Offers tend to repeat over time, get stale and end up in a sea of sameness across competitors."
While almost every aspect of selling groceries is undergoing accelerated change, there is one very important — and very expensive — aspect of the business that hasn’t changed much in years, arguably decades: Trade promotion spending.
Consumer packaged goods manufacturers are spending on average 7-10% of gross sales on trade promotions, according to Deloitte. But even as pandemic-weary shoppers rapidly change their behavior and their definitions of “value’ — and supply chain and other cost pressures are pushing brands to take price hikes — most trade promotion spending is still deployed by art, habit and custom rather than relevant, well-timed data analytics and insights around immediate and longer-term performance and impact.
The result? Offers tend to repeat over time, get stale and end up in a sea of sameness across competitors. Return on investment for brands — and a promotion’s performance in boosting sales, supporting shopper loyalty and promoting a retailer’s position in the market — remain unclear.
Few are happy with the traditional approach to trade spending and most agree that a whole lot of offers don’t create economic value. But until relatively recently, there hasn’t been a better way. As the industry continues to navigate the many consequences of COVID, brands and retailers desperately need one.
Pre-COVID, about $200 billion was deployed each year on trade promotions, a sum spread among featured product promotions, displays and temporary price reductions. Across food, beverage, and household and personal care categories, about 40% of grocery revenue was sold on promotion, with low and declining return on investment.
Now, as brands and retailers face scarce COVID-era promotional history and inflation — and consumers seek news around product innovations — a more surgical, more effective strategy and more sophisticated tools are crucial. It’s time for a solution that recognizes consumer behavior shifts weekly and the past is as reliable a guide as driving using the rearview mirror.
A better way would use real-time, AI-powered experiments to test consumer engagement with real offers. Based on results, brands would scale the better-performing offers across physical and digital stores through diligent execution to ensure winning offers are sold in effectively to buyers and adhere to retailer guidelines to ensure a win-win impact.
As brands rethink trade spending, there are four time-sensitive questions marketers should ask themselves:
1. Is my trade spending aligned with current at-home demand trends and evolving consumer behavior?
2. Are my offers demonstrating measurable return on investment against sales, profit and market share goals?
3. Is my supply chain stable enough — and predictable enough — to manage the volume change that my trade spending is expected to drive?
4. Am I being sufficiently nimble and surgical about everyday promotions and those in support of innovation and product news?
Change is hard, especially when it involves an approach to massive spending that hasn’t changed much in 30 years. But there hasn’t been a better time to try a better way to promote innovation and optimize trade marketing.