Capitalizing On the Wave of Uncertainty with Promotions
Several industries and their respective consumers have been greatly affected by the pandemic. The Nielsen IQ 2022 Consumer Outlook online survey reveals that 74% of global respondents believe that their priorities, and resulting shopping habits, have been impacted by the COVID-19 pandemic. Here’s an interesting read on the trends and patterns observed in consumer behavior during the pandemic.
In 2020 alone, the United States’ CPG industry made about $933 billion in sales through measured channels. However, large manufacturers lost sales to smaller niche players due to the supply chain constraints, channel shifts and category shifts. This just goes on to show that while brand loyalty as a concept is shifting due to the variables that are at play, while the industry continues to expand.
The question that large CPGs are trying to answer is how can we successfully tap into this growth?
Well, the answer may lay in an effective promotions strategy.
A little bit about Promotions
An important driver for sales and growth, investing in promotions has been a default choice especially for CPGs. Around 28-50% of retail sales volume across CPG categories in Europe is based on promotions.
About 28-50% of retail sales volume across categories in Europe comes through effective promotions.
While the suggestion to leverage promotions and ride the wave of dynamic consumer behavior holds, are legacy/traditional promotional planning strategies able to fully extract value?
Research by Strategy& revealed that 85% of CPG companies do not fully understand how to maximize their ROI from promotions and struggle with overspending and, despite the significant value being invested.
CPG companies have an innate requirement to derive holistic insights through harmonized data. But unless they deploy an analytics tool and gain a better understanding of changing consumer trends in real time, they are likely to face many challenges.
Take the case of an International Brewing Company that enjoyed a global presence and had a diverse product portfolio. The company invested a significant amount of its revenue towards promotions and wanted to understand the efficacy of their promotional mix.
Here are some challenges it faced with their existing framework.
Challenge #1: Fragmented Data and Difficulty in Measurement
While enjoying access to a diverse spectrum of data across various touchpoints, the data leveraged by the company was not unified. Here’s a great read on why integrated data and solutions are imperative to boosting growth.
Moreover, the company lacked the right tools to track and measure efficacy of its data which compromised the visibility of short-term and long-term impact of their promotions.
This resulted in being a roadblock to boost sales volume to reach the desired growth targets.
Challenge #2: Inability to Get Holistic and Granular Insights
The fundamental challenge of disharmonious/unharmonized data led to further challenges, including the inability to derive holistic insights. As a result, the company primarily relied on intuition in planning and optimizing promotional mix and spend.
Promotional solutions and activities curated on the basis of knowledge gained in silos often ended up being fragmented in nature, and the absence of a 360-degree approach to promotional planning was observed.
Challenge #3: The Risk of Failed Experiments
The company was spending close to 8% of revenue on promotions annually. Due to the lack of impact visibility, difficulty in measurement of success rate and inability to get insights, investments in promotions did not giving the expected returns. They were also unable to restructure their investments to align with product strategies.
The asymmetry in information led to investments in newer promotions and activities whose probability of success was unknown.
Navigating Challenges with AI
To achieve greater efficacy through promotions, the company decided to leverage an AI-Powered analytical tool to effectively navigate challenges.
Here’s how it helped:
Achieving Data Harmony and Measuring Impact
The key to effective promotion planning is making sure the data at hand is cohesive in nature and harmonized across diverse channels, retailers, and sources. Once this is achieved, an AI-Powered tool can help companies leverage data to measure multiple KPIs including volume impact, marginal contribution, new launch lift, shopper reach, share efficiency and seasonal lift effectively.
By leveraging an AI-Powered tool, the company did this with ease and also used the insights to align promotions with the product strategy.
Devising Detailed Promotional Strategies Rooted in Granular Insights
The need of the hour in companies like this one, is to facilitate a shift towards an insight-driven decision-making approach to optimize promotional mix, economize spending, and maximize returns.
The introduction of an AI-Powered tool helped the company leverage a diverse spectrum of attributes such as price effect, quantity effect, merchandise effect, mix effect, channel mix, placement mix, messaging, time-period, and discount buckets.
Due to the availability of cohesive, real-time insights about these attributes at hand, latency on promotion campaigns was reduced.
Running Simulations and Making Informed Choices
To hedge their losses and reduce the risk of failed experiments, companies should first simulate various scenarios and find the equilibrium when it came to investing in the right opportunities for promotions.
In the case of this company, simulating situations through the AI-Powered tool helped it predict the performance of planned promotions prior to launch to deduce potential gain and impact on existing promotions.
Quantifying the Impact Achieved
The company leveraged an AI-Powered tool, to transform its process of promotional planning.
Due to these transformations, quantitatively, a 1% additional lift in promotional effectiveness and an 18% decrease in promotional costs were observed. The annual impact from promotions increased by USD 300 million for the company.
An Overarching Case for AI
From the aforementioned case, it is easy to see that the integration of AI goes a long way in helping companies maximize impact from promotions.
Moreover, companies can also customize AI applications to reflect business intuition and context. It should be able to seamlessly integrate with existing business systems and workflows that enable effective management and quick response to promotion performance.
While broadening the lens of promotion planning to balance short term and long-term objectives, integrating AI/ML tools like Co.dx will help companies determine and signal the narrative they want to project. This can help managers align niche promotion activities with larger strategic goals of the organization.
Business leaders can effectively reduce the need for time spent on routine cognitive tasks and allow for time to be spent on strategizing, deliberating, and innovating. More people in the organization can be enabled to perform like experts, thus helping scale growth at all levels.
There is an innate need for CPGs to stay ahead of the curve to achieve desired outcomes via promotions.
The integration of AI-Powered products and tools can help achieve exactly that by solving key problems across multiple industries through low code, custom business applications such that every stakeholder has the needed intelligence to make quick and effective decisions that unlock real world value.
It is safe to say that the race to leverage promotions in the face of unpredictable consumer behavior has long begun and CPGs must leverage products like Co.dx to stay ahead of their competition.