NOV 3, 2016, GLOBAL PROMOTION OPTIMIZATION SUMMIT, DALLAS
CRACKING THE CODE ON BEST-‐IN-‐CLASS
TRADE PROMOTION
Rick HallGlobal Lead, Sales Effectiveness
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SIGNIFICANT INVESTMENTS ARE MADE Globally, over half a trillion $ is invested annually in trade promotion
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$500,000,000,000
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NIELSEN DATA SCIENCE LEADS THE INDUSTRY
NETWORKING
• Taps into new expertise/research to ensure we are on the cutting edge of key areas; research collaborations, industry task force involvement and sponsorship of science symposia
• Partners with industry organizations such as the Council for Research Excellence to exchange latest ideas and to solve mutual problems
• Works with research universities around the globe such as University of Chicago, Oxford University, National University of Singaporeand University of Mumbai
• Provides statistics forWhite Houseand U.S. Consumer Confidence Index
TOP TALENT
• Largest Global Data Science Organization withmore than 900 associates
• Embedded in every Solution
• Present in 100 countries
• More than 50 PhDs rivals top university mathematics departments
• Greatest Available Industry Data
• Leading experts in statistics, neuroscience and behavioral studies
• Leaders in Research: (2015 Activity)
• 12 science publications,
• 43 patent submissions &
• 50 professional conference presentations
• Nielsen Innovation is accelerating
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MEASURE & MODEL GLOBAL CONSUMER BEHAVIORAnalytics Platform – Big Data, Models, Access
Building a Common Data Environment – Granular DataOver 100 countries sales data loaded into the environmentStandardized data model for all countries and outletsCommon services for access and processing
Applying Data Sciences on Global ScalePromotional Benchmarks { US, CA, GB, FR, ES, IT, DE }Core Price & Promotion Models { US, CA, GB, FR, ES, IT, DE }Assortment models to derive incrementality *On-‐Shelf Availability *
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CONTINUOUS PRICE AND PROMOTION MODELING • Program started in 2012 – 30 countries by mid 2017• Today data set: US, Canada, France, Germany, UK, Italy and Spain• Core Price and Promotion Model added to benchmark
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331CPG CATEGORIES
4.9MMGTINs
93MM2015
EVENT WEEKS
810B2015
TOTAL RETAIL SALES
1.6BCOEFFICIENTSESTIMATED
β
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CORE PRICE AND PROMOTION MODELS ENABLEScenario planning, optimization and sales decompositions.
Components addressed by these models:
Acting on Self (Non-‐competitive):• Regular price elasticity (and thresholds)
• Promoted price elasticity (and thresholds)
• Promotion mechanic lift – Feature, Display, Special Pack
• Promotion offer types – e.g. Multi-‐buys
Acting on Others (Competitive):• Regular price cross-‐elasticity
• Promoted price cross-‐elasticity
• Promotion cross-‐impacts
• Distribution cross-‐impacts
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β
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WHAT HAVE WE LEARNED?
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WE ALL KNOW PROMOTIONS CAN BE INEFFICIENTThe majority of trade promotion events don’t break even
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of promotions globally
DON’T BREAK EVEN
59%
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9Nielsen Scantrack: xAOCYTD 2015 through 9/26/15 VS. 2012
more items are in distribution, but sales velocity is declining
cost of out-‐of-‐stocks: ~8% (in)efficiency
DEPARTMENT TRENDSTOP 5 DEPARTMENTS -‐ $ SALES YTD 2015
9%
14%
9%
3%
6%
-‐7% -‐8%
-‐6%
-‐1% -‐1%
GROCERY DAIRY HOUSEHOLD CARE FROZEN FOODS PERSONAL CARE
TDP
$ VELOCITY
CURRENT SALES PRACTICES LEAVE OPPORTUNITY
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1010
LARGE MANUFACTURERS AREN’T KEEPING UP
Source: Nielsen Retail Measurement Data, 4; CAGR May 2010-‐2015
vs
LARGE MANUFACTURERS
MIDDLE-‐MARKET MANUFACTURERS
28% flat or decliningGROWTH RATE 9%
42% flat or decliningGROWTH RATE 3%
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EVERY COUNTRY HAS ITS WINNERS AND LOSERS
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No Country is showing year over year improvements.
41%
46%
43%
45%
42%
57%
51%
52%
58%
60%
58%
61%
71%
72%
59%
54%
57%
55%
58%
43%
49%
48%
42%
40%
42%
39%
29%
28%
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
Italy
Germ
any
Canada
Spain
GBFrance
US
% don't break even % make money
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PROMOTIONAL FREQUENCY REMAINS STABLE OVER TIMENumber of event weeks vary by department but have not changed since last year.
