BRAND SECRETS AND STRATEGIES

PODCAST #19

Hello and thank you for joining us today. This is the Brand Secrets and Strategies Podcast #19

Welcome to the Brand Secrets and Strategies podcast where the focus is on empowering brands and raising the bar.

I’m your host Dan Lohman. This weekly show is dedicated to getting your brand on the shelf and keeping it there.

Get ready to learn actionable insights and strategic solutions to grow your brand and save you valuable time and money.

LETS ROLL UP OUR SLEEVES AND GET STARTED!

Welcome

First, let me thank you listening. I really appreciate it. Please let me know what topics you would like covered, I am here to answer your questions and to provide you with a resources to help you grow your brand and get your products into the hands of more shoppers. There is a lot more business building content on my website. If you like the show, please leave a review on iTunes, subscribe, and share it with other brands and retailers looking to gain a competitive edge.

Today’s topic is promotions, the benefits and the pitfalls to avoid. I’ll focus on the issues plaguing brands in the beginning and follow up with the strategies brands can use to maximize their promotional effectiveness which translates to more loyal raving brand evangelists buying your products.

Promotions are the fuel for your brand. When managed correctly they are rocket fuel propelling your brand into the hands of consumers looking for the unique solutions your brand promises. When done wrong, they are the exact opposite.

Here’s a scary statistic you need to be aware of. 70-90% of all promotional spending is wasted. Let me repeat that, 70-90% of all promotional spending is wasted.

I’ve see multiple studies on this over my career the reinforce this. So what does this mean and how does it impact you.

First some terminology. Trade spending. Trade spending includes all of the costs associated with getting your product into the hands of shoppers. It includes all promotional fees, slotting, advertising, product demos and samples, etc. Trade spending it typically the single largest line item on any brands income statement. This is why this topic is so very important. This is also why this topic is complicated. It’s like juggling, there are many different balls in the air at all times. It’s no wonder there is so much inefficiency when it comes to trade spending.

The goal of every promotion is to introduce your product to new consumers - period. New customer acquisition is the lifeblood of every brand.

You’ve probably heard the term repeatedly discussed with your potential investors and and on shows like Shark Tank. Customer acquisition is one of the key metrics that every company should be focused on. Includes building awareness for your product online through social media and advertising and on retailers shelves. It also includes promotions at retail like temporary price reductions, incremental merchandising, retailer advertising, product demos, etc.

You've heard me say repeatedly that the objective for retailers is to satisfy their customers by having an assortment of products on their shelves that addresses the needs of everything on the consumer shopping list. Their goal is to give shoppers a good reason to do all their shopping in their store and avoid going to their competition. Sounds simple, right. Far from it. This is why promotions are such a complicated topic and why most promotional spending is wasted. They don’t achieve their targeted goal. Effective promotions require good coordination with retailers. One of the biggest mistakes every brand, and I do mean every brand, makes is not making this a top priority resulting in missed opportunities, out of stocks, and a variety of fumbles that do nothing to help your brand standout on a crowded shelf.

While working for Unilever and Kimberly-Clark years ago, I became an expert on this subject even developing some very forward thinking strategic tools for measuring the effectiveness of a promotion. This came about as a result of the frustrations I had around putting a lot of work and effort into a promotion only to see minimal, if any, real gains in sales performance. As a result, I made it my mission to better understand the key drivers in an effective promotion - something I could replicate and build on. That is what todays story is about.

Most brands are on “auto pilot” when it comes to promotions. The essentially repeat what they did the prior year adding no innovation or creativity. This is the way I was taught to manage promotions. Like most brands, I would schedule the promotion and effectively roll the dice. This included the promotions that retailers and distributors asked, sometimes demanding, my participation in. Promotions where not every store supported.

Have you ever been told by a retailer or distributor that you need to support their promotions where they do not guarantee any performance on their part? Frequently called “menu” programs. This is where a distributor or retailer requires brands to fund a promotion that they manage without you input, on top of you providing a heavy discounted on your product. You simple pay a fee to them which includes advertising in their “ROTO” (their in store add flyer) with a loose promise to promote your product. The problem is that the stores in their network are not required to support the promotion - most do not unless it includes a huge price reduction on a popular brand.

So how does this work? A brand pays a bunch of fees to run a promotion at a coop or group of stores, including a group of chain stores. The individual stores can pick and choose which promotions they what to honor - the brand is completely at their mercy. The individual stores then order in the product they feel they need at the discounted price and then mark the product down on their shelves. They can choose to sell the item at any price they choose. Sometimes they buy extra product that they can then sell at the every day non-discounted price.

