Promotional programs are absolutely essential to maintaining robust sales figures, healthy brand equity, and positive trade partnerships. A report by market research firmL.E.K Consulting states that the typical consumer packaged goods (CPG) company allots around 15 percent of total revenue to promotional activities. This statistic truly illustrates the importance of these programs.
However, the vast majority of companies are simply content with repeating the same promotional tactics year after year without stopping to audit the process. Without a system of review it is almost impossible to develop successful new methods. Therefore, all businesses should set aside time for identifying ways to optimize their promotional initiatives. Companies that are unable to properly comprehend the level of influence that promotional programs have on their business are quite likely missing significant opportunities to maximize revenues.
The following framework provides brand owners and executives with a system to analyze promotional spending effectiveness and identify opportunities to improve sales numbers.
Understand Price Points
First, we need to understand the pricing expectations of consumers for the category in which our products or services are offered. For most businesses in promotion-driven industries, sales data is not suited to assess consumer pricing expectations. CPG companies and retailers don’t always share marketing analytics, which makes it very difficult if not impossible to determine if sales increases are caused by heightened consumer demand or by aggressive promotions. A much more effective way to measure price points is through a well-designed consumer research program that identifies how price impacts consumer purchasing decisions.
Assess Promotional Options
Usually, a company with multiple branded product lines has several options for promotional activities. They can continue to carry on as usual, which carries a low chance for risk, but an even smaller chance of improvement. Or alternatively, they can pursue a different model, and work to redefine how promotions are approached within their organization. The trick is to ultimately identify potential win-win scenarios for companies and retailers that increase the impact of promotional activities.
Monitor Spending Effectiveness
In order to understand your current promotional spending numbers, and how they drive sales volume, we have to look at the impact that your activities have had on sales for your organization year over year. This will give us historical insight into the effect that promotional spending has on your company and provides a basis for future endeavors. Perceiving the potential return on investment is critical to assessing promotional spending effectiveness. Without properly comprehending the effectiveness of your promotional tactics it is difficult to commit further resources and time to the cause.
Evaluate Competitive Factors
The reason for measuring this variable is to understand the perspectives of different marketplace participants and how a change in promotional tactics by one player might impact the actions of other brands. Once a leading brand alters its marketing strategy, smaller industry players usually follow suit quickly and refocus their sales and marketing dollars. We can observe this cycle very clearly today in a wide range of industries. It is worth noting that companies who are the first to scale back trade promotions initially lose market share to those who maintain their trade promotions strategies.
If you are company that is spending a large annual sum on promotional activities, or a retailer in a heavy promotional environment, a review of your current processes may spotlight areas for improvement. It is crucial to establish metrics that track the success of individual promotional programs and understand the market dynamics that influence consumer decision making. This will provide the basis for developing focused strategies to improve overall promotional effectiveness.