There are numerous challenges when it comes to promotion management in Denmark and Sweden, even more so than in countries we typically compare ourselves to. This is primarily due to the sheer number of FMCG (Fast-Moving Consumer Goods) promotions and the overall level of fragmentation in various types and time periods in these two countries.
The quantity and extent of fragmentation, combined with relatively poor master data and at times, sloppy implementation, result in a complexity that is disproportionate to the growth and development opportunities normally associated with promotions in other industries. Despite this, promotions are a necessity for FMCG suppliers and retailers to maintain their business and market share.
In other words…
There is no way around promotions, even though the challenges are significant, and the business opportunities limited.
It is easy to understand that some FMCG suppliers may give up on the idea of promotion management from the start and end up only dealing with promotions and exclusively relating strategies and tactics to the number of promotions from the previous year. All else being equal, this becomes a defensive strategy that is destined for decline in the long run.
Business development and growth in the FMCG market in Denmark and Sweden cannot be achieved with a defensive promotion strategy, and certainly not with a passive tactic focused on what we did last year. Instead, business development and growth require a clear promotion strategy based on knowledge and a proactive tactic with close, knowledge-based discussions internally within the company and externally with retailers.
The knowledge needed can be built around three key issues.
How do we ensure that the resources, in terms of money and time, we allocate to promotion management are commensurate with the value derived from these efforts?
Do we have adequate tools to support an efficient process for defining, managing, and tracking promotions?
Constructively and critically, one should ask themselves the question: Is it easy, simple, and effective for us to develop promotion strategies for individual brands, handle the tactical challenges per chain, and simultaneously ensure proper follow-up on investments and finances?
If the answer is yes, we have the necessary tools, there’s no need for further consideration. However, if the answer is no, one must assess the consequences. What does it mean to our business in the short and long term? Can we accept not having sufficient control over our promotions?
2: Promotion Types and Promotion Pressure
The second issue pertains to promotion pressure and promotion types.
Price Elasticity: What does the price elasticity look like? How effective is a “hard price” versus a “soft price”? Should the promotional price be for single items, or should it involve multi-pricing? Is it a relatively new product, or has it been on
the market for a long time with relatively high awareness and a high trial rate? This, of course, depends on various factors such as purchase frequency, product shelf life, and the possibility of “pantry loading” among consumers.
- Sales Days: How many days should a brand and a SKU (Stock Keeping Unit) be on sale in a specific chain to achieve optimal sales relative to the chain’s sales potential?
- Optimal Distribution: What is the optimal distribution between regular sales and promotional sales?
These questions are essential to determine the most effective types of promotions and the appropriate level of promotion pressure to maximize sales and revenue.
3. Sufficient Control Over Your Promotions? What does that mean?
The third issue revolves around having control over promotions.
What does it mean to have sufficient control over your promotions? There’s no onesize-fits-all answer, but some general guidelines should be in place.
- Promotion Investment Effectiveness: How effective are your promotion investments, and how do you measure promotion effectiveness?
- Revenue Allocation: How is the revenue from brands and SKUs divided between your company and the retailer? In other words, how is the “cake” divided at the brand and SKU levels throughout the year and across promotions?
- Contributions to Growth: Which promotions genuinely contribute to the growth and development of brands and SKUs? Which promotions should you run more of, and which should you avoid?
Promotion effectiveness can be a complex metric. In many countries, there is a focus on what we call “promotion uplift.” However, for most brands and larger SKUs, this KPI doesn’t work well in Denmark and Sweden due to the complexity surrounding promotions. It rarely makes sense to talk about uplift.
Instead, it is more relevant to look at:
- Total Promotion Distribution (TPD): How well does the promotion penetrate the chain?
- Price Variation in the Chain: How does the promotion function locally?
- Total Profit and Loss (P&L) for the Chain: How does the entire business develop at the brand and large SKU levels in the individual chains compared to the “business” of that specific promotion?
For a deeper understanding of individual promotions, a traditional BCG (Boston Consulting Group) approach is recommended, dividing promotions into four segments:
- Promotions with good profitability and high sales in units, possibly compared to a budget or plan for that promotion.
- Promotions with good profitability but relatively low sales.
- Promotions with poor profitability but relatively high sales.
- Promotions with poor profitability and low sales.
By combining these four segments with TPD and price variation for each promotion, as well as ongoing tracking of promotion types and pressure, you can gain a good indication of the factors contributing to variance.
With this understanding, you can develop and implement an effective tactic that supports the strategy for each brand and product and ensures significantly higher promotion effectiveness over time.
Management and Objectives
At CatMan, we have tools and services that, in combination with the right data, can make the process and work of promotion optimization easier, simpler, and more effective. We can take care of all the mundane tasks, allowing the management and KAMs to have time to address both strategic and tactical challenges. And to make better decisions faster.