Display+PackOffer Display Display+Coupons Pack Offer, Feature, Coupons Coupons MultiBuy Star Events, Premium Extra Free Star Display Star Extra Free Star Extra Free Display+Coupons MultiBuy -1.1 Value Display, Multi-Buy Premium Display -1.3 Low Lift Low Profit High Lift Low Profit Premium Brand A Premium Brand B Value Brand A Value Brand B 15

16 The High Potential Shopper HPS segment behaviors are characterized and coupled with value driver quantification to develop profitable growth strategies. Strategic Retail Planning Segment Identification Gourmet 15% of Customers 29% of Sales Segment Behavior Analysis Loyal customers who visit 30 or more times/year Significantly larger than average market baskets Shops all categories Strong brand affinities 100% 50% 0% Key Objectives Value Driver Quantification Frequency Variety Category Meal Solutions Shops store about 20 times/year, utilizing other grocers Lower than average market basket Shops only center-store 100% 50% Avg. Price 10% of Customers 8% of Sales Big Families Average basket size is large, low-margin products Shops about 20 times/year, based on advertised prices Shops entire store, but highly focused on promotional offers 0% Frequency Variety Category Avg. Price 100% 50% 8% of Customers 18% of Sales INSIGHTS & ECONOMETRICS DRIVE ACTIONABLE RECOMMENDATIONS 0% Frequency Variety Category Avg. Price ASSORTMENT SPACE PRICING PROMOTION MARKETING SERVICE 16

17 The High Potential Shopper Armed with knowledge of HPS customers and marketing value drivers, CPG manufacturers and retailers can design trade promotions in a very focused, targeted fashion. Example: Cereal Category HPS Segments - Before - - After - Before All Categories Rural - Lower Income Suburban - Higher Income Suburban - Lower Income Trade Promotion Considerations Which segments are more inclined to purchase the products? What products do specific customer segments respond to? Which locations? How should the promotion be advertised? What media channel, what attributes? After Specific Clusters Big Families Gourmet Meal Solutions 17

18 Category-level promotion performance can be used by Retailers to understand which brands drive traffic and which drive profit while an analysis by discount percentage can help pinpoint the most effective types of deals. Identifying The Right Promotional Attribute ILLUSTRATIVE Brand Analysis Discount Analysis Distribution of Exposures Incremental GM$ per Exposure Incremental Units per Exposure Distribution of Exposures Incremental GM$ per Exposure Incremental Units per Exposure A 2% $2,135 4,402 Less than 10% 3% $1,529 5,367 B 9% $1,392 45,287 C 13% $1,325 20, to 20% 31% $1,063 6,485 D E 12% 35% $597 $40 21,832 21, to 30% 36% $550 6,822 F 3% ($92) to 40% 20% $500 15,757 G H 2% 20% ($252) ($897) 22,607 66, to 50% 8% $100 16,892 I 3% ($1,627) 28,365 Greater than 50% 2% ($4,144) 30,141 J 1% ($3,322) 64,545 18

19 The overall performance of a brand can be optimized by understanding how individual items perform on traffic driving and profit lift dimensions. Exposure by Item Identifying The Right Items Cookie Brand A Incremental Units Incremental GM$ ILLUSTRATIVE Chocolate Chip 19% 34,944 $2,187 Sandwich Style Chocolate Chunk Macadamia Nut Peanut Butter 8% 10% 12% 17% Maintain or increase exposure of these items to improve advertising return 32,610 28,940 22,820 20,970 $1,135 $1,107 $431 $7 Butter 4% 14,160 ($73) Fancy Style Mocha Chocolate Swirl Chocolate Fudge 11% 5% 9% 5% Shift or eliminate exposures of these items, and thereby reduce margin loss without foregoing significant unit sales 12,507 12,216 20,220 23,773 ($3,790) ($2,292) ($991) ($243) 19

20 Conclusions The Daunting Dilemma continues, and it s only getting more complicated and more competitive Successful ROI on Trade Promotions and other investments lies in achieving a true understanding of customer segments and their behaviors. Value Driver Quantification must be used to understand the responsiveness of marketing activities, including promotions. Merchandising and Marketing strategies must be realigned to build off of the customer insight. Collaboration, including the sharing of data, insight and results will become ever more important in achieving positive ROI on trade promotions profitable growth overall. 20

21 Call to Action Understand who the High Potential Shoppers are Understand what drives and motivates them Align marketing and sales tactics to attract them Collaborate between CPG Manufacturer/Retailer share data, insight, learnings openly Create joint accountability for success Measure, assess, learn and continuously improve 21