Advanced Analytics on Trade Promotions Can Deliver Big Wins for Grocery Retail

Despite the topsy-turvy last 18 months, nearly all grocery retailers posted big financial numbers, with significant gains in their digital operations. So, what’s the encore for the rest of year and into 2022? How will they meet and exceed their most recent numbers?  

For starters, there is tremendous upside in leveraging advanced analytics for trade promotions from the retailer’s perspective. Call it “trade promo inverse” or TPI. Trade promo is the 30+ year tradition of CPG’s allocating marketing spend to promote and sell their products in retailer’s physical and digital stores. Billions of dollars are spent each year on these promotions. In fact, many CPG’s spend 8% or more of top-line revenue to promote their product portfolio.

Retailers love Trade promo, because it’s hard currency they can depend on. TPI is applying rigorous analytics to go to the next level of understanding the exact spend and resulting change in sales and margin from each promotion by sponsoring CPG. This provides the retailer more insights and partner leverage to grow their bottom line. A sharp look at promotion efficacy should be top of mind with retailers. That’s the point of TPI: build rigorous processes to track the benefits of CPG-funded promotions from the retailer’s point of view. What are the overall economics of promotions from CPG “A” across Retailer “B”’s distribution by promo type, pricing approach, channel, season, etc.?

Why? 

Advanced analytics provide retailers promotion insights into the real value these programs accrete to their businesses. Knowledge is power in strengthening a retailers' position in contract negotiation or next-promotion discussion with a CPG. TPI advanced analytics offer retailers benefits like the ability to pivot and course correct faster and with more agility; improved segmentation of valued CPG partners; enhanced appreciation for promo innovation; updated watch-list of what NOT to do next week, month, year; increased knowledge of consumer behaviors; and improved leverage in contract negotiations.

Much can be learned with basic accountability for any promotional program. A good checklist includes:

• Who is responsible for delivery/setup of the promotion end-cap, front of store, etc.? 
• Was it set it up correctly and started on time?
• Were there out-of-stock situations? How many for how long? Did the CPG re-stock appropriately?
• Are tasks digitized to leverage the data for analytic purposes?

Basic descriptive analytics can be run to capture these metrics and be used across the entire set of stores, delivering valuable insights on patterns of behavior and anomalies. Start with a foundation of solid descriptive analytics to quantify the impact of trade promotions from the retailer’s point of view. Set up retail analytics for traditional pre versus post and test versus control (A/B testing) comparisons. Be ready to track change in sales and margins during promo period for promoted products versus non-promo periods, including year-over-year for seasonality, non-participating stores/markets and non-promoted competitor brands and private label products in same category.

For more advanced analyses – especially if this was a major promotion – look at broader impact on baskets and overall store sales. Also, identify elasticity/responsiveness of different promo types and levels such as BOGO or 50% off to determine optimal approach for maximizing margin dollars.

Tuning analytics to move into predictive and prescriptive (looking ahead and with more smarts on how to mitigate and/or capitalize from events) should be a real, tangible goal for TPI. Consider:

• What data sources are available? Which ones are not, but would be extremely helpful?
• Are you moving data around, e.g., from cloud to cloud, from on-premise to cloud, from data lake to other analytic platforms?
• If you are outsourcing analysis to a third party, are they delivering insights to you while the promo is still in-flight or after it ends?
• If you’re conducting the analysis yourself, which algorithmic functions are you leveraging? Time-Series, Path & Pattern, Geo-spatial, other 4-D functions? 
• Are your insights translating into tangible value that can be applied to the promo while in-flight or for the next month/season? 

The last 18 months have created more changes, confusion and new ways of working/new models (innovation) than possibly since the aftermath of WW II. Even with impressive new innovations, beating numbers from 2020’s sales performance is not going to be easy. Advanced analytics can be a weapon to uncover new insights that unlock tangible value.

TPI is ripe for analytic disruption, opening a treasure trove of insights beyond what retailers may have today. Don’t wait … get started with small projects to deliver some quick wins. Rinse and repeat as often as possible. Apply the insights and move to a broader set of objectives that delivers positive disruption to your business operation, including your CPG partners.

David King and Dave Spear are senior industry consultants, Retail/CPG & Hospitality for Teradata, a connected multi-cloud data platform provider relied upon for enterprise analytics.