Trade Promotion Optimization

Trade Promotion Optimization for a grocery retailer

US’s biggest wholesale grocery chain revisits promotional strategy

Challenge:

  1. Most of the promotions were funded by vendors – so buyers had limited motivation to stop underperforming promotions
  2. Very few items promoted historically, very few variations in promotions explored
  3. Most promotions were repeated year over year – it was difficult to separate the effects of seasonality
  4. Limited focus on growing category through promotions
  5. No measurement of promotional ROI – since most funding was coming in from vendors

Solution:

  1. Establishing ROI as the most critical metric – Even though most promotions were vendor funded, the funds were still a “constrained” resource. We measured ROI of each offer to identify which offers were the best use of the funds, and remove offers which were generating lifts, but also were consuming a disproportionally high amount of funds in doing so
  2. Single source of truth for all historical promotions was created in our web-based solution. Every team got access to a common set of metrics. All promotions were evaluated using a common methodology
  3. Price and promo elasticity models were created: This allowed buyers to do scenario analysis for different promotional tactics
  4. Optimization algorithm: This module generated an automated trade marketing plan which adhered to various category and brand level restrictions
  5. Governance forums: Governance forums created to supplement the tool with relevant process to ensure tool adoption as well as adherence to recommendations. Specific dashboards created for higher management to ensure that they can monitor metrics on the tool.
  6. Rollout program: Classroom training sessions were conducted. Weekly tool usage was monitored. Users with low utilization were aided with additional one on one training sessions. The tool has built in tutorial videos which serve as an on-demand training mechanism
  7. Power users: Power users were identified early in the program to ensure category and brand level nuances were being addressed by the tool. These users were also early users of the tool who participated in beta testing. After launch these users were able to evangelize the tool among the other users in the organization
  8. Negotiation Playbooks: We assisted in creating negotiation playbooks for key discussions with the most important brands. For a successful rollout of the program it is extremely important that the changes are supported by the brands and they understand the data and reasoning behind proposed changes

Insights:

Promoted Product Group: When the performance of a promoted product group was broken down to an item level, we found that one or two “hero” products were carrying the performance of the entire product group. Depending on relative lifts the tool gave three types of recommendations:

  1. Trim the offer to only some items which show lifts and promote them more: Some items in promoted product groups do not see enough unit lifts
  2. Break the group into multiple groups: In cases where the hero item was “cannibalizing” the other items int the group, the group was broken in such a way that consumers did not have to choose between the hero or niche items. In this was margins on niche items were better preserved
  3. Keep the group as it: In certain situations, the gains arising from breaking or trimming the offer were not substantial. These product groups were preserved as is

Optimization goals: It is important to evaluate the pros and cons of multiple optimization goals before settling on the final answer. The chosen goal will dictate the answer. Some candidates are revenue, margin, promotional revenue, promotional margin, incremental revenue, incremental margin. Every organization has a different way of recording and reporting these metrics. And different business units may have different goals. It is important to choose an optimization objective which is aligned with business goals.

Shifting focus of buyers: Tradesmart generates a promotional plan. It does so in less than a minute. This means that a buyer can focus on understanding the output and reviewing strategy. The buyer has to spend significantly less time on making sense of metrics and designing a plan.

Eliminate toxic promotions.

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