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Most leaders across the retail industry agree that in-store promotional offers aren't as effective as they could be. Many of the promotional features are predictable and undifferentiated, resulting in declining consumer loyalty and response, with everyone spending more to get less traffic. Shoppers are trained to buy on standard offers like "10 yogurt cups for $10" or "two ice cream pints for $6," eroding both margins and brand loyalty.
As consumer volume becomes ever more deal-driven, retailers are losing. The problem cuts across manufacturers as well: The average CPG manufacturer spends 17 percent of U.S. revenue on these trade promotions -- totaling $300 billion -- yet the average promotional event loses as much as 50 cents on the dollar.
It's incredible that despite the staggering sums of money involved, there's still very little understanding of what promotions consumers truly find compelling. Manufacturers and grocers alike are left reading the promotional "tea leaves" or recycling offers, despite a recognition of their declining effectiveness. The good news is that recent advances in data science, predictive analytics, machine learning and cloud technologies are enabling a radically different approach to promotions.
You Can't Measure What You Haven't Tried
To date, the sector has had little choice but to plan promotional calendars based on historical performance –- an approach that fails to take into account constantly changing consumer behavior. While it's critical to measure where the money was spent, a backwards-looking approach is inherently limited to what's been done in the past -- and is by no means reliable for measuring what you haven't yet tried.
Finding the most effective offers that engage consumers requires trying new things, but blindly trialing in-store promotions with new discount levels and structures, imagery and copy is risky stuff. Margin-stretched retailers often lack the resources to pre-test offers through in-store pilots, and the costs of rolling out in-store promotions that might fail to perform better than the known winners of the past could lead to losses that can't be recovered.
Thinking beyond price to uncover offers that consumers actually care about is critical to pulling out of the discount downward spiral. Promotions that incorporate meaningful social and emotional drivers have been shown to outperform traditional promotions at the same or lower discount level. Pinpointing the winners, however, requires deep collaboration and knowledge sharing between brand manufacturers and grocers.
How can grocers and manufacturers work together to shake up the status quo and retire "tired-and-true" offers before their expiration date?