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0%
2%
4%
6%
8%
10%
12%
14%
% OF WEEKS ON PROMOTION (US)
2014 2015
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DEPTH OF DISCOUNT HAS INCREASED SLIGHTLY
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0%
5%
10%
15%
20%
25%
30%
35%
AVERAGE DISCOUNT % (US)
2014 2015
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TRADE PROMOTIONS INCREASE WHILE ROI DECLINESPromotion Frequency and Trade ROI Trend – 2012-‐2015
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4.3%
4.4%
4.5%
4.6%
4.7%
4.8%
4.9%
5.0%
5.1%
$0.89
$0.90
$0.91
$0.92
$0.93
$0.94
$0.95
$0.96
$0.97
Prom
otion F
requ
ency
Manufacturer Trade Efficiency
Global Trend: US, Canada, and Top 5 EU Markets
Manufacturer Trade Efficiency Promotion Frequency Trade Efficiency Trend Promo Frequency Trend
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15Most Efficient Least Efficient
0 < Trade Efficiency < 100
CATEGORY SUCCESS VARIES SIGNIFICANTLYUnderstanding where your business falls is valuable context
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Efficiency
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
PHOTO
GRAP
HIC SU
PPLIES
BATH
TISSU
ECA
MPING
BOWLS
CAND
LES
TOAS
TER PA
STRY
EYE CA
REHO
USEH
OLD PLASTICS
SCRA
PBOOK AC
CESSOR
IES
BABY HBC
PIE FILLING
PASTA SA
UCE
PREPAR
ED BEA
NSKITCHE
N AC
CESSORY
WRITING
INSTRU
MEN
TSBA
KING
SUP
PLIES
HAIR SPRAY
AND
HAIR STYLING …
EXTRAC
TSFROZEN AP
PETIZER
JAM AND
JELLY AN
D PRESERVE
SMOTH
PREVE
NTAT
IVE
DOG CO
NTRO
LBA
BY FOOD
COOKIES
PAPER NA
PKIN
DIAR
RHEA
REM
EDY PRODU
CTBA
TTERIES
FROZEN GR
AVY AN
D SA
UCE
DIP FROZEN
MAY
ONN
AISE
INSECT REPELLENT
PRO
DUCT
BREA
DING
AND
STU
FFING
MEXICAN
SAU
CEVITA
MINS A
ND SUP
PLEM
ENTS
FROZEN FRUIT
DRIED FRUIT
TOMAT
O PASTE AND
SAU
CEKITCHE
N MAT
CHREFRIGERAT
ED PAS
TA AND
SAU
CEPO
WDE
RED INSTAN
T DR
INKS
FROZEN BA
GELS
REFRIGERAT
ED LIQUID TEA
DIP DA
IRY REFRIGERAT
EDREFRIGERAT
ED COND
IMEN
TSICE CREA
M CONE
SGR
AIN CA
KES
BAKED BREA
D
US Categories' % of Event Weeks Break Even
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SUCCESSFUL EVENTS ARE SPREAD ACROSS THE STOREPromotion effectiveness by department has remained stable over the past few years.
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0%
5%
10%
15%
20%
25%
30%
35%
40%
% OF WEEKS THAT MAKE MONEY (US)
2014 2015
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SO WHAT MAKES AN EFFECTIVE EVENT?
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NON-‐FOOD CATEGORIES TEND TO BE MORE SUCCESSFULFood product categories trail the rest of the store by 9 points or more.
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34%
31%
25%
Home Care Personal Care Food
% of Weeks Making Money by Product Category
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PROMOTIONAL SUPPORT SPANS PRODUCTSBoth Food and Non-‐Food products receive similar promotional support, despite the difference in promotional success
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19%
35%
27%
10%9%
17%
Home Care Personal Care Food
% of W
eeks with
Supp
ort
Promotional Support by Product Type
Feature Frequency Display Frequency
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PRODUCT GROUP TELLS US A BIT, BUT NOT ENOUGHWithin each group of categories there is still a wide variety of responses.
So, these findings are general trends not hard and fast rules.