This is the single worst and least effective kind of promotion. It provides little if any benefit to the brand. Remember the primary reason for a promotion? To encourage new customers to buy your product.

This practice sometimes leads to something called “diverting”. This is where a store buys a product at the discounted price and then sells it to other stores for a tidy profit. This hurts the brands ability to drive sales growth. This was a huge problem years ago with some retailers. I could do an entire episode on diverting.

To make matter worse, some distributors charge the brand for a report telling them which stores took the promotion and/or which stores the product is available it. I believe this is wrong on many levels. Distributors get paid on the amount of cases they sell. It does not make sense to me that they should also charge to tell a brand where their product is selling. If the brand the closes the distribution gaps with the report, the distributor benefits in increased sales. They effectively get paid twice.

The challenge is that some retailers, distributors, and agencies manage their distribution centers as profit centers. The added costs they charge brands make it harder for small brands to compete effectively. I remember working with a retailer that added 8% between their distribution center and their stores - it was a big chain. Then they demanded that the brands match the price of their competition - most said no. Brands can not simply absorb the cost of an inefficient supply system and remain competitive. Everything needs to be evaluated and included in the cost of the promotion and the brands need to be a part of the process - at every touchpoint.

This is a big reason for Walmart’s success, they are extremely efficient at reducing the cost of putting products on their shelves which allows them to sell items at a reduced price. Like them or not, they dramatically changed the way brands work with retailers. Their efficiencies forced brands to become more efficient as a result. Large mainstream retailers all strive to be more efficient in this area in an effort to remain relevant and competitive. Small retailers are at a significant competitive disadvantage - the reason brands and retailers need to work together to reduce the costs of putting products on their shelves.

The next promotional inefficiency is deductions. Deductions are where a distributor or retailer deducts their fees, discounts, and other charges from their payment of your invoice. Sounds pretty simple and straight forward but it’s typically very complicated. Some retailers deduct for just about everything. The challenge for brands is that it creates a paperwork nightmare - especially when you multiple it times multiple retailers and distributors. This is even more complicated when you are not dealing with the retailer directly.

While the practice sounds like a connivence for the brand, it can be just the opposite. Each promotional agreement between a distributor/retailer and a brand is a contract. I spent the majority of my time handling deductions early in my career, sometimes several full days every week. I had to research each deduction to make certain that the deduction was valid and all of the terms of the contract was honored. By that I mean making sure that the proper discounts were applied for each promotion as agreed upon in the contract.

I am not a lawyer and certainly don’t want to imply that I am providing any legal advice. The basic tenants are that the brand and the retailer agree in writing to the terms of the promotion. For example, the brand agrees to discount the promoted item 15¢ beginning on Wednesday the first of January through the January the 10th for every item purchased. The contract may also include a commitment for a 2nd page feature in the stores weekly circular plus an incremental end-cap display along and a temporary price reduction of 15¢ for every item shoppers purchase. The contracts typically allow the store to order in the additional product to support the promotion early, before the promotion begins.

This becomes an issue when the store orders in the product outside the discount window and/or when the store begins and ends the promotion on different dates. Some retailers are notorious for this, effectively taking the the discounts and allowances and not complying with the terms of their agreement with the brand. I remember being told to just ignore deductions of less that $5,000 because they “too small for me to invest time on.” Remember that I worked for a big manufacturer at the time and I was handling several deductions a week. Can you imagine being a small brand and ignoring even 10 deductions a week, on top of the man-hours required to do the the research along with the back-and-forth with the retailer/distributor. That would have a significant impact on your bottomline when you need every penny to help drive brand growth.

Brands need to clearly communicate their wants, needs, and expectations with the retailers. Everything needs to be clearly communicated so that everyone in writing, including the store personnel, is 100% on board with the promotion so they can execute flawlessly.

Another issue that impacts promotions is a lack of performance on the part of the store. This is frequently caused by a lack of clear communication from the brand or the store - you want incremental merchandising and they create a small floor stack somewhere in the back of the store. Brands need to clearly communicate with their retailer partner. Better yet, the brands need to take a leadership role here. I talk about this a lot in my content. Retailers can not possibly be experts in every category the sell and on every item on their shelves. It is imperative that brands help guide and support retailers to maximize each and every selling opportunity. Your customers want and need to find and buy your product. It’s your responsibility to make their being journey friendly and easy.

