The concept of promotions dates back a few centuries where businesses of all kinds printed messages on various items in order to generate consumer awareness for their goods, products or services. Consumer packaged goods (CPG) brands popularized the concept in the 1950s with the help of the earliest ad agencies on Madison Avenue in New York.
For those wondering, yes, this concept is part of AMC’s popular “Mad Men” series, which is a fictionalized account of the rise of the ad agency business. Some of that series revolves around the earliest adopters of promotions in the CPG space.
Since then, of course, the idea of engaging in promotions has become so popular amongst CPG brands that entire departments are dedicated to the concept, including BOGO (buy one, get one). In fact, walk outside and you’re as likely to see a “BOGO” sign as you are someone walking their dog.
But with CPG brands engaging in promotions on every busy street corner in America, it’s important to understand how to stand out amongst the clutter. Doing so means understanding the basic tenets of promotion, how to determine success, and the analytics that can help you understand the outcome of a campaign.
When determining the need for a promotion, it’s important for the brand to understand exactly what it wants to accomplish with a campaign. Promotions are somewhat of a silver bullet to marketers, helping to bring a new product to market, gain competitive market share compared to key competitors, or drive higher distribution for retailers that want to participate.
All three of those use cases might include a different strategy when it comes to the architecture of a promotion. Looking to bring a new product to market? It might be beneficial for a brand to offer a free sample in conjunction with the purchase of a core product. The goal of this campaign wouldn't be to increase revenue, but to drive awareness for a new product by simply handing it to consumers.
Alternatively, the goal of a promotion associated with competitive differentiation or driving retail sales would be to increase revenue. That would mean the investment in the promotion would need to deliver a quantifiable return on that investment.
Regardless of the overarching goal, promotions universally impact brand loyalty because they either drive new customers to the brand or cross-sell new products to existing customers. We’ve seen this dynamic become particularly valuable during the COVID-19 pandemic when many CPG brands sampled new products.
But that brand loyalty also extends to retailers as well.
Appearing as a good partner to your retailers and helping them drive traffic to their locations makes them a loyal, repeat buyer. Accordingly, they’ll be more willing to give your products more prominent placement, which correlates to higher sales volume.
Determine How to Achieve Your Goals
Once a CPG brand sets the goals for a promotion, it will help dictate how to move forward strategically. In setting the strategy it’s important to evaluate the price elasticity of products within their particular sector. That will dictate whether a promotion is the right lever to pull.
On a more granular level, examining price elasticity can help determine the dynamics of a promotion. For example, if a CPG brand is considering a promotion, it’s important to first understand how sensitive consumers are to changes in price. In fact, one of the hidden benefits of promotions is that they can help determine the impact of different pricing strategies overall.
Another element to consider is that competitive pricing and sales velocity will help truly determine if the promotion provides a CPG brand with a competitive advantage and helps marketers gain a comprehensive view of product-market fit.
Similarly, seasonal and regional demand for a product could help drive a promotion strategy. CPG brands need to focus resources in the most impactful way, therefore, it’s essential that product promotion is built around a time when a brand knows demand is high.
What it all should point back to, though, are the goals set forth at the onset of a promotion. What you’re trying to accomplish will ultimately dictate the strategies used to achieve the goals and benchmarks your company has identified.
Ultimately, before the promotion begins, it’s important to establish key performance indicators that could amount to total revenue, an uplift in units sold or dollars, or market basket size.
The benefit of a successful promotion — or one that exudes quantifiable success — is that it can be replicated. Many CPG brands engage in annual promotions around times of high demand for their products. While determining the success of these promotions is no easy task, it’s the key to optimizing spend for future promotions.
In our experience in convenience retail, for example, the current data utilized to measure promotions is coming from disparate data points that are faulty because they originate from specific national chains that do not represent the entire market. Alternatively, data might come from bulk distribution orders that don't reflect actual sales at the UPC level. Without an accurate view into this channel, CPG brands often run promotions without being able to confidently prove success. And with tight budgets in a competitive economy, it’s critically important to associate a return on investment with any promotion.
Effective promotions are often the result of testing and customization, broken down into cohorts. Those may be by region or channel or any other indicator that’s able to segment the consumer population. In order to efficiently test, however, you need to be able to measure. Some data points to consider include product velocity, competitive market share movement across unit sales and revenue, and percentage of basket share captured.
Nonetheless, it’s important to select metrics that best identify whether the brand goals were realistic and the strategy was effective.
You might not see the exact results you anticipated with every promotion, but with the proper data and a willingness to keep tweaking, you’ll see the effect of promotions on customer loyalty and sales.
Jake Bolling is the co-founder and CEO of Skupos, the technology platform that connects the independent convenience retail industry
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Jake Bolling is the co-founder and CEO of Skupos Inc., the technology platform that connects the independent convenience retail industry. Prior to founding Skupos, Jake owned a consumer packaged goods company that distributed to the convenience retail industry. He recognized a complete lack of data across the convenience retail space and sought to change that in starting Skupos. Jake attended the University of Colorado's Leeds School of Business, where he studied finance and Chinese. In 2019, Jake was named to Forbes' “30 Under 30” list. In his free time, Jake enjoys fly fishing and is an avid reader.