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Rank Personal Care Home Care Food
1 Personal Care Appliance (47%)
Photographic Supplies (62%)
Canned Hams (60%)
2 Hair Coloring (46%)
Major Appliances (60%)
Coffee(48%)
…
n-‐1 Motion Sickness (17%)
Allergy Cold and Respiratory Product (13%)
Refrigerated Doughs and Wraps(9%)
n First Aid Cottons and Swabs (15%)
Gum with Premium (12% )
Ice (9%)
All (59%) (55%) (48%)
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PROMOTIONAL SUPPORT BRINGS MORE EFFICIENCYBest-‐in-‐class events used 22% more promotional support than the least efficient
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0
5
10
15
20
25
30
35
Tactic (any DP) Tactic (any FT)
Promotional Support Usage
Top 10% Events Bottom 10% Events
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BUT DISPLAY SUPPORT DOESN’T GUARANTEE SUCCESSSupport helps success, but other factors need to be taken into consideration
0%
10%
20%
30%
40%
50%
60%
70%
CANNED HAMS FROZEN SAUSAGE DEODORIZER AND FRESHENER AND
SCENT
CANNING SUPPLIES ORAL HYGIENE SHAVING NEEDS
Food Food Home Care Home Care Personal Care Personal Care
Event Success vs. Display Support
% Weeks Mfg Trade Efficiency > 1 % Weeks on Display
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FEATURE SUPPORT DOESN’T GUARANTEE SUCCESSMexican Food and Mexican Sauce receive similar feature support but Mexican Sauce is more likely to have a successful promotion
0%
10%
20%
30%
40%
50%
60%
MEXICAN FOOD MEXICAN SAUCE COMPUTER ACCESSORY CAT LITTER FOOT CARE MEDICATIONS
Food Food Home Care Home Care Personal Care Personal Care
Event Success vs. Feature Support
% Weeks Mfg Trade Efficiency > 1 % Weeks on Feature
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CATEGORIES WITH HIGHER AVERAGE PRICES TEND TO HAVE MORE SUCCESSFUL EVENTSThis pattern is consistent across product types
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0%
10%
20%
30%
40%
50%
60%
70%
-‐2 -‐1 0 1 2 3 4 5 6
% W
eeks M
fg Trade Efficiency >
1
Ln(Avg Unit Price)
Category Success by Average Unit Price
Food Home Care Personal Care
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FURTHER INVESTIGATIONS USING PRICE ELASTICITY
We’ve seen evidence that ROI and Elasticity are linked.
What are these elastic products?
This relationship proves some common intuitions
but also uncovers complex underlying relationships.
Scope/Definitions:
“Most Sensitive” = 10 most elastic product categories “Least Sensitive” = 10 least elastic product categories
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MOST ELASTIC CATEGORIES80% of the “Most Sensitive” categories are Food
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Although these categories are all price sensitive, there is still great variation in success rates for promotional events
Product Category Type of Product Price Sensitivity Rank % Successful Events Rank
FROZEN PIZZA CRUST Food 1 / 325 23 / 325
WATER CONDITIONERS Home Care 2 / 325 175 / 325
GUM Food 3 / 325 35 / 325
BUTTER Food 4 / 325 183 / 325
DRIED FRUIT Food 5 / 325 82 / 325
OVEN COOKING BAG Home Care 6 / 325 193 / 325
MEAT FROZEN Food 7 / 325 189 / 325
PREPARED STUFFING FRZ Food 8 / 325 161 / 325
BREAKFAST MEAT Food 9 / 325 252 / 325
ISOTONIC BEVERAGE Food 10 / 325 133 / 325
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LEAST ELASTIC CATEGORIES70% of the “Least Sensitive” categories are Home Care
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Although these categories are relatively inelastic, a few have higher than average rates of promotional success
Product Category Type of Product Price Sensitivity Rank % Successful Events Rank
AQUATIC SUPPLIES Home Care 325 / 325 17 / 325PET TREATMENTS EXTERNAL OTHER Home Care 324 / 325 271 / 325
PAIN RELIEVING DEVICE Personal Care 323 / 325 299 / 325
FISH FOOD Home Care 322 / 325 99 / 325
PET REPELLENT Home Care 321 / 325 322 / 325
PET GROOMING Home Care 320 / 325 214 / 325COFFEE MUGS AND FILTERS Home Care 319 / 325 244 / 325
FIRST AID OTHER Personal Care 318 / 325 105 / 325
HOUSE AND CARRIERS Home Care 317 / 325 280 / 325
EGG SUBSTITUTE Food 316 / 325 225 / 325
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8 OF TOP 10 MOST ELASTIC CATEGORIES ARE FOODHome care categories dominate the least sensitive group.
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1
87
22
0
2
4
6
8
10
12
Least Sensitive Most Sensitive
Number of Categories by Product Type
Food Home Care Personal Care
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THE RESULTS VARY WIDELY ACROSS COUNTRIESPricing dynamics within product type changes by country
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6 6 4 5 5 47 8 6 7
4
18
12 12
2
20
7
15
7
1715
1
9 8
18
1
11
2
12
1
Least Sensitive
Most Sensitive
Least Sensitive
Most Sensitive
Least Sensitive
Most Sensitive
Least Sensitive
Most Sensitive
Least Sensitive
Most Sensitive
DE ES FR GB IT
Category Counts By Product Type
Home Care Food Personal Care
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WHICH FACTORS POINT TO MORE EFFECTIVE EVENTS?To review what we have seen, here’s an Indicator Scorecard…..
