In a recent project, we were fairly overwhelmed by the complexity of a client’s trade promotions calendar. It contained numerous and varying discount rates that depended on a complex series of requirements, e.g. 2 for £4, 3 for £5, etc., at about seven items each week. Although the category is generally consistent, subsequent SKUs and types of occasions met made the portfolio very complicated. As you would probably expect from the typical Middlegame perspective on assortment opportunities in FMCG, we wanted to tackle the big issue of incrementality and transferred demand first. However, it was easy to get lost in the potential overlapping deals.
This complexity was difficult to manage. An enormous amount of work went into designing, negotiating, and managing the promotion calendar with the retail partners. When we asked if there was a complete understanding of the portfolio incrementality for the work, the client described how their program assessment tool addressed the lift for products on the deal. This was further evaluated relative to the investment across a broad number of execution elements like direct media, creative, and printed POS materials. It was actually remarkable to see that this information was captured and available to create such a complete picture of the "trade" budget. However, it didn’t answer our question about incrementality.
When we probed deeper, we heard that the impact of the portfolio was measured based on the swing in market share compared to their two biggest competitors. Unfortunately, that was only the outcome for volume. They were unable to articulate the impact of a series of promotions versus promotions of other KPIs, such as unit transactions, retailer value, or even profitability across the stakeholders. They were taking a singular view of transferred demand which should be multidimensional.
At Middlegame we often talk about product dimension. The presence of a promotions for one product transfers demand from other products without the promotion. However, transferred demand can also have an impact across the dimension of time and geography. Many promotions lead to "pantry loading" where shoppers take advantage of a deal today and forgo a routine purchase in the near future. This can have competitive advantage with shoppers who switch frequently, but may be detrimental to profits among shoppers who are usually loyal to the brand. At the same time, many retailers use promotions as "loss leaders" to pull shoppers from other retailers that also carry the same brand. This helps the retailers running promotions, but might actually be problematic to the manufacturer portfolio.
With this multidimensional context, Middlegame was able to decompose their client’s promotional calendar at a given retailer into the sourcing of sales. In 2015, there were 339 promotions across ten SKUs and 14 discount rates, i.e. BOGO. More than 41% of these promotions generated negative value incrementality for the portfolio in the actual weeks that they were run. The brands were also clearly being leveraged as a loss leader with more than 87% of them generating negative value incrementality for the category. Therefore, an additional 14% of the promotions were also a negative profit incrementality when we identified the impact over time and geography for the portfolio offering in competitors’ retailers.
At least one discount rate generated a positive incremental outcome for each of the ten SKUs. Focusing on these kinds of deals for the ten SKUs and less concurrent items provided an opportunity to maintain the same level of overall share swing as was historically witnessed. Moreover, 95% of the options were estimated to generate positive portfolio value incrementality. This addressed the complete lift for promotions and provided the client with a successful solution to their complex trade promotions calendar.
Middlegame is the only ROMI consultancy of its kind that offers a holistic view of the implications of resource allocation and investment in the marketplace. Our approach to scenario-planning differs from other marketing analytics providers by addressing the anticipated outcome for every SKU (your portfolio and your competitors’) in every channel. Similar to the pieces in chess, each stakeholder can now evaluate the trade-offs of potential choices and collectively apply them to create win-win results.
Contact us at info@ middlegame.com.