What a “10 for $10 Promo” Really Costs…
It’s way more than most Retailers or Vendors believe!
Delivering good deals and smart promotions are something that both retailers and producers can (…and should!) agree on – however, the reality is that rarely are the stars aligned that make a Win-Win-Win –meaning good for both of them and their shared consumers.
The smoke signals all say that smart retailers have found a way to use technology to reach their best shoppers with constant offers – and are, of course, funding it by having their vendors pay to constantly reward their best consumers – and that should give every brand management or retail merchandising team pause.
Let’s start by looking at the new flood of ‘digital incentives’ by major retailers – mobile, web, in-store, at home and, for a lot of shoppers, also at their work! Customized, Specialized and highly targeted —but they can also be very inefficient, very expensive and, perhaps, not in the best interests of either Retailers or Manufacturers.
Technology sometimes drives itself —the pull of the 'new' --- the gee-whiz factor-- but in this case, Retailers have partners — High-household penetration product lines with huge volumes and fast consumption rates. Think Coke, Campbell’s, Pampers –that sort of CPG. Now, there is compelling evidence that some of these promotions can be real motivators —but there is also data that shows we might be simply discounting volume sales to consumers who were going to shop ‘our stores’ and buy ‘our products’ regardless. So whether you are in Shopper Marketing at a Retailer or Sales Promotion at a Vendor, the Question is –“What’s right for you? For several of the companies I’ve worked with, that’s become a $1,000,000 -or more- Question.
How do you get to ‘What’s Right’? It starts with analysis of your recent promotions — cleaning the data —getting to the real figures of lift and share. Then drilling down on the promotions that actually worked for the product line and helped to build the category —not just reward the shopper who has you on their list every week anyway. Oh yes, and very important —getting the Buyers and the Regional Sales Managers or Brokers to share the important information –in a way that protects and benefits both –it can be done!!
Let’s start with a based-on real life situation – and I’ve admittedly set it up as a most heinous example, but it helps to make the point. We’ll start with a well-known national brand of soups –Progresso. Progresso is the ‘upscale’ canned soup brand –most times competing with products from Campbell’s –who, in this case is the BIG guy. I have no idea if either of these brands have recently participated in any of these promotions, but I know that the metrics work, so I’m going to borrow their brands for this illustration (NexxtLevel does no work for Progresso, Campbell’s or any retailer hosting these promotions).
Now, it happens that there are a whole lot of consumers who buy both Campbell’s and Progresso –but rarely is it a choice between the two that they’re making. Some of these shoppers use Campbell soups mainly for creating sauces and adding to recipes (i.e. Mushroom and Celery soups) –while the Progresso they purchase is destined to be eaten, can-by-can as a meal. So let’s say our sample consumers generally shop for canned soup in Safeway and when they pick up a couple of cans, it goes right into the Loyalty Card file and Safeway’s digital wonder “Just for U” promotion program. Now we wait a couple of weeks----
Sure enough, before these consumers went to the store the next time, they checked JFU and there was a coupon for Progresso. And one on their phone. On the list next store visit: Soup! Next time in, another couple of cans in their basket. By now, with Safeway’s algorithm’s, these folks are ‘heavy’ Progresso buyers. So what do they do? They go home and consume the soup in their normal behavior. They don’t purchase beyond the 4 or so cans purchased in the previous month. The Digital Promotion Wizard (this is not a real term…) goes nuts. Where did they go? Did they stop eating Progresso? Did they stop eating Soup?? It has to do something, so now every time one of them logs on, they have coupons for anything Soup or Soup-related in the entire store.
Meanwhile, the good folks at Safeway want to move some soup –a lot of soup. And they need some advertisable promotions so that Safeway shoppers will not be tempted to buy more stuff at Costco or TARGET. One of their bargain inducers is the 10 for $10. Ten great products for ten of your great dollars. Now, to Campbell’s –the low-cost producer of canned soup in the entire world – this is a no-brainer. They are also the Category Captain at Safeway and they know they can move a boatload of incremental soup –plus get people to try some other flavors – I mean, other than a 30-minute Chef, who needs 10 cans of condensed Mushroom Soup?
So the promo runs and is a success –as judged by both Campbell’s and Safeway. This leads the Promotion Wizard to think that if this is so good for the category, then maybe the #2 guy in the category ought to do it too. Several weeks later, the ‘digital’ tools have ID’d all the Soup Users and particularly, the heavy users. Their in-boxes, phones and even their mailboxes will communicate this offer. Now, just to put all the cards on the table, part of my day job is figuring out what promotions like this really cost the participants (in this case, Campbell’s and Safeway –who are both cutting margin to make the $1 per-can happen…) so I’m not making up the math –just shielding the innocent.
Then, a complicating factor – Campbell’s probably has about 30 SKU’s of soup that they can sell wholesale for 75¢ to Safeway and still make money. Progresso –not so much… In fact, most of their units would be sold thru this promotion at a loss – that’s right, for less than the cost-of-goods. (I know, some of you are saying, “Yeah, but the COGS are inflated –“ OK. Maybe. But you have to start somewhere….) Regardless, that’s how it will look on Progresso’s books. Three very disturbing things happen with this vehicle:
Progresso sells (at a loss…) a whole boatload of canned soup.
Safeway lets every Progresso consumer know what a smoking deal can be had, delivering the offer directly to us –the best consumer.
Progresso consumers, faced with having to purchase 10 to get the deal; proceed to cherry pick the entire line – Gluten Free, Heart Hearty, Decadent Dinner –basically all of the segments you would reason should never be ‘on sale’
Estimated $7mm loss for Progresso on sales (vs. EDP)
Best Progresso Consumers are effectively ‘out of the market’ for the next 6 months. Lesser Consumers may be out for a year.
Additional forecast loss (approx. $2mm) based on lost margin in future transactions that will not occur within normal re-purchase period.
Looked good to start with – and Progresso is not exactly a ‘small’ player –but it’s clear that what is a great promotion for a high-household penetration, quickly consumable, high margin product –is not necessarily going to serve you well. If you’re a Category Manager or a Product Manager of a line of consumables that move less than 12 -15 Units per year with your ‘heavy’ consumers, you should stay away from any promotion that requires or incents 6+ months of usage.
This would seem entirely rational, and yet, both Retailers and Manufacturers continue to fund and exploit these types of promotions. In the end, retail is where we all live and when it comes to the options you have with consumer-promotions, your choices are still limited —and maybe getting more limited – even as technology allows us to multiply our delivery methods. One thing for certain —they are getting more expensive and the additional downside is they may not be the type of promotions that build either Brand or Store profitability. If we can learn to share the data that tells the real story –one that includes the ‘consumer’, it will benefit Retailers and Manufacturers alike – and create the Win-Win-Win.
G. Steven Cleere is the Chief Brand Developer at NexxtLevel Marketing – consulting to Medium and Small Scale CPG firms that want to grow. www.nexxtlevelmarketing.com