Another promotional blunder is scheduling a promotion at the same time of your competitors promotion. I’m shocked by how often I see this at every retailer. It’s not hard to figure out what your companions promotional calendar is. I keep saying that brands need to know their numbers and that brands need to also be an expert in all things their competition. Promoting at the same time as your completion encourages shoppers to shop the best deal and/or the biggest price discount. You can never effectively compete if you play the price game. Remember that!

The next promotional issue is out-of-stocks. Promoting your brand with an empty shelf is not only a huge waste of money and resources, it infuriates shoppers. Remember, it’s easier to keep a shopper happy than it is to re-acquire them over and over again. You never get a second chance to disappoint a shopper. There is no excuse for a brand to allow this to happen in my mind. Retailers do not want a lot of back-stock and excess inventory. Again, brands need to know their numbers. If you promote your product with a 5% price discount on an end-cap you need to know that you will achieve a 45% lift - and/or what every it amounts to in increased sales. Lift is the percent increase you can achieve during a promotion. It varies by retailer and by the type of promotion; TPR (temporary price reduction), feature, display, etc. Brands need to provide retailers with projected sales and recommended incremental inventory suggestions to avoid out-of-stocks. All brands fail to do this well. The brands who excel here win the favor of their retailer partners which can include incremental promotional opportunity. Put another way, retailers appreciate brands that help them grow sales and not anger their shoppers with out-of-stocks.

Now I want to switch gears and talk about something more controversial. It’s subsidizing your sales. Let me explain. Here is how this works with the mechanics behind this. Total sales are measured using dollars and/or units. Total sales does not take into account any promotional activity. While there are a lot of different measure I’ll cover future articles and podcasts. Base sales is the most important metric brands need to be focused on. It can be measured in dollars or units.

Base sales are what the retailer “takes to the bank”. It the real growth a brand contributes to the category and the retailer. The goal of every brand is to drive base sale growth. Simple put, base sales are the sales in the absence of any promotion. In other words, what would your sales be on a week you are not promoting your brand?

It does not take any creativity to “buy” shoppers by always promoting your products all the time. It does, however, require a lot of money. It is not a strategy that is sustainable for any brand - especially small brands. This is why you need to schedule promotions at different times of the year to drive excitement and, hopefully, new customer trials - converting new customers into happy shoppers.

Another issue is when promotions are too predictable. Some brands, for example, run the same promotion every month or quarter. The effectively train shoppers to hold of on making a purchase until the product is on sales. When the product is on sale, they purchase enough to hold them over until the next promotion. The best example of this is the supplement category in mainstream retail. Every other month some brand have a BOGO (buy one get one free) promotion. As a result, their sales spike every other month and the tank on non-promoted months.

Playing the price game like this only serves to dilute your brand. It weakens your brands ability to drive sales for the retailer and it lessens the impact of your promotions. This is where a brand become a commodity and looses their brand identity.

Now back to subsidized sales. Remember that the goal of every promotion is to encourage a new customer to try your product, right? Subsidizing your sales is when your shopper who already planed to buy your product purchases it when you promote it.

Your are probably asking yourself, isn’t that a good thing. Well, yes and no. Yes in that you want the shopper to choose your brand over the completion but No in that the purchase does not create a new shopper for your brand.

Some would argue that this is how you create a loyal shopper. I disagree. Let me explain. Nurturing, rewarding, and supporting your existing core customer base is critically important but there are better ways to reward a shopper to be loyal. For example, a shoppers buys 9 items and gets the 10th item for free. Some retailers do this with punch cards, etc. The idea is to make those shoppers feel special - part of your exclusive club where membership has it’s rewards. This is how you really drive loyalty!

I am not a big fan of retailer loyalty cards because I feel they are little more than coupon cards. Here’s why. I have a loyalty card for every airline that serves Colorado and a loyalty card for every retailer in my area. Shoppers use the card to take advantage of promotions as apposed to supporting a retailer for the service they offer. True loyalty is where a shopper consciously chooses to support a specific retailer because the provide the best service, have the best selection, have good prices, and they support the local community.

There are some additional promotional pitfalls but these are the most important. The bottom line is that you want to leverage your trade spending to grow your brand and get it into the hands of more shoppers. My mission is to help you do just that. Leverage the content and this podcast to maximize your trade spending efficiencies.

