NIELSEN TRADE PROMOTION LANDSCAPE ANALYSIS HOW DO YOUR PROMOTIONS COMPARE WITH BEST-IN-CLASS?

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1 NIELSEN TRADE PROMOTION LANDSCAPE ANALYSIS HOW DO YOUR PROMOTIONS COMPARE WITH BEST-IN-CLASS? Doug Bennett, Senior Vice President, Custom Analytics NOVEMBER 3, 2014, PROMOTION OPTIMIZATION INSTITUTE, DALLAS

2 NIELSEN IS CONDUCTING THE LARGEST PROMOTION BENCHMARK PROGRAM EVER 340 CATEGORIES 15 DEPARTMENTS 1MM UPCs 125MM EVENT WEEKS 1.6T US RETAIL SALES Across 150 banners in Food, Drug, Mass (excluding Walmart), Pet, Dollar and Convenience 2

3 NORMATIVE FRAMEWORK TO MEASURE RETURN Robust approach provides rich promotion benchmarks 1) Isolate Events Identify promotion weeks based depth of discount vs. everyday price 2) Build a Volume Calculation Framework Incremental Sales = Total Sales Baseline Incremental Cost = Direct Trade Expense + Incremental COGs Trade Return = Incremental Sales Incremental Cost 3) Derive Promotion Costs by Applying Industry Standards Manufacturers pay 80% of Discount Standard Cost for COGs, Feature & Display 4) Calculate Key Efficiency Metrics for Analysis Trade Efficiency = Trade Return / Dollar Invested Trade Responsiveness = Lift / Point of Discount % Sales on Trade 3

4 DRILLING THE ANALYSIS TO ACTIONABLE INSIGHTS Narrowed the analysis to eliminate some of the extreme skews 211 CATEGORIES 13 DEPARTMENTS 811K UPCs 92MM EVENT WEEKS 213B US RETAIL SALES This analysis: includes categories with sales over $100MM and promotional frequency of at least 5% excludes tobacco, alcohol, eggs, milk and bread examines all promotional events discounted at least 10% across 75 banners from Food, Drug and Mass (excluding Walmart) 4

5 WE ALL KNOW PROMOTIONS CAN BE INEFFICIENT The majority of trade promotion events don t break even 67% DON T BREAK EVEN 33% MAKE MONEY ELIMINATING 22% OF PROMOTIONS WOULD INCREASE SALES REVENUE 5

6 2012 1Q Q Q Q Q Q Q Q Q Q Q TRADE EFFICIENCY PROMOTION INEFFICIENCY IS GETTING WORSE Frequency vs. Return chicken or the egg? $ % $0.70 $ % 6.5% % OF WEEKS ON PROMOTION $ % Trade Normative Trade Efficiency ROI Frequency % of Weeks of on Promotion 6

7 PERSONAL 50% HOUSEHOLD CARE 56% GENERAL MERCHANDISE 60% FROZEN FOODS 66% OPPORTUNITIES EXIST ACROSS THE ENTIRE STORE Trade promotion effectiveness varies from 50% to 75% across departments % OF WEEKS THAT DON T BREAK EVEN 50-54% 55-59% 60-64% 65-69% 70-75% DELI 72% MEAT 62% DAIRY 75% PRODUCE 74% GROCERY 73% BEAUTY CARE 50% HEALTH 59% PET CARE 66% BAKERY 73% 7

8 % OF CATEGORY EVENTS CATEGORY VARIANCE IS SIGNIFICANT Understanding where your business falls is valuable context MOST EFFICIENT LEAST EFFICIENT 100% 90% Trade Efficiency < 0 80% 70% 60% 50% 0 < Trade Efficiency < % 30% 20% 10% Trade Efficiency >= 100 0% Most Efficient Least Efficient 8

