In 2017, data analysts IRI announced that supermarket promotions fell to their lowest levels in 10 years. Though it varies by country, the signs we see in our own customer base confirm that value of sales promotions is increasingly on trial.
Why is this happening? Research from Nielsen, IRI and other sources suggests that up to half of promotions are unprofitable. Promotions, advertising and other forms of demand shaping typically cost consumer goods companies at least 10-15% of gross revenues.
We must not, however, throw the baby out with the bathwater. Sales promotions play an important role in building customer loyalty, establishing market share for new products and otherwise shaping demand.
Where promotions go wrong
Too often promotions are set up to fail. Due to their massive complexity, many planners don’t accurately forecast their promotions impact, or uplift. Today we have more types of promotions, more channels, and crucially, more products. Promoting one product in a large portfolio can hurt the sales of another.
In this environment, demand signals, lead times, and other factors can vary significantly at the channel or store level, making promotions planning convoluted. Supply constraints can also hamstring promotions and lead to unmet service levels and disappointed customers.
Having spent half my career in marketing and the other in supply chain, one thing’s for sure: Marketing is from Mars and supply chain is from Venus! Marketing focuses on customers and competitors; supply chain on suppliers and internal stakeholders.
With both speaking different languages, it’s often hard to even find common ground on what it means to meet service levels. In this siloed world, effective promotions planning becomes impossible.
And forecasting demand isn’t the only challenge. Supply constraints can also hinder promotions and lead to unmet service levels.
4 Keys to getting it right
Consumer goods companies are increasingly turning to modern planning technology to deal with the complexity; manual processes and spreadsheets can’t cut it. Here are four key things to look for:
1. Data hygiene: Clean and structured data is essential in any planning process. A promotional planning platform should allow users to plan, design and review their promotions and feed valuable data into the supply chain to streamline operations.
2. Service-level forecasting: Anticipating a promotion’s uplift is vital. A promotion planning platform should help improve forecasting accuracy and optimize for target service levels.
3. Collaborative planning: Siloed planning leads to lost sales and reputational damage. Look for tools that bridge the gap between marketing and operations specifically designed to support cross-functional planning processes like S&OP.
4. Machine learning: Smarter campaigns generate higher revenues and profits. Look for tools that apply machine learning technology to provide real-time scoring of campaign uplift.
Lachelle Buchanan is director of product marketing at ToolsGroup.