I mentioned that I have built a variety of promotional analysis tools for the brands I’ve worked with. When I started working in the industry we focused on making “our number” - the sales objectives we were given my management. It was far more important to deliver consistent sales growth that to focus on the costs behind those efforts. For example, I was provided with expensive gifts with brands logo to pass out to any retailer who purchased floor shippers at trade shows. It added a whole new layer to the pay for play conversation. I regularly entertained retailers at professional sporting events, nice dinners and lunches, etc. That was the way things were done back then.

I always thought much of his was a waste and made it my mission to better understand the different components of promotional strategies. My focus turned to contribution. Contribution is what the promotion delivers back to the brand, essentially measuring the impact and value of the promotion and quantifying it’s return on spending. As such, I developed several reporting tools that were still being used well after I left the company. They were in-depth tools that could even combine multiple promoted items over several categories within a retailer or market. The result of my work made it possible for me to help negotiate menu fees at several retailers. This was a big deal. We now had the ability to identify not only which promotions were effective but also which retailers promoted our brands effectively. Imagine being able to get the retailer to provide better terms and/or better execution of your promotions. This made it possible to drive more promotional dollars toward reaching the primary objective of getting our products into the hands of more new shoppers. This was one of the biggest accomplishes in my career. I have plans to share more about this in 2018.

Now lets pivot and talk about some strategies to help you reduce trade spending costs and help you accelerate your sales and profit growth.

The two primary components you need to focus on are reach and execution. Measuring the effectiveness of any promotion is contingent on these two metrics. Your reach is how many impressions your promotion makes along with the overall impact of the event. The exception includes how well the promotion is supported.

Reach is a key metric because it takes into consideration all of the components required to communicate your promotion to consumers looking to resolve the specific problem your solution solves; better nutrition, allergy free, authenticity, transparency, etc. Remember the philosophical question, if a tree falls in the words and no one is there, does it make a sound? A failure here is similar to shouting at the wind. You can have the very best promotion featuring the best solutions at the best prices but no one will buy it if they don’t know about it.

Think of a conductor of an symphony, everything must be in perfect harmony. All of your advertising and messaging needs to be perfectly aligned to maximize your voice - your message. They also need to timed to effect the largest number of consumers. Social media today allows brands to reach and communicate with more shoppers than at any other time. Use every tool at your disposal to maximize your promotional effectiveness. Leverage this with retailers to help them appreciate your commitment to driving sales in their stores and in your category. Savvy retailers will appreciate this and work hard to help you succeed. It’s a win-win. They help you drive traffic to your products and in turn you help bring new shopper into their stores.

Next is execution. This is where most brands struggle. Remember, I say it all the time. No retailer can be an expert in everything they sell and on every category. They need your help! They need to know who shops your category along with any complementary items they typically purchase when they shop for your brand. They also need to know what the estimated sales increase will be as a result of the promotion. Don’t assume anything. This is where brands need to know their numbers. If you sell your product at a 5% price reduction on an end-cap, what is the anticipated sell through? Communicate this clearly and help insure that the retailer has enough inventory on hand during the promotion to support the sale and avoid out-of-stocks. Category leaders also help the retailer plan for predicted sales increases in complementary categories.

Perhaps the most overlooked aspect of every promotion is the post-mortem. Every brand needs to work closely with their retailer partners to assess the impact of each promotion looking for ways to improve on future promotions. Knowing what did work and what did not work. Is the key for sustainable growth. Most brands tend to repeat prior promotions with little evolution and self reflection. Brands who commit to this exercise stand out in their category.

Remember, retailers want and need your help to drive sales and compete more effectively in their market. Savvy retailers will want to work closely with the brands that are able and most capable of helping them better serve their customers. This is how retailers and brands develop a loyal evangelistic consumer following - giving shoppers what they want in addition to great service, the quality products they are looking for, and reasonable prices.

Scorecarding is an invaluable part of every promotion. It helps you break the promotion into small manageable chunks, assign the right people to insure nothing is overlooked, and measure and evaluate the performance on the promotion. My retail scorecard is this weeks freebee. You can download it at BRANDSECRETSANDSTRATEGIS.com/session19 along with this weeks show notes or you can download it instantly by texting “retailscorecard” to 44222.

This episode's FREE downloadable guide

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Until next time, this is Dan Lohman with Brand Secrets and Strategies where the focus is on empowering brands and raising the bar.