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Potential Indicator Relationship Strength Relationship Direction
Product Class Strong Non-‐food is better.
Category Size Weak Positive
Average Price Strong Positive
Average Discount Weak Positive
Promotion Frequency Weak Positive
Quality Support? Strong With support is better.
Category Display Weeks Moderate Positive
Category Feature Weeks Moderate Positive
Promoted Price Elasticity Moderate Positive (magnitude)
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DON’T KNOW
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
Identify the largest pain points in your overall planning process and align solutions
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TAKE THERE STEPS TO IMPROVED PROFIT
Get Everyday Price Right: Price is the foundation of all promotional spend, and EDLP is the biggest category of promotional spending.
Understand the drivers of Promotional Profit – Discount, and Support activity vary in impact and cost. The right mix will drive major changes in profit.
Drive this into account planning and negotiation. Guidelines by category or channel miss the tremendous variation at the retail account.
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UNDERSTAND CORE PRICE IMPACTWhere will pricing changes have the greatest and least impact across my portfolio?
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PRICE IT RIGHT ACROSS ACCOUNTSUnderstand price behavior at the customer account.
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35
UNDERSTAND REGULAR AND PROMO BEHAVIORSet Product and Price Strategy Based on Behavior
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36
HOW WILL DIFFERENT DISCOUNTS IMPACT SALES?
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UNDERSTAND THRESHOLDS AND GAPS
Price Gaps
• Pricing thresholds represent psychological unwillingness to pay beyond certain price points
• Proper management of base price threshold can add 2-‐10% additional sales on the shelf
• Optimize gap vs competition and develop guidelines to stay competitive
Price Sensitivity
Thresholds
Stay Within Major Price Thresholds
Stay Competitive vs. Competition
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ANTICIPATE COMPETITIVE RESPONSENo price action is taken in isolation.
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UNDERSTAND DRIVERS OF PROFITABLE PROMOTION
• Promoted Elasticity
• Promoted Thresholds
• Frequency vs. Depth
• Real Impact of Bogos and Price Multiples
• Cannibalization of a promotion
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PROMOTION BENCHMARK ANALYSISA three-‐step approach to help you understand how well your promotions perform and differences in strategy vs. your competition
Benchmark Assessment
Benchmark your trade promotion performance against other categories and competitors within
your categories
Promotion Diagnostic Check
Measure the effectiveness of different trade
controllables such as promotion tactic and
discount depth
Drill Site Scorecard
Benchmark your promotion strategy vs. best-‐in-‐class
across channels, segments, depth, frequency and
timing
Outcome:Understand how your promotions compare to
best-‐in-‐class
Outcome:Identify the best-‐in-‐class
trade promotion strategies and tactics
Outcome:Prioritize focus areas to bring your promotions to
best-‐in-‐class levels
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UNDERSTAND THE IMPACT OF DISCOUNT DEPTH
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HOW DO PROMOTIONAL DRIVERS EFFECT KEY ITEMSWill this change my promotional mix?
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UNDERSTAND DRIVERS OF PROMOTION -‐ CANNIBALIZATION
Current Paradigm Purchase Behaviors
Brand Switch
Non – Promoted Volume
Subsidized Volume
IncrementalVolume
Non – Promoted Volume
Subsidized Volume
Store Switch
New Paradigm
MarketExpansion
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UNDERSTAND DRIVERS OF PROMOTION What is driving the results of my event?
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CREATE WIN-‐WIN SCENARIOS WITH RETAILERSUnderstand margin for both players.
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Manufacturer Benefit
Retailer Benefit
HIGHLOW
LOW
HIGH
PROMOTIONAL IMPACT FRAMEWORK
14%
26%
40%
19%Retailer Growth
Subsidization Manufacturer Growth
Mutual Growth
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UNDERSTAND DRIVERS OF PROFITABLE PROMOTIONS
Brand X
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REVENUE MANAGEMENT CYCLEDynamic solution with predictive analytics applied to latest sales data to support on-‐going pricing and promotion decisions, analysis and business planning process
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ANALYTICS
INTEGRATION
Strategic Planning
Tactical Planning
Promotion Management
RetailExecution
Post-‐EventAnalytics
INPUTS
PnP Modeling
LINKS TO
TPM Integration
S&OP Demand Planning