Promotion Optimization: Can retailers and CPG companies afford to go without?
Companies the around the world spend over $1 trillion annually on trade promotions annually.
“Over the last 20 years, trade spend has grown from 13% of gross revenues to nearly 20%, on average, while margins have remained relatively flat. The trend can’t continue indefinitely.” – Ernst & Young
$1 trillion dollars, 20% of revenue…These are mind-boggling numbers when you consider that most of these companies don’t break even on their investment!
Why do companies spend so much on trade promotion?
Most companies still can’t validate such a huge expenditure because they can’t gain any transparency, yet promotion costs still remain the second highest expenditure after COGS. So why does everyone still pour money into trade promotion optimization?
- Competitors running similar promotion campaigns bring down market prices, forcing everyone to do
the same to stay competitive.
- Prices and promotions are still the leading drivers behind purchase decisions.
- Most importantly, companies lack the ability to measure promotion ROI and performances due to a lack of transparency.
Leveraging AI for trade promotion optimization
The first two reasons listed above won’t change – they’re dictated by the market. But AI has flipped around our inability to optimize the value of trade promotions.
With AI, companies are now able to:
- Discover which promotions offer the greatest ROI
- Track changes to promotion optimization campaigns and the impact of each change
- What would sales have been without any promotions
- Forecast and model-based on predictive analytics
I can’t think of any business that does not want to validate every expenditure and discover the value behind every investment. Don’t you want to prove the value of your promotion campaigns? Better yet, weaponize your organization with AI so you can Improve the value of your promotion campaigns! Discover which promotions are making money instead of losing it.
In a world driven by metrics and analytics – from traffic congestions and delayed ETAs on Google Maps to the home run and pitching analytics in baseball, companies are still operating with a black box when it comes to trade promotions. A trillion-dollar black box. Let’s shine a little light on it.
Want to discover how Neal Analytics leverages AI and advanced analytics for trade promotion optimization? Contact us to speak to one of our experts.
- Customer story: Barilla Group
- Are your promotions profitable? Neal’s data driven approach
- Neal Analytics: Trade Promotion Optimization solution
- McKinsey & Company: How analytics can drive growth in consumer packaged goods trade promotions
- Ernst & Young: Can smarter pricing and promotion reduce the emphasis on discounting?
This blog has been updated. Originally published 5/12/2018.