What are the best metrics to evaluate trade promotion effectiveness?

Unlock trade promotion magic: I navigated the metrics maze, discovering sales volume and revenue as my secret weapons. These metrics weren't just numbers; they were the heartbeat of success, transforming promotions into a revenue ballet. It's not about tracking; it's about orchestrating a symphony where every note is a step closer to triumph.

Key metrics to evaluate trade promotion effectiveness include sales uplift, return on investment (ROI), incremental volume, market share growth, and the impact on profit margins. Additionally, assessing customer loyalty, distribution gains, and promotional lift against benchmarks provides a comprehensive understanding of how promotions contribute to overall business objectives.

The effectiveness of trade promotions can be evaluated using several key metrics: Sales Volume and Revenue: This is the most basic and easy metric, indicating how many products and services were sold and the revenue generated during the promotion. Coca-Cola used eye-catching displays to drive in-store sales of Coke Zero. The displays were set up as inverted pyramids, with just a single can on the bottom. Creative and well-executed trade promotions can effectively boost brand visibility and sales.

Absolutely, assessing the success of trade promotions goes beyond the surface-level metrics of sales volume and revenue. While these are fundamental indicators, delving into metrics such as sales uplift, ROI, incremental volume, market share growth, and profit margins provides a more nuanced understanding of the promotion's impact.

As it says, these basic measures indicate if there's been an uplift from a promotion. Key to look at though is who has paid for the uplift (who paid for a price decrease etc). Ensure a product's (or service's) sales volume will increase if promoted, then look at the cash profit for each party on the promotion deal. Does it still make sense or would it need re-negotiating so you get your fair share of any additional profit?

When trying to get to Baselines (in Consumer Goods) remember to factor out the historic weekly seasonality and the distribution (stockists) changes first. Then you can use the price to volume relationships to project what sales at a No Promotion price would be. Contact me if more clarity is needed. Look also at the sales being incremental to the brand and to the category. To find SKUs/products that grow the category when promoted, find SKUs where the % volume increase when promoted is higher than the % category volume share increase. If so, the category has been grown. If not, it has stolen from others in the category. Great for a sell-in to a retailer as they want category growth.

An example that I have seen in my industry would be the following- You decide to run a promotional campaign offering discounted placement fees for IT positions to attract more clients in that sector. While the promotion successfully boosts the number of IT job placements, you notice a decrease in the demand for your Marketing job placements during the same period. Upon closer examination, you realize that some clients who were initially considering Marketing hires have shifted their focus to discounted IT placements due to the promotional offer. This means that the increase in IT placements, while positive, has come at the expense of potential Marketing placements.

Use predictive non-linear elasticity (from historic data) to calculate the volume uplift from the (proposed) activity. Don't use a single elasticity figure as it should follow a curve. With this you can accurately find the optimum pricing and terms to negotiate. Remember, profit margin % will likely go down but if volumes increase enough (elasticity is high enough) the total cash profit should increase for the activity. With this info, you can also ensure a win-win for brand and retailer by ensuring you do not contribute too much to the deal (versus the retailers contribution). Some products however will not be elastic enough to increase profits so promote the more elastic.

Remember, different promotion tactics can drive different volume uplifts and have different funding structures. With a TPR (Temp Reduced Price) the discount will be on all volume sold versus a Multi-Buy where you would only pay for the actual % of volume sold on the deal (not just a single purchase). Knowing this historic redemption level is ideal for future negotiations. An example across a few categories has shown a MB is c.8% lower volume uplift than a TPR. However you will have to pay the discount on all the volume of a TPR so it may not give the higher ROI.

Does your product grow the category when you promote? If your volume % increase is higher than your category volume share % increase when you promote, it has likely grown the total category volume.