9 CATEGORY SIZE ($ BILLIONS) CATEGORY SIZE DOESN'T DICTATE PERFORMANCE There is no relationship between category size and promotion efficiency $12 $10 $8 $6 $4 $2 $- 100% 90% 80% 70% 60% 50% 40% 30% 20% % OF CATEGORY EVENTS THAT DON T BREAK EVEN 9

10 CATEGORY HEALTH IS NOT DISCRIMINATING Growing and declining categories alike have tremendous variance in efficiency MOST EFFICIENT Category Trade Efficiency $2.00 Frozen Toaster Pastries Sugar $1.50 $0.50 Adult Incontinence Frozen Fruit Fresh Poultry Fresh Meat % CHANGE IN CATEGORY SALES $ % -10% 0% 10% 20% 30% 40% Pet Medicine Frozen Juice $- Yogurt Powdered Instant Drinks $(0.50) LEAST EFFICIENT $(1.00) DECREASING SALES INCREASING SALES 10

11 % OF EVENTS THAT DON T BREAK EVEN OVER-PROMOTING DILUTES EFFICIENCY Scrutinize purchase frequency, expandable consumption, and storability 70% 60% 50% 51% 45% 40% 36% 30% 30% 29% 28% 20% 10% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% % OF WEEKS ON PROMOTION 11

12 SELECTIVELY UTILIZE OF DEEP DISCOUNTS Greater than 50% of promotions on deep discount significantly degrades ROI Average Category Trade Efficiency 69.0% 74.3% 60.6% 53.2% 40.8% 37.0% 0 % 0-5% 5-25% 25-50% % 100% % OF TOTAL EVENTS PROMOTING DEEPER THAN 25% DEPTH OF DISCOUNT 12

13 CATEGORY TRADE EFFICIENCY BALANCE CHANNEL ALLOCATION WITH VOLUME Over-promoting in Food in light of channel migration is detrimental Drug PERCENT OF EVENTS THAT DON T BREAK EVEN Food Mass 61.7% 67.8% 55.5% 250% 200% 150% 100% 50% 0% 60% 65% 70% 75% 80% 85% 90% 95% 100% 105% -50% -100% % OF TOTAL EVENTS IN FOOD CHANNEL 13

14 POINT CHANGE IN BREAK EVEN WEEKS YOUR FATE IS NOT SEALED Categories improved their performance by applying optimal strategies Becoming Winners: Inefficient but Improving 10% Seizing Opportunity: High Efficiency and Improving 8% 6% Fresh Sausage Hot Cereal Breading & Stuffing Ice Cream 4% 2% Pie Filling Shampoo and Conditioner 100% Cream Cheese 90% Yogurt Facial Tissue 80% Soft Drinks 70% 0% -2% 60% Frozen Pizza 50% 40% Cat Litter Baby Formula 30% 20% Hair Coloring Coffee Prepared Beans -4% Missing Opportunity: Inefficient and Getting Worse -6% Frozen Toaster Pastries -8% Fabric Softener Off Course: Efficient but Getting Worse % OF WEEKS THAT DON T BREAK EVEN 14

15 HOW ARE CATEGORIES BECOMING WINNERS? Decreasing depth of discount while increasing frequency is working for some +3.6 pts pts. +1.8% CHANGE IN % OF DEEP DISCOUNT EVENTS CHANGE IN TRADE EFFICIENCY CHANGE IN # OF EVENTS -39.2% CHANGE IN SALES 15

16 HOW ARE CATEGORIES GETTING OFF TRACK? Trying to drive significant volume from promotions if you current events are efficient is not a great way to drive sales CHANGE IN TRADE EFFICIENCY +2.5 pts % +1.1% % -8.5 pts. CHANGE IN # OF EVENTS CHANGE IN % OF DEEP DISCOUNT EVENTS CHANGE IN SALES 16

17 THERE ARE WINNING AND LOSING EVENTS IN THE LEAST EFFICIENT CATEGORIES Missing Opportunity: Example Category Event Distribution by Event Efficiency Break Even 78% 15% 7% VALUE-DESTROYING Trade Efficiency <0 VALUE-DILUTING 0<= Trade Efficiency <100 VALUE-CREATING Trade Efficiency >=100 17

