By Alastair Steel, IRI
Despite increased investment in trade promotion by CPG manufacturers in recent years, IRI data demonstrates that companies are generally earning less for it. In fact, more than half of promotions being run today are yielding negative ROI. At the same time, retailers are facing significant margin pressure and need every trade dollar to work harder than before.
However, there is a silver lining in this seemingly despondent story: the economy is robust, and consumers are more willing to spend on items that meet their needs, creating opportunities for brands to use pricing levers more effectively.
In an ideal world, all trade spending would be aligned to the brand and customer strategies. Creating that alignment has been difficult in many companies since, historically, retailers and manufacturers have taken more of a rearview mirror approach – looking at what happened with the promotion yesterday instead of what’s going to happen with it tomorrow.
CPGs must be focused on having the right resources, people and technologies in place that help them look forward.
It’s not only important to find the customer insights, we have to share them – all across the organization – and find ways to automate the information so we can move more quickly wherever we can.
With trade spending, I believe the industry is at a critical point in which it needs to ensure that the dollars invested, either in Hi/Lo or everyday low price (EDLP), are generating maximum sales lift and overall profit to both the manufacturer and retailer. No matter where things evolve, the most valuable measure of success is the holistic profit created per dollar invested.
How can we get there and ensure that trade supports longer-term company growth?
First and foremost, CPGs must understand their customers and what they need and value.
Next, CPGs must know what their retailer partners care about – whether it’s profit, margin or something else – so that the manufacturer’s sales teams are aware and can more easily sell in their ideas to retailers.
Third, both manufacturers and retailers need to be able to activate quickly and collaboratively on customer information. The path to purchase continues to evolve, and how customers shop in the future will likely be different than today. Brand and retail marketers need to prepare now for those changes.
Finally, for trade investment to be more effective, companies need people who are not only experts in advanced analytics, but also in how to commercialize ideas and communicate them to internal sales teams as well as retailers.
Over the next few years, it is going to become even more important for brands to be able to bring together data and advanced analytics quickly and easily. While the power is now squarely in the hands of the consumer, who can easily shop around on their mobile for a better price, even while he/she is standing at a store shelf right in front of a product, integrated data, analytics and technology makes it easier for companies to meet consumers exactly where they are in their purchase decision.
Ultimately, companies that want to win will need to tap into artificial intelligence and machine learning processes to automate some of their work, especially analytical functions such as pricing and promotion decisions. This will save employees valuable time, allowing them to focus on developing and implementing the right strategies and making faster and better business decisions. The technology and solutions to power this reality already exist, and companies must tap into these capabilities to spark new growth.
Just think, the days of struggling with cumbersome spreadsheets and spending hours aligning thousands of rows of disparate data sets can finally be over.
To learn more about what IRI Strategic Analytics is doing to enable quicker and easier access to insights, including through automated data feeds, modeling engines and recommendations, email me at Alastair.Steel@IRIworldwide.com.