Listen up, Promotion Agencies: It appears that a combination of circumstances is about to resuscitate consumer promotion as a major weapon in the differentiation arsenal. But to ensure that you get your fair share of the increased revenue pie, you may have to plan on doing a few things somewhat differently.
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First, a little background. In the 60's, consumer promotion used to be a big deal. There wasn't a lot of trade promotion so the typical advertising and promotion budget was generally split between DTC advertising and consumer promotion. With all that money available, consumer promotion could be structured to create huge impacts and move a ton of volume.
At P&G, where I worked in those days, we were able to launch promotions involving such things as live turkeys, AC powered running water fountains, live goldfish in bowls (a disaster!), winner-in-every-store mink stole contests, traveling circuses (the tigers died!) and Xmas doll offers featuring the hot doll of the day. In between, we had the usual run-of-the-mill cents off, on-pack steak knives and plastic rose promotions and, of course, millions of direct mail coupons.
P&G wasn't the only company to do these things. Several times a year, all major manufacturers would field blockbuster events that turned heads and changed behavior. Some of these promotions were so strong that retailers would seize the opportunity to create store-wide events. By using the occasion of the promotion to cross-promote with other brands, including their own labels, retailers were able to differentiate themselves from their competitors on a non-price basis – at least for the duration of the promotion period.
We paint this picture because we see a number of factors at work in the marketplace today that, when taken together, argue quite convincingly for a revival of this type of promotion approach. Specifically:
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- Consolidation – which makes possible an account-specific approach to the 15-20 retailers that now comprise 60%+ of most CPG companies' business.
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- Use of promotion to help retailers differentiate from one another and manufacturers to differentiate in the eyes of their key retailers
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- The retailer's desire for "Fewer, Bigger, Better" and "Retail-tainment."
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- Promotion as a strategic extension of "touchpoint marketing" -- maintaining the message through the store to the point of sale.
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- Targeted Messaging – the ineffectiveness and/or inefficiency of both broadcast advertising and trade promotion to reach specific audiences
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- Shopper Marketing – the use of promotion to help retailers capitalize on various shopper need states.
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If these are the forces driving the future of consumer promotion – for both manufacturers and retailers – then how do we stack up at present vs. meeting these needs?
Answer: Varies by company but, in general, not well.
Why? Any or all of the following:
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- Budgets not adequate to the task. While everybody talks about the need to develop "big, compelling and relevant" account-specific promotions, these are out of the question when one's consumer promotion budget is only 16% of the total Marketing budget – as the 2005 Cannondale Study on Trade Promotion reports that most are. At these spending levels, the most one can afford is those watered-down, mind-numbing sweepstakes, contests, mail-ins, FSI's, Catalinas and on-shelf coupons that the trade mags now like to refer to as "clutter."
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- Upside-down priorities. In contrast to consumer promotion – whose budgets have been cut from 24% to 16% of Marketing budgets since 1997 – Trade Promotion last year sopped up a whopping 58% of these budgets – an increase of 5 points since the 53% it commandeered in 1997. Now since trade promotion is contractually limited to feature and display, display only or the catch-all loophole of Temporary Price Reductions, its value as a differentiator is difficult to justify. Despite this, retailers addicted to these dollars cling to this budget with the tenacity of a ferret. On the one hand, they wail for differentiation but when it comes down to the nut-cracking decision of having to part with their own funds to do this, differentiation almost always takes a back seat to price promotion.
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- Brand-Marketing Cluelessness. Most CPG organizations are still siloed. This is now beginning to have a devastating impact on effectiveness because the needs of the market are rapidly outstripping the relevancy of this type of organization. Siloed brand groups do not have a sufficiently adequate grasp of what is going on at retail to properly assess priorities. Despite media fragmentation, population fragmentation, consolidation and the consequent growing influence of the retailer over the consumer’s decision-making process, some brand marketing departments even still believe that "Marketing stops at the door of the store." As a result, promotion in these companies continues to be relatively parochial – focused on brand consumer objectives vs. consumers as shoppers in specific retailers. The fact that consumer promotion – the one device that offers truly great opportunities to help differentiate in tangible and measurable ways – remains so sublimated in these companies is an unfortunate reflection of these old and out-of-touch attitudes.
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Happily, the indications are that all of this is about to change:
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- Leading companies like P&G, Unilever, Kimberly and Clorox have already reengineered their organizations to elevate Customer Marketing to the same level of importance that these companies traditionally ascribed to Consumer Marketing. If you are competing with one of these companies and still believe that "Marketing stops at the door of the store," you are in trouble -- and the worst part is that you may not even know it. Look for the rest of the industry to follow as this "discovery" starts to become more painful.
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- Trade Promotion appears to be declining in effectiveness rather than growing despite the spending increases over the past seven years. Cannondale reports that in 2004, the Holy Grail of trade promotion performance – Feature & Display – paid out only 49% of the time vs. 54% in 2003. Meanwhile, even leading retailers are beginning to recognize that dependence on manufacturer trade promotion allowances is no longer a sustainable business strategy: In a remarkable change of heart, Steve Burd, President and CEO of Safeway, has recently announced on several occasions that Safeway plans to wean itself from all allowances by the end of 2010 and move to a "pure" EDLP strategy. This follows retailers like Wegman's who made the change several years ago.
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- Finally, as consolidation continues and the need for non-price differentiation continues to intensify, CPG manufacturers will be forced to help fill this need with something more tangible than insights, no matter how incisive or electrifying these may be. Since trade promotion obviously has little utility in this equation, it seems inescapable that leading companies will revise the blockbuster consumer promotion as the ideal tool to accomplish this.
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Now if you are a consumer promotion agency, how do you prepare to accelerate and advantage these trends? Well, here are some words you may want to sprinkle liberally in every future new business presentation:
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- "Marketing through retailers"
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- "Insight-directed promotions"
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- "Specific retailer promotion and POS do's and don'ts"
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Don't have the capacity to execute against these concepts yet? Then either hire it or train it because it appears to be an investment that will soon separate the winners from the also-rans.
Christopher W. Hoyt is President of Hoyt & Company LLC, a packaged goods training and consulting organization based in Scottsdale, AZ.
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