18 AND THE MOST EFFICIENT CATEGORIES All Manufacturers have opportunity to optimize their events Seizing Opportunity Example Category Event Distribution by Event Efficiency Break Even 5% 24% 71% VALUE-DESTROYING Trade Efficiency <0 VALUE-DILUTING 0<=Trade Efficiency<100 VALUE-CREATING Trade Efficiency>=100 18

19 BEST-IN-CLASS Driving winning promotions delivers significant returns for manufacturers Best-in-Class Hundreds of millions of dollars for the average manufacturer Bottom 20% BEST-IN-CLASS 5X MANUFACTURERS RECEIVE THE RETURN VS. THE LEAST EFFICIENT 19

20 Trade Efficiency BECOMING WINNERS: Historical execution need not dictate current or future plans 150% Grocery Channel Category A Performance 100% 50% High Frequency and Low Return 0% -50% 0% 10% 20% 30% 40% 50% 60% Time on Promotion Seg. A Seg. B Seg. C Seg. D Seg. E Seg. F Seg. G Seg. H Seg. I Seg. J Seg. K 20

21 REALLOCATE TRADE ACROSS SEGMENTS Manufacturer A and the Category Advisor have an opportunity to improve category Segment Category Trade Efficiency Mfr. A % of Promotions Mfr. B % of Promotions Best-in-Class % of Promotions Category % of Promotions A -16% 52.2% 30.7% 0.5% 33.6% B 125% 31.5% 29.9% 50.2% 28.2% C 58% 12.2% 19.1% 25.9% 15.5% D 44% 4.2% 16.4% 18.2% 14.7% E 72% 0.0% 3.8% 5.2% 8.0% OVER-PERFORMING ON-PAR UNDER-PERFORMING 21

22 MISSED OPPORTUNITY: Are you using the right tactic to communicate your offer to the consumer? 108% TRADE RETURN 48% TRADE RETURN 45% TRADE RETURN 52% TRADE RETURN 6% 7% 8% 8% TPR Only Feature Only Display Only Feature & Display Trade Return Change in Weeks of Support 22

23 CATEGORY TRADE EFFICIENCY SEIZING OPPORTUNITY: Is your plan aligning promotions to the right weeks to maximize effectiveness? Opportunity Gap 180% 80% 160% 140% 120% 100% 80% 60% 40% 20% 70% 60% 50% 40% 30% 20% 10% TIME ON PROMOTION 0% 0% Category Trade Efficienccy Manuf A % on Promotion Manuf B % on Promotion Manuf C % on Promotion 23

24 OFF COURSE: Are you deploying your promotions to the right channels with the greatest effectiveness? Drug Food Mass % of Sales 56% 25% 19% Over Promotion Over Promotion Ratio of Events That Don t Break Even to Share of Events

25 THIS IS A BIG CHALLENGE WHERE DO I START? Understand context and focus on biggest problems in overall process Benchmark your performance to the industry and your key competitors DON T KNOW Identify the largest pain points in your overall planning process and align solutions 25

26 LAGGING: USE PRINCIPLES AT ACCOUNT LEVEL Predictive analytics identify pricing and promotion variance at your customers Base and Promoted Price Elasticity by Account Lagging Event Type Lift by Account 26

27 MIDDLE: EVALUATE COMPETITIVE EFFECTS Managing gaps and thresholds in joint business plans drives win/win outcomes Localize price via market specific price thresholds and competitive gaps MIDDLE Simulate and define customer business plans for mutual wins 27

28 WINNING: CONTINUOUS IMPROVEMENT Isolate consumer response to drive greater insight to your overall promotion process Net Promotion Source of Volume Across Accounts and Products HIGH END Robust Post Promotion Analysis Linked to TPM 28