Consumers are motivated by many things when shopping.
They could be driven to buy because of a deep discount or personalized offer, a tried-and-true brand name, or even the product’s novelty. Their shopping behaviors fluctuate, making promotions and trade fund management a strategic long game.
But there are two key motivating factors for shoppers that play the biggest role in planning CPG promotional activities: price and quality. Surprisingly, our recent consumer research indicated an industry-wide increase in quality-driven shoppers.
As more shoppers gravitate toward quality items in a category — a 10% increase for this customer segment compared to a 6% decrease in shoppers driven by price — you may need a new game plan for promotional discussions with a retailer. This is especially true given the reality of available trade fund dollars.
Market Pressures Mean Less Promotional Funding to be Spent
Even recently, it was not uncommon for all brands or products in a category to have promotions running. Promotions drive traffic and sales, and it’s generally a win-win scenario for you as a brand and the retailers you partner with.
But with rising costs and more unpredictable shopper behavior, there is far less promotional funding to go around. Eroding margins are hitting the industry at every angle, not only because of increased costs, but also due to operational complexities in manufacturing and the supply chain, brought on by the rapid adoption of online grocery we saw during the pandemic.
Even so, retailers still want to promote. It’s just that there’s now a conflict at hand because neither party can afford to maintain their previous levels of promotional investment and still manage to meet profit targets.
As a former category manager, I’ve learned the power of saying, “I can’t give you X, but what I can do is Y… and here’s why it makes sense for us both.” Given the marketplace reality and our insights that show a gravitation of shoppers toward more quality products, it’s time that brands take a more shopper-centric view for promotional decisions.
Brands Should Push for a Customer- and Laser-Focused Approach
Our analysis of over 2.2 billion shopper transactions in the U.S. and Europe led us to the determination that grocery shoppers today are nearly 1.5x more likely to migrate up to a customer segment focused on quality (25%) than they are to move down to a price-focused segment.
If a given customer segment at a retailer is purchasing more premium products in a category, it might make sense to dial back promotions of those products. The more quality-focused a shopper is, the less likely they are to be motivated by promotions.
On the other hand, if a category has low promotional activity but a shopper segment is shown to care most about price when considering a purchase, there might be an opportunity for trade funds to be repurposed from elsewhere to create a greater impact.
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Instead of spreading a set promotional budget across 10 products, you may utilize it toward just three key items that stand to deliver a better return on investment. Armed with accurate insights, you can negotiate strategically, pushing back on promotional asks for products that aren’t actually shown to appeal to shoppers motivated by promotions.
Now is the time to take a step back and revisit product roles, plotting where each item falls in shoppers’ minds as either key quality or key value items, and what the data says about shoppers’ responsiveness to promotions on those products.
You don’t need to promote every product with a retailer or within a given category —it could be, for example, that you just need to focus promotional funds toward particular items that skew toward the quality-focused customer segment (because this segment shows the potential for growth) in one category, or invest in the price-focused segment for another.
This is the beauty of customer-centricity: the retailer can de-average their customer, so you can de-average your investments, understanding the nuances that might not otherwise be intuitive.
Follow the Shopper Sensitivity Journey
Brands that promote successfully in 2022 won’t necessarily be those who invest more total dollars. Instead, they’ll be the ones who rebalance funds to go where they will generate the best return on investment.
Your promotional funding decisions shouldn’t focus only on which products drive the most sales or profit, but rather on the degree to which shoppers are sensitive to price or promotions, and how that sensitivity fluctuates.
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As that happens, it’s important to remember that the rebalancing of trade funds will be an ongoing exercise — insights from customer behavior will provide needed perspective for your continued conversations and relationship building with retailer partners.
CPG brands should work strategically with retailers — leaning on current, accurate shopper data — to determine how shopper motivation is shifting in a particular store, cluster, or market, and the implications for allocating limited promotional funds.
As shopper behaviors evolve at accelerating rates, it will be critical for you to use data to demonstrate to retailer partners your ability to identify exactly where to invest and validate that spend, and then rebalance price and promotions accordingly.
Ann Azzopardi, Program Management Consultant, Symphony RetailAI
Azzopardi has been with the company for eight years, providing clients with meaningful shopper insights that are thought-leading and actionable for business growth.