How trade promotion analysis measures promotional effectiveness
Executive summary
Trade promotion analysis is essential for transforming your trade spend from a major cost into a strategic investment. By evaluating past promotional effectiveness, you can plan more profitable promotions. Discover how you can learn from past campaigns, invest in the right tactics, avoid wasteful spending and enhance your decision making. TELUS Trade Promotion Management (TPM) software makes this challenging task easy.
In trade promotion planning, the following quote rings true:
Those who cannot remember the past are condemned to repeat it.
George Satanaya
Planning new trade promotions without analyzing the promotions that came before them is a bit like shooting in the dark – you don’t know what worked and what didn’t. To truly enhance trade spend ROI and refine trade promotion strategies, consumer packaged goods (CPG) manufacturers need to invest in trade promotion analysis.
What is trade promotion analysis?
Trade promotion analysis is used to evaluate the effectiveness of trade promotions. These promotions are incentives offered to retailers or wholesalers to help you sell more of your products or raise awareness for your brand with consumers. Trade promotions typically involve tactics like price reductions, displays and advertising.
Why is trade promotion analysis important?
Trade promotion analysis is essential. It helps you measure the impact of your promotions, as well as the profitability of your promotional investments or "trade spend.” The goals of trade promotion analysis are to assess which promotional tactics worked, enhance trade spending for future promotions, prevent cannibalization and make better-informed decisions.
Trade spend is a big investment with questionable gain
In Canada, trade spend is a massive investment, but nearly 60% of trade promotions fail to break even as a side effect of bad planning, ineffective execution and poor data visibility. For most CPG manufacturers in Canada, trade spend accounts for about 20% of their total revenue annually which is a significant portion of their budget and the second largest expense on their P&L statement after the Cost of Goods Sold (COGS).
With more Canadians wanting to buy Canadian and making buying decisions at the shelf, now is the time to invest in carefully planned trade promotions to tell your Canadian story.Trade promotion analysis enhances decision making
Trade promotion analysis can help you make better decisions. It measures the ROI of your past trade spend investments and narrows down what worked and what didn’t in your past promotions so you can learn from them and improve outcomes for future campaigns.
KPIs to consider in trade promotion analysis
There’s a lot to look for when conducting a trade promotion analysis. By measuring and analyzing certain key performance indicators (KPIs), you can identify which promotional mechanics, retailers and products were most profitable in a promotion. This helps you refine and optimize your trade spending strategies to achieve better results over time.
The most critical KPIs to consider
Trade promotion analysis should examine the following crucial KPIs:
Incremental sales lift and profit compared to baseline will help to identify which tactics, retail partners and products delivered the best ROI for the business.
Return on investment (ROI) is the most critical KPI to calculate because it indicates the success of the promotion by comparing the profit from incremental sales to the total trade spend.
Trade rate percentage benchmarks the cost-efficiency of the investment. It’s critical because a promotion that drives high sales at an unsustainable cost is effectively unprofitable.
Other key KPIs worth consideration
A more thorough trade promotion analysis may involve KPIs that demonstrate the promotion’s impact on the broader product portfolio for the business and market position. They include:
Cannibalization rate is the percentage of promoted product sales that were made at the expense of purchases of other products from the same brand or category.
Market share gain or loss indicates if the promotion attracted customers from competitor brands or encouraged brand loyalists to buy more.
In-store execution compliance shows how accurately retailers and/or wholesalers executed the promotional plan. Poor compliance can naturally lead to poor ROI.
Cost per incremental unit sold shows the expense incurred to generate each sale. If your goal for the promotion was profits and your expenses ate them up, your promotion was ineffective.
Goodbye spreadsheets, hello forecast accuracy
Discover how ACH Food Companies unified their trade promotion management to drive measurable growth.
How you can conduct a trade promotion analysis
Here’s a simple way to conduct a trade promotion analysis in five steps:
Defining objectives for trade promotion analysis for your business begins with defining the objectives for the promotion. At the outset of the promotion, your business would have defined a desired outcome such as boosting volume, increasing market share or enhancing customer acquisition.
Once your objectives for the promotion are clear, you’ll need to collect relevant data points for analysis.
Next you’ll want to determine KPIs and calculate key metrics like incremental sales and ROI.
For a thorough analysis that can flesh out the full benefit of your investment, your next step would be to break down all those metrics by retailer, region and product to identify the most and least effective promotional tactics and partners.
The last step of your analysis should be to evaluate post-promotion impact to see if the promotion created an ongoing lift in your sales or just a short term spike.
Gathering and analyzing all these pieces is a big challenge if your business works manually in spreadsheets or uses disparate software systems.
How to optimize the effectiveness of your trade promotions
Thorough trade promotion analysis can help you refine and optimize your future trade spending and trade promotion strategies. Your goal should be to allocate future resources to the tactics that delivered the highest ROI in the promotions you have analyzed.
Trade promotion management (TPM) software can help you plan, execute and analyze your promotions, ensuring every dollar spent is invested wisely. It can help you weave past promotion data and insights into your promotion planning and execution for best results.
There's no lack of data, it's just mining it in a way that makes it efficient. The amount of visibility that the two solutions – TELUS Trade Promotion Management and TELUS Sales Enablement – provide has been an absolute game changer for us.
Angela George, Chief Director of Commercial Effectiveness, Kerry Foodservice
Pre-promotion
With a TPM solution, you can conduct thorough pre-promotion planning and set objectives for your promotions. It helps you analyze historical performance data, retailer profitability and consumer demand elasticity to determine your ideal trade spend and promotional mechanics. It features precise forecasting which can help you minimize out-of-stocks and excess inventory and predict KPIs like return on investment (ROI), incremental profit and retailer margin impact before your promotion ever leaves the planning stage.
In flight
During the promotion period, your success will hinge on good retail execution. Ensuring your partners hold up their end of the promotion plan can be tricky. Retail execution software can help you ensure things go smoothly.
Post-event
After the promotion, you’ll want to wrap up your efforts with thorough post-event analysis. This is challenging work that can be simplified by trade promotion optimization (TPO) software. It will help you isolate the impact of different promotional elements and identify which retailers and product lines generated the highest incremental profit for your business. Trade promotion optimization is cyclical – what you learn from post-event analysis should be incorporated into the planning phase of your next promotion so you can continuously refine your strategies, avoid wasteful spending and drive better ROI for your trade spend over time.
How TELUS TPM can boost trade promotion effectiveness and analysis
When you work manually in spreadsheets, or haphazardly across multiple tools, analyzing and optimizing your trade promotions can be incredibly challenging and time consuming. Thankfully, the right software solution can make it easy and accessible.
If you’re ready to boost your trade promotion effectiveness and analysis, TELUS Trade Promotion Management can help you transform your trade spend from a necessary major cost into a strategic growth driver. Beyond having the right tool for a tough job, you’ll also need strategic expertise and implementation support to get the most value from the software. That’s why the team at TELUS Consumer Goods is here to help your business get the measurable results you want from our tools.
Stop guessing, start analyzing
Enhance your trade promotions and strategy with key insights, precision planning and streamlined execution.
Key takeaways
You need to analyze past promotions to avoid wasting your trade spend on future promotions
In Canada, trade spend is a huge, often unprofitable, investment for CPG manufacturers
Trade promotion analysis enhances your business’s decision making
Critical KPIs for trade promotion analysis go beyond sales
The right technology can help you boost your trade promotion effectiveness
